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U.S. Expats - What To Be Aware Of Tax Wise

Posted: Wed Mar 13, 2019 4:33 am
by Rocco Sampler
I am thinking of relocating overseas. Other than the FBAR and continuing to pay taxes in the U.S. are there any other legal/financial aspects that I would need to be aware of that are not obvious? Thanks!

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Wed Mar 13, 2019 4:52 am
by Skiandswim
You might get better advice by providing more details on your potential countries and income approach. Expat relocations can be complex on many levels - cultural fit, language, adapting to change, taxes, visas, etc. For tax and legal issues people often need assistance from in country experts.

Some general resources are available from:
Deloitte has a series of country guides that cover business tax issues, but also includes personal tax structures. A good starting point to learn more. https://dits.deloitte.com/#TaxGuides

Grant Thornton (from 2015 but general overview): https://www.grantthornton.global/global ... july15.pdf

Enjoy the adventure :happy

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Wed Mar 13, 2019 7:23 am
by TedSwippet
Rocco Sampler wrote:
Wed Mar 13, 2019 4:33 am
I am thinking of relocating overseas. Other than the FBAR and continuing to pay taxes in the U.S. are there any other legal/financial aspects that I would need to be aware of that are not obvious?
This wiki page covers most of the US tax lowlights of being a US citizen abroad that arise from the US's unique citizenship-based taxation regime:

Taxation as a US person living abroad - Bogleheads

Pay special attention to the need to file duplicative FBAR and FATCA reports annually, the FEIE only covering earned income but not investment income, limits on foreign housing exclusion, nasty US PFIC tax issues if you use local or non-US domiciled funds or ETFs, possible inability to use local tax-preferential accounts, difficulty or inability to contribute to US IRAs, potential double tax if you run into things like the NIIT (the US does not allow any credit against that for foreign taxes paid), issues if your spouse is not a US citizen, and that your new country might not recognise IRAs and 401ks as locally tax-deferred but rather taxable annually as if unwrapped accounts.

In general, having US citizenship will tend to restrict the financial opportunities available to you in your new country. If the US has a tax treaty with wherever you are headed, spend some time digesting it to get a general view of how this tax stuff will slot together. Pay special attention to any 'saving clause' in the treaty -- this is where the US denies a lot of the usual treaty benefits to US citizens.

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Wed Mar 13, 2019 10:18 am
by Rocco Sampler
Thinking about Colombia. I am retired with a pension, therefore not earning income there unless wife, who is has dual citizenship, decides to work. I will have to play Colombian income tax if over some threshold on my pension and any income from wife. All investments will remain in the U.S. I know Vanguard does not allow purchases of investments from expats, but Schwab does allow ETF purchases, which I might use to rebalance. I don't plan on keeping much money in the bank there - just transferring in periodic sums under $10k to live on to avoid FBAR paperwork. My U.S. health insurance covers me there. I speak fluent Spanish and will have a visa for "pensioners." I have a lot of experience there already, know the culture and have friends, family.

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Wed Mar 13, 2019 10:52 am
by THY4373
Rocco Sampler wrote:
Wed Mar 13, 2019 10:18 am
I don't plan on keeping much money in the bank there - just transferring in periodic sums under $10k to live on to avoid FBAR paperwork.
Structuring transactions to avoid reporting requirements is generally a bad idea.

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Wed Mar 13, 2019 11:45 am
by Starper
A FBAR form is filled out online and takes a few minutes. No need to kerp deposit amount low to avoid filling it out.

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Thu Mar 14, 2019 5:40 am
by Rocco Sampler
THY4373 wrote:
Wed Mar 13, 2019 10:52 am
Rocco Sampler wrote:
Wed Mar 13, 2019 10:18 am
I don't plan on keeping much money in the bank there - just transferring in periodic sums under $10k to live on to avoid FBAR paperwork.
Structuring transactions to avoid reporting requirements is generally a bad idea.
I won't need much to live on. Avoiding transactions that are unnecessary when acting legally and ethically are always a good idea.

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Thu Mar 14, 2019 6:07 am
by typical.investor
Will you be paying to carry Medicare part B?

Would there be a penalty if you don’t and return to the US, or are you excluded?

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Thu Mar 14, 2019 9:23 am
by Rocco Sampler
typical.investor wrote:
Thu Mar 14, 2019 6:07 am
Will you be paying to carry Medicare part B?

Would there be a penalty if you don’t and return to the US, or are you excluded?
As I understand it, I would have to pay for it or accept the penalty upon return. Thanks for bringing that up.

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Thu Mar 14, 2019 11:52 am
by kaeltor
TedSwippet wrote:
Wed Mar 13, 2019 7:23 am
Rocco Sampler wrote:
Wed Mar 13, 2019 4:33 am
I am thinking of relocating overseas. Other than the FBAR and continuing to pay taxes in the U.S. are there any other legal/financial aspects that I would need to be aware of that are not obvious?
This wiki page covers most of the US tax lowlights of being a US citizen abroad that arise from the US's unique citizenship-based taxation regime:

Taxation as a US person living abroad - Bogleheads

Pay special attention to the need to file duplicative FBAR and FATCA reports annually, the FEIE only covering earned income but not investment income, limits on foreign housing exclusion, nasty US PFIC tax issues if you use local or non-US domiciled funds or ETFs, possible inability to use local tax-preferential accounts, difficulty or inability to contribute to US IRAs, potential double tax if you run into things like the NIIT (the US does not allow any credit against that for foreign taxes paid), issues if your spouse is not a US citizen, and that your new country might not recognise IRAs and 401ks as locally tax-deferred but rather taxable annually as if unwrapped accounts.

In general, having US citizenship will tend to restrict the financial opportunities available to you in your new country. If the US has a tax treaty with wherever you are headed, spend some time digesting it to get a general view of how this tax stuff will slot together. Pay special attention to any 'saving clause' in the treaty -- this is where the US denies a lot of the usual treaty benefits to US citizens.
This is absolutely insane as someone who is a natural citizen of another country but has earned U.S. citizenship.

I am absolutely going back to live in my home country at some point, this tax stuff is a complete burden.

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Thu Mar 14, 2019 12:13 pm
by niceguy7376
kaeltor wrote:
Thu Mar 14, 2019 11:52 am
This is absolutely insane as someone who is a natural citizen of another country but has earned U.S. citizenship.
I am absolutely going back to live in my home country at some point, this tax stuff is a complete burden.
Unfortunately, when you rescind the US citizenship, you still might be responsible for exit tax.

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Thu Mar 14, 2019 12:52 pm
by jminv
Rocco Sampler wrote:
Thu Mar 14, 2019 5:40 am
THY4373 wrote:
Wed Mar 13, 2019 10:52 am
Rocco Sampler wrote:
Wed Mar 13, 2019 10:18 am
I don't plan on keeping much money in the bank there - just transferring in periodic sums under $10k to live on to avoid FBAR paperwork.
Structuring transactions to avoid reporting requirements is generally a bad idea.
I won't need much to live on. Avoiding transactions that are unnecessary when acting legally and ethically are always a good idea.
You can have your point of view, but the United States government has another when it comes to structuring transactions. The government doesn’t care about your views on the matter. Your us financial institution will report you to the government if they flag your transactions. Don’t give them reason to. Pick a company with a lot of experience dealing with expats (Schwab) to lower risk of being flagged for suspicious transactions.

I use transferwise to pay my rent every month directly to my landlord. It’s flagged as rent and it’s the same amount in foreign currency monthly. Just conduct your financial affairs intelligently and don’t try sending your local bank account 9900/quarter or whatever to avoid reporting requirements.

I use an American credit card with no transaction fees and cash back for as many purchases as possible. I keep my local bank account below the reporting threshold and only use it for what I can’t pay out of my American financial institution. I have a us address for my American accounts (family member).

It can be problematic opening foreign bank accounts as an American. Where I live it means going with primarily one bank that is willing to serve Americans but it took me a lot of time. I periodically need to update with them to avoid account closure. Some countries have a basic bank account as a right of residents so if you’re rejected see if this applies and what the process is.

You will need to be able to do two factor authentication for many American financial services now. Schwab will let you use a foreign phone number for this. Others will not and you need a virtual number. Can use google voice number as an option, there are others.

You will need a vpn that allows you to pretend you are in the USA for many us based websites. It varies but governmental sites (tax assessor), a lot of random sites, news sites, Home Depot recently, etc etc. You will also need one for using amazon fire tv overseas to watch us programming.

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Thu Mar 14, 2019 12:53 pm
by whodidntante
niceguy7376 wrote:
Thu Mar 14, 2019 12:13 pm
kaeltor wrote:
Thu Mar 14, 2019 11:52 am
This is absolutely insane as someone who is a natural citizen of another country but has earned U.S. citizenship.
I am absolutely going back to live in my home country at some point, this tax stuff is a complete burden.
Unfortunately, when you rescind the US citizenship, you still might be responsible for exit tax.
Yep. My understanding is that you are taxed as though you died but you are allowed to keep living if you want.

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Thu Mar 14, 2019 12:58 pm
by Godot
Yep. My understanding is that you are taxed as though you died but you are allowed to keep living if you want.
Good to have that option.

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Thu Mar 14, 2019 1:44 pm
by TedSwippet
whodidntante wrote:
Thu Mar 14, 2019 12:53 pm
niceguy7376 wrote:
Thu Mar 14, 2019 12:13 pm
Unfortunately, when you rescind the US citizenship, you still might be responsible for exit tax.
Yep. My understanding is that you are taxed as though you died but you are allowed to keep living if you want.
Not quite that simple, and unfortunately can be quite a bit more harsh.

It operates as if you liquidated all your assets on the day before expatriation. That means paying immediate capital gains tax on unrealised capital gains (including capital gains that might otherwise never be realised or taxable, for example in case of a primary residence or on death) and with a $600k exemption rather than the current $11MM for the estate tax, and immediate income tax at current year marginal rate on all unwithdrawn retirement savings plans, unexercised stock options, and so on, with no exemption or allowance. Both of these raise a distinct spectre of double-tax when assets are eventually sold and retirement plans withdrawn.

Finally, tax at the highest estate tax rate in existence on gifts or bequests from the expatriate to US citizens or residents, payable by the recipient.

More here: Expatriation tax - Wikipedia

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Thu Mar 14, 2019 2:50 pm
by Rocco Sampler
Very good advice and information from all. Thanks! I did live in another country in the '90's for a couple of years for a temporary job and was being paid in dollars deposited into my American bank. Easy to get a bank account there and write checks that were converted to local currency. I was just renting, kept a few thousand in a foreign account and used my America CC and ATM. I'm sure things were easier then so it's good to get an update from you folks. I think my situation is fairly straightforward as far as probably no earned income and not adding to investments. I did submit an FBAR once for an account my wife had - don't desire to do it if I don't have to, but will to keep things right. I certainly want to avoid any unpleasantries with the U.S. Good info as far as Schwab, VPN, etc. too.

I have no plans of renouncing my citizenship, but always wondered how it worked tax-wise. Interesting.

Regards,
Rocco

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Thu Mar 21, 2019 11:58 am
by kaeltor
niceguy7376 wrote:
Thu Mar 14, 2019 12:13 pm
kaeltor wrote:
Thu Mar 14, 2019 11:52 am
This is absolutely insane as someone who is a natural citizen of another country but has earned U.S. citizenship.
I am absolutely going back to live in my home country at some point, this tax stuff is a complete burden.
Unfortunately, when you rescind the US citizenship, you still might be responsible for exit tax.
A last "F-U" from the U.S. pretty much.

Re: U.S. Expats - What To Be Aware Of Tax Wise

Posted: Thu Mar 21, 2019 2:17 pm
by Username1
kaeltor wrote:
Thu Mar 21, 2019 11:58 am
niceguy7376 wrote:
Thu Mar 14, 2019 12:13 pm
kaeltor wrote:
Thu Mar 14, 2019 11:52 am
This is absolutely insane as someone who is a natural citizen of another country but has earned U.S. citizenship.
I am absolutely going back to live in my home country at some point, this tax stuff is a complete burden.
Unfortunately, when you rescind the US citizenship, you still might be responsible for exit tax.
A last "F-U" from the U.S. pretty much.
Former US Expat here. It's because the US is a superpower; so, you benefit from the US Government even if you're not in the US. Also, you probably obtain your income or wealth due to the US financial market, which accounts for 25% of the world's GDP. The US's large market is due to the US being a superpower.

The good news is that the first $112,000 in income is tax exempt (see https://www.irs.gov/individuals/interna ... -exclusion )! Also, you should move to state with no income tax before you expatriate, such as SD, TX, or FL. Then you won't have to pay the 5% state income tax or whatever.

You have to file for FEIE with your 1040. If you don't file for the exemption, you'll have to pay the taxes. So, if you don't know, you're at a loss. If you do know, good for you!