Good news on double taxation for US citizens living abroad
Thread poster: RobinB
RobinB  Identity Verified
Germany
Local time: 00:11
German to English
Nov 2, 2004

An article in today's (2 November 2004) Financial Times describes changes in the US tax regime that will benefit US citizens living abroad.

Previously, the IRS imposed a cap on the amount of foreign taxes that can be credited towards the US tax liability (US citizens are taxed on their worldwide income regardless of their country of residence).

This limit has now been abolished, effectively removing double taxation.

The full article is available on the FT website at no cost at:

http://news.ft.com/cms/s/3734ac4a-2c73-11d9-8339-00000e2511c8.html

but only for a couple of days. Thereafter, you'll need an FT online subscription.


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Derek Gill Franßen  Identity Verified
Germany
Local time: 00:11
German to English
+ ...
Good to know... Nov 2, 2004

Thanks a lot for the informative tip!

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Terry Gilman  Identity Verified
Germany
Local time: 00:11
Member (2003)
German to English
+ ...
Thanks for posting this, Robin! Nov 2, 2004

I always figured the tax was the price of keeping one's passport, for whatever reasons. Sort of the reverse of the $7000 an employer had to put up to sponsor a foreign employee in the U.S. (That's just a dim memory from 20+ years ago. Don't know what the immigration/employment rules are like now).

The "30+ days in ten years" sounds punitive.


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RobinB  Identity Verified
Germany
Local time: 00:11
German to English
TOPIC STARTER
30+ days in 10 years Nov 2, 2004

Terry Gilman wrote:

The "30+ days in ten years" sounds punitive.


Dammit Terry, they pay you too much there Or are you on commission? But you're right, it does seem a bit harsh, especially for people who choose to renounce their US citizenship (it's a free country, innit?). And it also begs the question of whether this rule also applies to people who've been stripped (constructively or otherwise) of their US citizenship. Maybe I'm being jaundiced, but to me it does look rather like the asset seizure policies applied here in Germany after 1933, or in the Soviet Union (but I wouldn't want to open up that particular can of worms, would I ....)

Robin

[Edited at 2004-11-02 12:24]


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Sara Freitas
France
Local time: 00:11
French to English
Foreign earned income exclusion is currently $80,000 Nov 2, 2004

I have been living and working outside the U.S. since 1997 and I have never managed to exceed the foreign earned income exclusion in all these years.

It may vary from country to country and according to individual circumstances, but I have never heard of normal working Americans (i.e. not millionaires) faced with "double taxation" or a tax to "keep your passport."

I guess I don't really understand the relationship between the foreign earned income exclusion and the new changes mentioned in the article.

If someone could give a layman's explanation, that would be great!

In the meantime, here is some more info:

http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html

In the meantime, whatever your tax situation, don't forget to file!

Regards,
Sara


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Terry Gilman  Identity Verified
Germany
Local time: 00:11
Member (2003)
German to English
+ ...
The people earning beyond the exclusion pay double taxes on the difference Nov 2, 2004

Oops. That was a faux pas. I didn't mean to imply I'm earning over the exclusion. Those who *do* have (or had) a U.S. tax liability on the difference. It's certainly not an *explicit* tax related to your passport, but it is a form of double taxation.

For example, a U.S. citizen who earned $100,000 last year (minus the usual deductions) is liable to pay taxes on the $20,000 difference between 100K and 80K. If the 100K all comes from earned income on which the person is taxed in her country of residence, say, France or Germany, that's the simplest instance of double taxation: the 20K gets taxed twice.
Millionaires supposedly have accountants to help them minimize their tax liability. But, at some point, for them and certainly for people earning less than a million but more than 80K, the tax charged on the slice of income beyond the excluded amount outweighs the perceived advantages of the passport. Up to that point, they are, in a way, paying taxes to keep their passports.

I overreacted a little to the "30+ days in the U.S. in 10 years" (= your foreign income is automatically deemed to be taxable U.S. income). That clause is for the "wealthy renouncers," i.e., people with incomes over $2 million (not 80K) who give up their U.S. citizenship. I wonder how large that segment actually is (Fortune global 500 times x U.S. ex pat executives + artists and athletes of various stripes...?) Trying to imagine being up around the $2 million mark is a stretch, but it is very easy to imagine spending more than 30 days in the U.S. in five years if you have family there, and, if you have elderly parents, it would be easy to get into a situation where you go past the 30-day limit and end up having to pay full double taxes for ten years (if I've now understood the proposed rule aright).

[Edited at 2004-11-02 19:04]


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Good news on double taxation for US citizens living abroad

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