3 ms·

While it is true, isn't only after the first 100K USD or so that you have to pay taxes on??

by netrap 8y ago

CydeWeys 8y ago
Source?
tristor 8y ago
Not exactly. The FEIE limit is $100,800 USD, but you still MUST file a tax return every year, no matter what, and no matter where you reside. It is extremely expensive to file that return and you pretty much must retain an accountant who understands the tax laws of the US for non-residents and your resident country's tax laws. FEIE only covers situations in which you can prove non-residence, and only makes you whole for the amount of difference between the tax you would have paid in the US and the tax you paid in your resident country for that time period. If you make over $100,800 USD, you will need to pay taxes in full to the US in the brackets above that amount, regardless of FEIE. If you make say $135k/yr as a senior engineer for a US company, you will actually pay so much in taxes abroad and to the US, even with FEIE, that it's better to ask for a salary reduction below the $100,800 USD FEIE limit.
- muzz 8y ago
  If you are working in a high-tax country, like any of the European ones, aren't you paying so much tax to that country that your US tax liability is essentially zero? Due to credit for foreign income taxes paid, separate from FEIE? I.e. if an American moved to Netherlands and made 100k of which 40k went to Dutch taxes, wouldn't they effectively pay $0 in US because the credit for 40k paid to the foreign govt would wipe out the US tax liability (which would have been about $20k depending on status, deductions, etc)
  - tristor 8y ago
    Yes and no. It's actually really complicated. For instance, you can be taxed on earnings against foreign-owned assets, such as stocks, bonds, ETFs, futures, commodities, and ownership in investment real property, which is not excluded from taxation in FEIE. FEIE only affects income tax, not capital gains tax or other forms of taxation. It also does not exempt you from FICA (Medicare, Social Security, et al). So you're working for a US tech company that issued you RSUs and options in the US market, and you also bought an apartment in your foreign country of residence, and you also happened to buy some ETFs once on the London Stock Exchange. Good luck with filing without an accountant or being audited :) Also, have fun ever selling foreign property. Being subject to expatriated taxes means you are automatically ineligible for real estate capital gains exemption. Decide to move to a better apartment and sell your old one in a foreign country? Welp, now you owe capital gains on the sale with no exemptions allowed, even though the transaction had nothing to do with the US in any way. [2] In addition, if you earned over the FEIE limitation, you'd be fully taxed in that bracket by the US AND by your resident country. Some EU member nations have special taxation rules especially for US expats (Germany for instance) thanks to a cozy relationship and a huge number of US foreign nationals living there (civilian employees of the US military, for instance). In general though, you'd be strictly double-taxed on income. You also get no credit against paying VAT, which is a significant tax in the EU. Trust me, I am speaking from experience here, there is nothing at all simple about paying US taxes while living abroad or even filing an accurate return. You're also at higher audit risk. You basically /have/ to hire an expensive accountant (or be lucky enough that the US government supplies/augments one if you're a government employee). Also if you own real property in the United States, you are automatically excluded from being eligible for FEIE. I owned my home in the US while I was abroad, which meant I was never entitled to FEIE unless I transferred the property into ownership of a trust (like a REIT) or sold it. If I moved it into a trust, I'd have to pay taxes off any gains made and those would not be excluded and do not have to be fully realized to be taxable in some scenarios. Taxes are really really really complicated in general, and US taxes are bonkers stupid complicated. And then there's FATCA, so good luck even trying to get away not filing a return or dealing with this situation [1]. Basically, the short answer is if you are a US citizen and you move abroad, be ready to get shafted hard by the IRS and also pay extensively for the privilege of telling them how hard to shaft you. [1]: https://www.usexpattaxhelp.com/us-american-expats-what-%20is-fatca.php https://www.usexpattaxhelp.com/us-american-expats-what-%20is... [2]: https://www.nerdwallet.com/blog/taxes/selling-home-capital-gains-tax/ https://www.nerdwallet.com/blog/taxes/selling-home-capital-g... P.S.: Sorry about all the edits in a short amount of time. I kept finding more things I thought needed to be said. I'll leave this response alone now.
    - muzz 8y ago
      Thanks for the response. I was reading this in the interim: https://tax.kpmg.us/content/dam/tax/en/pdfs/2019/2019-us-taxation-of-americans-abroad.pdf https://tax.kpmg.us/content/dam/tax/en/pdfs/2019/2019-us-tax... The answer to my question appears to be on the bottom of page 8, which paraphrased is that FEIE and Foreign Income Tax Credit are exclusive, so high income earners may wish to take the latter rather than the former (and the latter is what prevents double-taxation).
      - tristor 8y ago
        That document is pretty good and relatively thorough. Interestingly enough, when I was working for a US company abroad, they used KPMG Global Mobility Services to help me with my taxes and relocation and all of that. FEIE And Foreign Income Tax Credit are for different situations. In my situation initially, I would have taken FITC to try to avoid double taxation, but in my later situation I wanted to take FEIE but was ineligible and was also ineligible for FITC. Deciding which to take can actually be a complicated question. I don't want to go into further detail on my situation, but I will say that things are greatly simplified if you go all-in on being an expat, without retaining any property in the US and you intend to limit travel outside the country you expatriated to.
    - MichaelGlass 8y ago
      I don't think it's so terrible. E.g. if you buy real estate and live in it, then you can deduct 250K gains for a single person or 500K gains for a couple. To that end, you'll only be paying capital gains if you did very well.
      - tristor 8y ago
        That’s only true for property in the US as a US resident in that property. Read the last bullet of my link. Expatriate taxpayers are ineligible for real estate capital gains exemptions.
  - MichaelGlass 8y ago
    Yes and no, but in the simple case: that's right, in a higher-than-us-tax country, you will likely only pay a tax advisor, the host country's tax, but not any US tax.

While it is true, isn't only after the first 100K USD or so that you have to pay taxes on??

by netrap 8y ago

While it is true, isn't only after the first 100K USD or so that you have to pay taxes on??

CydeWeys 8y ago

Source?

tristor 8y ago

Not exactly. The FEIE limit is $100,800 USD, but you still MUST file a tax return every year, no matter what, and no matter where you reside. It is extremely expensive to file that return and you pretty much must retain an accountant who understands the tax laws of the US for non-residents and your resident country's tax laws. FEIE only covers situations in which you can prove non-residence, and only makes you whole for the amount of difference between the tax you would have paid in the US and the tax you paid in your resident country for that time period. If you make over $100,800 USD, you will need to pay taxes in full to the US in the brackets above that amount, regardless of FEIE. If you make say $135k/yr as a senior engineer for a US company, you will actually pay so much in taxes abroad and to the US, even with FEIE, that it's better to ask for a salary reduction below the $100,800 USD FEIE limit.

muzz 8y ago
If you are working in a high-tax country, like any of the European ones, aren't you paying so much tax to that country that your US tax liability is essentially zero? Due to credit for foreign income taxes paid, separate from FEIE? I.e. if an American moved to Netherlands and made 100k of which 40k went to Dutch taxes, wouldn't they effectively pay $0 in US because the credit for 40k paid to the foreign govt would wipe out the US tax liability (which would have been about $20k depending on status, deductions, etc)
- tristor 8y ago
  Yes and no. It's actually really complicated. For instance, you can be taxed on earnings against foreign-owned assets, such as stocks, bonds, ETFs, futures, commodities, and ownership in investment real property, which is not excluded from taxation in FEIE. FEIE only affects income tax, not capital gains tax or other forms of taxation. It also does not exempt you from FICA (Medicare, Social Security, et al). So you're working for a US tech company that issued you RSUs and options in the US market, and you also bought an apartment in your foreign country of residence, and you also happened to buy some ETFs once on the London Stock Exchange. Good luck with filing without an accountant or being audited :) Also, have fun ever selling foreign property. Being subject to expatriated taxes means you are automatically ineligible for real estate capital gains exemption. Decide to move to a better apartment and sell your old one in a foreign country? Welp, now you owe capital gains on the sale with no exemptions allowed, even though the transaction had nothing to do with the US in any way. [2] In addition, if you earned over the FEIE limitation, you'd be fully taxed in that bracket by the US AND by your resident country. Some EU member nations have special taxation rules especially for US expats (Germany for instance) thanks to a cozy relationship and a huge number of US foreign nationals living there (civilian employees of the US military, for instance). In general though, you'd be strictly double-taxed on income. You also get no credit against paying VAT, which is a significant tax in the EU. Trust me, I am speaking from experience here, there is nothing at all simple about paying US taxes while living abroad or even filing an accurate return. You're also at higher audit risk. You basically /have/ to hire an expensive accountant (or be lucky enough that the US government supplies/augments one if you're a government employee). Also if you own real property in the United States, you are automatically excluded from being eligible for FEIE. I owned my home in the US while I was abroad, which meant I was never entitled to FEIE unless I transferred the property into ownership of a trust (like a REIT) or sold it. If I moved it into a trust, I'd have to pay taxes off any gains made and those would not be excluded and do not have to be fully realized to be taxable in some scenarios. Taxes are really really really complicated in general, and US taxes are bonkers stupid complicated. And then there's FATCA, so good luck even trying to get away not filing a return or dealing with this situation [1]. Basically, the short answer is if you are a US citizen and you move abroad, be ready to get shafted hard by the IRS and also pay extensively for the privilege of telling them how hard to shaft you. [1]: https://www.usexpattaxhelp.com/us-american-expats-what-%20is-fatca.php https://www.usexpattaxhelp.com/us-american-expats-what-%20is... [2]: https://www.nerdwallet.com/blog/taxes/selling-home-capital-gains-tax/ https://www.nerdwallet.com/blog/taxes/selling-home-capital-g... P.S.: Sorry about all the edits in a short amount of time. I kept finding more things I thought needed to be said. I'll leave this response alone now.
  - muzz 8y ago
    Thanks for the response. I was reading this in the interim: https://tax.kpmg.us/content/dam/tax/en/pdfs/2019/2019-us-taxation-of-americans-abroad.pdf https://tax.kpmg.us/content/dam/tax/en/pdfs/2019/2019-us-tax... The answer to my question appears to be on the bottom of page 8, which paraphrased is that FEIE and Foreign Income Tax Credit are exclusive, so high income earners may wish to take the latter rather than the former (and the latter is what prevents double-taxation).
    - tristor 8y ago
      That document is pretty good and relatively thorough. Interestingly enough, when I was working for a US company abroad, they used KPMG Global Mobility Services to help me with my taxes and relocation and all of that. FEIE And Foreign Income Tax Credit are for different situations. In my situation initially, I would have taken FITC to try to avoid double taxation, but in my later situation I wanted to take FEIE but was ineligible and was also ineligible for FITC. Deciding which to take can actually be a complicated question. I don't want to go into further detail on my situation, but I will say that things are greatly simplified if you go all-in on being an expat, without retaining any property in the US and you intend to limit travel outside the country you expatriated to.
  - MichaelGlass 8y ago
    I don't think it's so terrible. E.g. if you buy real estate and live in it, then you can deduct 250K gains for a single person or 500K gains for a couple. To that end, you'll only be paying capital gains if you did very well.
    - tristor 8y ago
      That’s only true for property in the US as a US resident in that property. Read the last bullet of my link. Expatriate taxpayers are ineligible for real estate capital gains exemptions.
- MichaelGlass 8y ago
  Yes and no, but in the simple case: that's right, in a higher-than-us-tax country, you will likely only pay a tax advisor, the host country's tax, but not any US tax.