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Author: penguinchan Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121260  
Subject: Re: foreign tax credit Date: 1/31/2000 2:21 PM
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<<i have lived abroad for several years and qualify for the credit. What I want to know if my total gross income rises about the $72,000 exclusion do I then have to pay U.S. taxes on the difference. >>

Yes you do, but I think the exclusion is now at 75,000...check with the IRS office at your US embassy or consulate.

Say you make 100,000 USD salary, you must pay US taxes on that additional 25,000. BUT, as it was explained to me (and I live in Hong Kong), you can deduct the tax paid to a foreign gov't against what you owe to the US, and so the difference you need to pay can be very small, especially in your case as you pay a high rate.
(In my case, HK taxes are less than 15 percent, so I'd have to pay much more).

<<If I do have to pay U.S. taxes on the difference between my gross income and the exclusion, can I then contribute to an IRA, Roth or otherwise???>>

This is a good question and one I have raised and not had answered on Motley Fool. One would think so, but you never know with government agencies. I posted yesterday the same question, but I think it was on the retirement thread and not this one. No one answered though.

<<I have struggled to understand the various IRA publications that deal with foreign income. Do you know of any publications written in plain English?>>

I have no idea. It seems that although there are millions of Americans living abroad (and filing) and millions of foreign nationals with assets in the US and needing to file, you'd think there would be a definitive book/guide..etc....but no, there is not that I know off. A SIMPLE guide would save the government millions of dollars if they could get their act together. I know lots of Americans living overseas who don't file (some out of ignorance), just because it's too complicated compared with their country of residence. (Thread: FYI many countries automatically take out tax from your pay every month, at a flat rate, meaning you don't need to file annually as there are no deductions...etc....just a flat rate). Citizens who don't file cost the government millions of dollars.

I usually go to the consulate every year as the government sends out a tax consultant for a week or two every Spring. But even then, I've had different results. Two years ago, the government consultant helped me work on some capital gains forms. Then last year, my return was a bit different and when I showed the forms from the previous year, he said that the consultant had done them incorrectly year before and I shouldn't have paid anything (I paid out 300 dollars). Given times like this, it's no wonder we're at a loss.

I'm all for paying taxes as it's a necessary evil for a democracy. But I do hate an incompetent system, too.

Tax reform could save the US billions if done correctly..........

good luck
cheers,
p-chan
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