US Citizens and Income Taxes

SawMan wrote:

Or multiple accounts that in total add up to $10,000.

yes

wjwoodward wrote:

I'm sure you would find that the average Canadian wouldn't have to try too hard to fit into that over $2 million net worth category. In many cases one's house alone would almost put them there. Add to that, cars, bank accounts, investments, businesses if any, etc., and that surely would put many Canucks over the top. As far as an EXACT percentage goes, since I'm not a statistician I can't give you a figure, but the number would be way up there for sure, probably in the over 50 year age bracket it would be upwards of 25 percent or maybe even more.

First you say the average Canadian easily has a net worth of over two million dollars, then you say, probably, that 25% of Canadians over the age of 50 are worth two million dollars, maybe.

A close friend of mine lives in Vancouver.  He and his wife are debt free and own a nice three bath, five bedroom home three blocks from the water in a trendy neighborhood.  She's a psychologist, he's an educator.  They consider themselves successful, and so do I, but if they sold everything they owned, it wouldn't amount to two million dollars.

I'm a big fan of Canada and wish the USA was as progressive, but I think you are over-stating the facts.

Armand wrote:

Hi all,

I think we are drifting off topic here.
Comparisons with Canada are not helping this thread we guess.

Regards
Armand
Expat.com Team

Lot of guessing on this topic.

mugtech wrote:

New list available today has 27 institutions on the list for Ecuador.  Since it is now after 07/01/14, the 30% withholding rule is in place for all but these 27 institutions.

Link?

BobH wrote:

A post called Why Does Uncle Sam Hate American Expats? on the subject of FATCA and FBAR. I thought it might be of interest to many here.

http://taxprof.typepad.com/taxprof_blog … xpats.html

Nothing new here, just the usual complaining about being a citizen of the USA.
The writer is a law school prof, overstates how hard it is to do the proper reporting.
Sure the taxes are more complicated if you ever have $10,000 or more in a foreign account, but your money is safer in a USA bank, just transfer what you need.
If you were living out of the USA more than 270 days you are exempt from ObamaCare penalties even if you have no health insurance, a break right there.
Like the one commenter said, 3,000 giving up citizenship out of 7 million living abroad is nothing.
My wife and I will receive $30,000/year SS benefits and $16,000 in other retirement benefits and will not owe any federal taxes, won't even have to file form 1040.  If you are living in Ecuador and your numbers are larger than that, then you can certainly afford to file income tax returns.

ZenSPIKE wrote:

Please see my edit.
Good Luck !
I'd heard 280 days just recently, so who knows. I think the thing is in such flux right now, we'll see other changes coming down the pike.

Hey Zen, I believe you had said you were going to keep medicare parts A & B.  If so, you have coverage for IRS purposes no matter where you go when.  As for the 280 days, if your gap in coverage is less than 3 months and you only have that one gap, then you are not subject to penalties.  So if you leave before the end of March and are gone all the remainder of the year you are ok.  Make photo copies of your passport pages to show when you were in and out of the USA each year and keep it with your tax documents.  You do not have to send anything to the IRS with your return, the copies are for if a question arises after you file.
Check this out:  I heard that the penalties for lack of coverage can only be taken out of withholding taxes, if you file, only owe penalties but no tax and you had no federal withholding you can ignore the payment.  Can't wait to see if someone does that what happens.  Stay tuned

j600rr wrote:

"Senate Finance Committee Says Time to “Rethink” Tax Rules for Americans Overseas"

The article goes to pdf format, so will just leave the website link.

https://americansabroad.org/

It sounds good in theory, but for retired expats most of the income is from social security and any pension, 401k, IRA etc retirement programs which were earned and funded in the USA with pretax dollars, so it would all be taxable as USA income.  Foreign earned income as of 2015 gets to exclude the first $100,000 of earnings.  It appears the only real break would be for people with large non-USA investments and investment income, which presents its own set of problems security wise and insurance wise.

mugtech wrote:

It sounds good in theory, but for retired expats most of the income is from social security and any pension, 401k, IRA etc retirement programs which were earned and funded in the USA with pretax dollars, so it would all be taxable as USA income.  Foreign earned income as of 2015 gets to exclude the first $100,000 of earnings.  It appears the only real break would be for people with large non-USA investments and investment income, which presents its own set of problems security wise and insurance wise.

Bummer. I just took a quick glance at the article. Probably should of looked closer, but that's where your expertise comes in. You understand all the rules, implications, and everything else much more than I do. For that matter, probably much more than anyone else on this forum.

j600rr wrote:

Bummer. I just took a quick glance at the article. .

Who can say what laws congress will or will not pass and when?
If they ease up on the reporting of USA citizens overseas, all kinds of big money people will become legal resident of a foreign country, move all their assets out of the USA, and be tax free forever.
As stated previously, most all retired expats will depend on SS and retirement savings.  I really doubt the IRS or congress would want to allow anyone to receive retirement benefits earned in the USA tax free.  The employee gets a tax break when he has money withheld for a qualified retirement account, and he is not taxed on the employer matching amount nor on the income while in the retirement account.  The IRS would much rather double tax (dividends) than not tax at all.  If all it took to not pay income taxes on IRA, 401(k) and other retirement accounts was to establish foreign residence, then all kinds of people would move out of the USA, drain their retirement accounts tax free, then move back to the USA.
So any law change to have any significant change for most expats would be very technical and complicated to prevent people from pulling the 366 day expat routine.  Most economic refugees are already paying little or no tax, so any benefits would be minimal..

BobH wrote:

LLGM:

Interesting. I had heard some joking talk among expats that someone ought to sue the US government for human rights violations as a result of FATCA, etc. Looks like it was not entirely a joke.

I doubt it will go very far, but nonetheless, I wish them well.

Hi BobH: 
Republicans Overseas have hired a highly respected US constitutional lawyer (Jim Bopp) to challenge FATCA within the US given that FATCA violates several basic Constitutional/Bill of Rights sections, particularly freedom from undue search and seizure without judicial oversight.  This litigation is currently on hold awaiting the raising of sufficient funds.  I'm sure they would appreciate any financial support they can get from US expats , even if they are not typically Republican voters.

The lawsuit in Canada is against the Canadian govt for passage of the IGA which, in effect, has placed US law in a superior position to sovereign Canadian laws, especially the part of the Canadian Charter of Rights and Freedoms which holds that all in Canada will have equal rights and not be discriminated against based on nationality or parentage.  Financial privacy is a well established legal right in Canada, something that has been undermined for US Persons living in Canada by this IGA - - thus, 2nd class citizenship.  I'm sure the Alliance for the Defence of Canadian Sovereignty, which is raising money for this Constitutional challenge, would appreciate any inanccial support they can get from US expats outside of Canada; already there are many non-Cdn donors/supporters.

The Human Rights Complaint to the UN was not in reference to FATCA but to the US practice of Citizen Based Taxes, which fuels FATCA.  The US is only one of two countries in the world that taxes it's citizens on world-wide income when they live outside the homeland; the other is Eritrea and Eritrea has been severely sanctioned for this practice at the UN level (including a vote of sanction by the US - - do you see the irony here????)  If anyone is interested in reading this UN submission, I can direct you to a webpage where you can request access and review (it is not published yet as the UN has not yet replied).  This complaint has been received by the UN but the next time when Human Rights Complaints will be reviewed by them is not until April 2015.

In relation to FATCA, here is a very recent article about FATCA (and the Philipines) which explains the current issues/situation very well.       

www.businessmirror.com.ph/fatca-a-breac … vereignty/

mugtech wrote:

Human rights violation?  No one is forced to maintain their USA citizenship when moving out, never to return.

Yes, Mugtech, you are right.  But I think it is rare that folks who head out of the US are doing so thinking, immediately, that they are "moving out never to return".  So expats keep their US citizenship while trying out a new home; it is only years later, when they are well connected and attached to this new home, that they begin to consider giving up that US citizenship which holds many emotional (and tax filing) ties. 

Up until a few years ago, renunciation was a free service at a US Embassy or Consulate.  Then it moved to $450.  Then, this last September, the service cost to the Embassy/Consulate jumped (with only 2 weeks notice) by over 400% to $2,350 (which is very significantly above the average $100-300 charged by all other first and second-world countries - - and for many of these other countries, the deed can be done by mail, not having to travel possibly 500-1000 miles to get to a Consulate to complete the process face to face TWICE).  Have to go now but  will add later points about the other definite and possible costs of renouncing which can add up to 10s of thousands.........  So, one is not forced but there sure seems to be an economic Berlin-Wall there keeping taxpayers inside the fence.

LLGM wrote:

.

In relation to FATCA, here is a very recent article about FATCA (and the Philipines) which explains the current issues/situation very well.         http://www dot businessmirror dot com dot ph/fatca-a-breach-of-philippine-sovereignty/

http://www.businessmirror.com.ph/fatca- … vereignty/

If a USA citizen does business with a non-compliant foreign bank, then 30% of a transfer will be withheld as taxes.  In every non-compliant country there are lists available, updated monthly, on the IRS website as to which banks are compliant.  If USA citizen chooses to deal with a non-compliant bank, then 30% withholding will appear as a credit on their tax return.  Since all citizens must file form 1040 anyway, if no tax is owed, then the withheld taxes will be returned in the form of a tax refund.  So the only real consequence is giving the IRS an interest free loan until you receive your refund.  Best to do your big transfers in December, get the withholding returned a few months later.  IRS announced that e-filing and paper filing for 2014 should start on 1/20/15.

LLGM wrote:

So, one is not forced but there sure seems to be an economic Berlin-Wall there keeping taxpayers inside the fence.

The administrative fees are nothing compared to the so-called "exit tax" that may be due.

In general, "covered expatriates" are treated as if they had liquidated all of their assets on the date prior to their expatriation. The taxpayer's net gain is computed as if he or she had actually liquidated their assets, that is, the difference between the fair market value (theoretical selling price) and the taxpayer's cost basis (actual purchase price). Once net gain is calculated, any net gain greater than $600,000 will be taxed as income in that calendar year. The tax applies whether or not an actual sale is made by the taxpayer, and regardless when the unrealized gains arose.

mugtech wrote:

If a USA citizen does business with a non-compliant foreign bank, then 30% of a transfer will be withheld as taxes.  In every non-compliant country there are lists available, updated monthly, on the IRS website as to which banks are compliant.  If USA citizen chooses to deal with a non-compliant bank, then 30% withholding will appear as a credit on their tax return.  Since all citizens must file form 1040 anyway, if no tax is owed, then the withheld taxes will be returned in the form of a tax refund.  So the only real consequence is giving the IRS an interest free loan until you receive your refund.  Best to do your big transfers in December, get the withholding returned a few months later.  IRS announced that e-filing and paper filing for 2014 should start on 1/20/15.

I bet the IRS will also check and make sure the account to which the funds were transferred was disclosed by the taxpayer in his or her FinCEN 114 (formerly FBAR) filing and send a "friendly" inquiry if it wasn't!

SawMan wrote:

I bet the IRS will also check and make sure the account to which the funds were transferred was disclosed by the taxpayer in his or her FinCEN 114 (formerly FBAR) filing and send a "friendly" inquiry if it wasn't!

Count on it.  Penalties for not reporting are severe.