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Financial Planning / Tax Strategies


Subject:  Re: Renouncing citizenship for tax purposes Date:  8/23/2013  1:37 PM
Author:  ptheland Number:  119070 of 127616

Now, for the tax burden. First, you should be aware that we need to pay taxes in the country where we work. These taxes are generally higher than U.S. taxes to begin with. For Americans who are retired abroad and live off of investment income, they need to pay local taxes as well as U.S. taxes on all capital gains.

I can't comment on the foreign taxes, but to the extent you pay both foreign and US taxes on the same income, you get a credit on your US return for the foreign taxes paid. The credit effectively leaves you with the higher of either the US or the foreign tax on the income.

Americans living permanently overseas also need to pay U.S. income tax on income above $100,000/year ($190,000 filing jointly).

That income has to be earned income - income from working. And for a joint return it's approximately $100k for each spouse. If one spouse does not work, the exclusion is only $100k. If the earnings are greater than the exclusion, you've got double taxed income and the foreign tax credit as noted above will again apply.

Does our contribution count towards our Social Security when we get old?

If you're not paying Social Security taxes, you would not be earning credits towards Social Security benefits at retirement.

Can we take exemptions for 401k plans or IRA's?

Those are both "yes". Except that you'd have to have an employer who offers a 401k plan, which virtually no foreign employer would care to do. However, IRA contributions are definitely available. But you do have to have earned income in excess of the Foreign Earned Income Exclusion to take advantage of IRA contributions.

I tried to get a professional tax preparation firm to file my taxes. They wanted $2500! I have a relatively simple tax situation,

By definition, your US tax situation is not simple. It is amongst the most complex situations possible for individual tax payers. I consider myself to be a pretty competent tax professional, and I generally refuse to prepare returns for ex-pats because of the complexity. It's a highly specialized area of tax law, and one that the vast majority of tax preparers are not competent to prepare.

The U.S. laws actually make it worse. Americans cannot have investment accounts overseas.

If US citizens could not have investment accounts overseas, why are there two different forms which require the reporting of overseas investment accounts? I can't cite chapter and verse on this one, but my gut feeling is that your statement is not correct.

There are also several banks which refuse to open accounts for Americans because of the burden the American government puts on them.

That one is, to my understanding, a very real problem that a number of ex-pats have run into. The only consistent solution I've heard is to deal with banks that are willing to put up with the intrusiveness of the US government. There are not many, and I hazard a guess that they are mega-banks that already have a presence in the US. That would be banks such as Barclays and Credit Suisse. I would not expect them to provide very good service or to have low fees.

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