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Bad news for expats
Old 06-09-2006, 05:27 PM   #1
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Bad news for expats

This would have delayed ER had it happened long ago!

New: Tax Increase Prevention and Reconciliation Act (TIPRA) Passed
...
Foreign Earned Income ... for example, if you make $100,000 while working in a foreign country this year, $80,000 of that will be excluded from being taxed by the U.S. government. However, under TIPRA, you will now be taxed at the $100,000 tax bracket for the remaining $20,000 of your income as opposed to only being taxed at the $20,000 bracket in the past.


There is more, and it's not pretty...

http://www.hrblock.com/taxes/fast_fa...aoverview.html
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Re: Bad news for expats
Old 06-09-2006, 05:32 PM   #2
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Re: Bad news for expats

Wonder if Stan knew about that change to the tax law before he took that "offer he couldn't refuse"?

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Re: Bad news for expats
Old 06-09-2006, 06:25 PM   #3
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Re: Bad news for expats

I reluctantly cancelled my application to go back . . .
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Re: Bad news for expats
Old 06-09-2006, 06:28 PM   #4
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Re: Bad news for expats

Wow, I'm sure glad I am no longer working overseas. It was a good deal while it lasted!
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Re: Bad news for expats
Old 06-09-2006, 06:35 PM   #5
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Re: Bad news for expats

Quote:
Originally Posted by Papi
Wow, I'm sure glad I am no longer working overseas.* It was a good deal while it lasted!
It is still a good deal, just not as good.

Ha
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Re: Bad news for expats
Old 06-09-2006, 09:07 PM   #6
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Re: Bad news for expats

Not really. The deal from the US govt is pretty bad.*

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Re: Bad news for expats
Old 06-09-2006, 10:38 PM   #7
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Re: Bad news for expats

Ah, yet another reason not to go off on any adventurous employments.

Other than that whole getting shot or blown up thing.

It does answer a question that has been bugging me for a while. A friend called about such an adventure. It was for a lot more than 100K, but it involved a split assignment. Spend some time across the seas and figure out what needs to be done, come back and teach the feriners what they need to know, and then go back and help them apply it in their homeland. The whole gig was for less than a year and the time spent abroad was about six months - split into two visits. I told him that the money sounded really sweet, but the taxes were going to be murder. He said, "Yeah, I asked them about that and they said it probably wouldn't really matter anyway. I don't know what that means, but it sounds bad."

And now I know why they were willing to pay so much money.

I wonder how that is going to change some companies contracts for long-term overseas gigs. The first $80K not being taxed was verrry sweet.
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Re: Bad news for expats
Old 06-09-2006, 11:53 PM   #8
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Re: Bad news for expats

Well, my buddy just got shafted, he shipped off to Iraq on a contract, big bucks, but I would never do it

Now he'll be doing it for less.
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Re: Bad news for expats
Old 06-10-2006, 01:28 AM   #9
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Re: Bad news for expats

Quote:
Originally Posted by HaHa
It is still a good deal, just not as good.
I disagree. I think it's a bad deal that just got worse.

Why should you owe any taxes on income earned when you were not working or residing in the US? The US is the only country I know of that taxes you on just because you are a citizen (I heard there was one other, like Somalia or something)....
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Re: Bad news for expats
Old 06-10-2006, 02:39 AM   #10
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Re: Bad news for expats

Quote:
Originally Posted by bosco
I think it's a bad deal that just got worse.
I'm with bosco and mikew. For a middle-class family working and saving for retirement outside the US, under the old rules one could just about make the holding of a US passport tax-neutral if one was careful, at the cost of more complex tax returns. Now Congress has just created a flat-out penalty for retaining US citizenship. What is the message they are trying to send with this?

Quote:
The US is the only country I know of that taxes you on just because you are a citizen (I heard there was one other, like Somalia or something)....
The ones I have heard of are the Philipines and Eritrea. But don't have hard references for that.

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Re: Bad news for expats
Old 06-10-2006, 09:30 AM   #11
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Re: Bad news for expats

Quote:
Originally Posted by bpp
The ones I have heard of are the Philipines and Eritrea.* But don't have hard references for that.
The Philippines used to require income taxes from Philippine citizens living and working abroad, but they haven't for some years now. I used to pay Philippine income taxes up until the mid-90's.
(Don't know if their rules have changed again in the last couple of years since I've become a US citizen.)
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Re: Bad news for expats
Old 06-10-2006, 09:51 AM   #12
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Re: Bad news for expats

The sad thing is this will only increase tax noncompliance... people working overseas are already failing to report a lot of income to the US and this will only make it worse. Another tax on honest folks and bonus for antisocial behavior.
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Re: Bad news for expats
Old 06-10-2006, 10:22 AM   #13
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Re: Bad news for expats

Quote:
Originally Posted by bosco
I disagree. I think it's a bad deal that just got worse.

Why should you owe any taxes on income earned when you were not working or residing in the US? The US is the only country I know of that taxes you on just because you are a citizen (I heard there was one other, like Somalia or something)....
Egypt! I think.

SWR
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Re: Bad news for expats
Old 06-10-2006, 10:40 AM   #14
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Re: Bad news for expats

Quote:
Originally Posted by free4now
The sad thing is this will only increase tax noncompliance... people working overseas are already* failing to report a lot of income to the US and this will only make it worse.* Another tax on honest folks and bonus for antisocial behavior.
The megacorp I worked for, even though they were foreign, voluntarily sent W2s to the IRS as gestures of cooperation. Many co-workers were contractors. No employer reporting.

I suspect there may have been some round-off errors among that group.
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Re: Bad news for expats
Old 06-11-2006, 04:13 AM   #15
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Re: Bad news for expats

I'm making a wild guess that 80-90% of Americans working overseas are subject to local income taxes, which in many cases are higher than they would be in the US. I'm not sure why the IRS doesn't do a straight foreign tax credit thing like they do with investments to balance the equation.

Not only are you subject to US tax abroad, but even if you leave for good and renounce your American citizenship, the IRS can claim continued taxes on your worldwide income for as long as 10 years afterwards, if they feel you are doing so for "tax avoidance" reasons. So they assert. How they can prove (or how an individual could disprove) this, I am not sure, nor am I sure what resources they would bring to bear in terms of collection.
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Re: Bad news for expats
Old 06-11-2006, 08:11 AM   #16
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Re: Bad news for expats

Quote:
Originally Posted by ladelfina
I'm making a wild guess that 80-90% of Americans working overseas are subject to local income taxes, which in many cases are higher than they would be in the US. I'm not sure why the IRS doesn't do a straight foreign tax credit thing like they do with investments to balance the equation.
You can file your taxes that way if you like even now. Simply don't use the Foreign Earned Income Exclusion, and claim the Foreign Tax Credit instead. Problem you will likely find is that due to very narrow interpretations by the IRS, only a fraction of your foreign taxes are actually creditable. So even if your overall tax rate is higher where you live than it would be in the US, that won't necessarily protect you from having to send a few extra thousand in tribute to the Old Country.

Quote:
Not only are you subject to US tax abroad, but even if you leave for good and renounce your American citizenship, the IRS can claim continued taxes on your worldwide income for as long as 10 years afterwards, if they feel you are doing so for "tax avoidance" reasons. So they assert. How they can prove (or how an individual could disprove) this, I am not sure, nor am I sure what resources they would bring to bear in terms of collection.
Worse, the INS will treat you with more prejudice than they would an ordinary foreign national. Don't leave any loved ones behind, because you may be denied entry to visit them in the hospital or whatever.

Bpp
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Re: Bad news for expats
Old 06-12-2006, 02:09 AM   #17
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Re: Bad news for expats

Quote:
You can file your taxes that way if you like even now.
Interesting, bpp.. thanks. It's not really an issue for me since I don't have any earned income in Italy. Our "commmercialista" averred that I didn't have to file in Italy (though I suspect that is not the case legally, just in practice - wink, wink). If I were to have earned income, it would be nowhere near $100k, $80k, or even $50k.. wages here are loooow.

I have no problem with keeping my investments in the US and paying US taxes. Bummer about the Foreign Tax Credit, though. If I were to move investment funds here (where they kindly subtract taxes for you from your accounts) I would likely run into that double taxation issue, which is one reason I haven't considered doing so. I don't plan to renounce citizenship so I'll be paying Uncle Sam for the foreseeable future.

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Re: Bad news for expats
Old 06-12-2006, 01:55 PM   #18
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Re: Bad news for expats

The "increase" in expat taxation is really only an issue for highly compensated execs with
big benefit packages and expats living in places with low income taxes. If you are in Europe you'll be paying local income taxes that are probably more than US so you can use the foreign tax credits to reduce your US taxes.

The thing that is worrying me most about retiring abroad is the downward trend in the dollar. I'd like to be able to invest in foreign markets which is difficult as a US citizen. FYI you can expartiate now if you have a net worth less than $2M without the IRS assuming that you are doing it for tax advantages and making you pay US tax for 10 years afterwards. For US expats living in most "1st world countries" expatriation doesn't offer many financial advantages, but it does greatly simplify the tax situation and let you invest where you are living.
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