US Citizens Giving Up Citizenship At Record Rates

By: Pete
Date posted: 02.21.2014 (3:07 am) | Write a Comment
20140209_expatI wish this came as a surprise. Given the insistence and threats made against Americans living abroad that were not filing their income and financial holdings to the IRS and treasury, I guess it’s not a surprise.
I’d be very curious to hear if the government representatives are happy with the results of this whole campaign.
Have any of you renounced? Are you considering doing it? I personally would not because I am considering a move to the US at some point and I’m not paying extra taxes (although I’m paying my accountant several hundred dollars/year)… but I have heard from several US citizens that are strongly considering such a move
credit chart WSJ

Thinking About Taking A Job Outside The US?

By: Pete
Date posted: 06.17.2013 (5:48 pm) | Write a Comment

taxesIt’s a mistake that happens over and over. For those working for a large multinational company, it’s rarely an issue. They offer you a job abroad and take care of all the moving/taxes/legal issues so you barely notice the impact. They even usually offset any tax impact by higher pay/paid housing, etc.

For everyone else though, it’s a very different story. I’ve been thinking about eventually going to work abroad, possibly in Asia (Singapore is the most likely choice for now). Both my wife and I have lived several months abroad and would love to give it a try, especially with young kids who could learn so much from an experience abroad. I don’t know how it would happen but it’s unlikely to be my company offering me a position abroad as it only has a handful of small offices abroad. More likely would be me going out and finding a job in a financial institution abroad.

One Common Mistake

One very common mistake that those in my situation make is to not look into the tax options or consequences before making the move. It usually would not be a deal-breaker but if you’re going to end up making more (or more likely) less money than expected because of the expat taxes, it’s really worth meeting with a tax specialist, that will help you the basic setup.

Who Can Help?

Unfortunately, the cheap options are not the best ones in most cases. Usually, the best option is to find accountants working for American accounting companies located in that country. They’d already have hundreds of clients with similar situations and would know about the differences between that company’s tax system and the US one. They’ll then be able to help in doing all of the other stuff (salary negotiations, housing, banking, taxes, etc) in the right way from the very start.

Just look at this document from Price WaterHouse for US citizens that live and work in Japan and you get an idea of everything that’s involved:

Yes, you could always try to figure it out on your own but it’s very likely that you will spend tens of hours and still come out with a very imperfect understanding. Instead, you should consider consulting one of them which could end up saving you thousands of dollars and even more headaches.

Obamacare Impacting Expats?

By: Pete
Date posted: 05.18.2013 (1:14 am) | Write a Comment

Today I stumbled upon an article from the Globe and Mail that discussed the impact of the new health care laws on US citizens abroad. It is a tax increase for all US citizens which is not a surprise. The more worrying part is that according to this article, foreign tax credits cannot be used to offset those taxes which in theory would mean that all of us would owe a lot of money in taxes going forward. Needless to say that if I end up having to owe between 3-4% of my income to the US government (instead of the current $0), I would not be happy.

Is This A Matter Of Opinion?

I’m not sure if the author misunderstood this but after receiving my taxes from my accountant, I still do not owe any money. I have not had the chance to ask about it but I do assume that at least for 2012, it was possible to offset those taxes. Another possibility is that the G&M seems to say that this goes against investment income. I personally have almost all of my investments in non-taxable accounts so it’s possible that is the reason.

It Is A Worrying Trend Though

I’d be curious to know how many expats have decided to give up their US citizenship. It’s not something I’ve considered but the idea certainly seems less crazy than it did just a few months ago. I do wonder about this tendency though. If the US government is gradually more desperate for cash it tries to fight back deficits and pay back its debt, it’s certainly possible that they will eventually try to make more money off of expats. It doesn’t seem fair and I doubt it would be a winning long term strategy but I’m not sure that most Americans even know about this issue. It doesn’t affect them so it’s not something that would get a lot of coverage.

What are your thoughts on this? Can you imagine giving up your US citizenship if this keeps up?

Expats That Own Part Or A Whole Corporation

By: Pete
Date posted: 04.07.2013 (1:26 pm) | Write a Comment

Ohh, what a nightmare. I thought I was finally back in line. I had not filed every year but after all of the trouble, I had finally succeeded in getting my taxes together. Then I had a flashback while taking my shower. I own a corporation with a friend of mine, it runs smaller internet websites, nothing big and while the company does pay for a few expenses (my internet connection for example), I do not get any income out of it, not a penny. Every dollar is reinvested by the company. But I started wondering… would the IRS need to know about this company? I guess it would. Because while I’m not doing it, it’s certainly possible for someone to hide revenues by diverting revenues to his or hers company.

I Then Asked An Expert

I started an email to that cross-border specialist I had mentioned in the past. As you can imagine, I had fears but was hoping he’d tell me that as long as I’m not getting any income, I do not need to report anything. I figured that at worse I’d need to send some info about the company…

It’s Worse Than I Feared

The accountant proceeded to tell me that this complicated matters quite a bit. Not only do I need to fill form 5471, send financial statements, etc. But if you look at form 5471.. you will notice that it’s actually a fairly lengthy form that requires a lot more work. He also said I would need to do it for years 2010, 2011 and 2012 (it kind of makes no sense to have filed only partially for 2010 and 2011 but not this form 5471.

Who Needs To File This?

I asked and there are of course many versions. From what I understand, legally, anyone that owns 10% or more of a corporation needs to file this but I’ve seen some people decide not to file for small corporations that make little to no money. I guess it’s up to every person, as is always the case

In case you’re wondering, I was told the penalty for not filing this could be up to $10,000 per year.. ouch. Thankfully, if you file late and explain why, they are generally willing to waive that..

Yes You Might Receiving Money From The IRS But It’s Unlikely

By: Pete
Date posted: 03.12.2013 (12:57 am) | Write a Comment

It’s quite interesting really. I ran into an article that explained how the IRS has set aside important sums of money (piles of money!) for expats that will start filing and will actually be owed some money. They go on to discuss some of the circumstances that would lead to a net credit:

-child credits
-student credits
-health care credits
-foreign housing credit

I’m Not Counting On It

Yes, a lot of individuals will end up receiving money but it is still a very small minority and let’s not kid ourselves. The reason the IRS is being so aggressive about getting more expats to file their taxes is because it expects to make a lot more in income. Yes, if you are making $50,000 or less per year (or so), there are certainly some chances that you’ll be getting a nice check. If you did not have to pay over that amount to get your taxes done, then you might be coming out on top. That has a lot of “if’s” though..

More likely is that you will end up not owing any money (as is the case for me) but having paid some money to get the taxes done.

Stop Fighting It

The choice here is no longer between filing and not doing so (technically, it never was) but rather between staying a US citizen (and filing your income taxes, FBAR and all other relevant documents) or not. I’m still convinced that I’m doing the right thing by filing these papers but there’s one thing that I increasingly believe.

-If there is little to no chance that you’ll need your US citizenship to live there or for some important reason, you’re probably better off looking into not keeping it.

I’m certainly not there yet but I’ll keep it in mind in case something does end up changing. Did any of you receive a tax credit?

Canadians Expats Buying A Condo/Property In The US – Impact On Taxes?

By: Pete
Date posted: 01.30.2013 (5:04 pm) | Write a Comment

One of things I’ve been considering is buying a condo in the depressed US housing market. It’s not that I think there will be this huge rebound in the next few months but rather because I think the value is good and as an expat living in Canada, having a second home in a warmer climate greatly appeals to me. It would be an understatement to say that I’m not a big fan of the Canadian winters.

What Are The Fiscal Impacts?

I gathered around and also asked my cross-border accountant for more information regarding the impacts of buying a condo in the US (both as a Canadian and US citizen). The first question seems to be:

Do I Intend To Rent Out The Condo?

I personally do not, at least in the near future. But if I did, to act legally, I would need to report the income and expenses on my tax returns (both Canadian and US). That would certainly add some level of complexity. I know that many rent out condos without declaring it on their tax filings but that seems like a bet I’m not willing to take.

Selling The Condo – Capital Gains?

Selling it would generate taxable capital gains which would certainly need to be considered. I’m not planning on selling it anytime soon and those taxes are changing so fast that it’s difficult to predict what they will be 20 or 30 years from now but if you’re buying with the intention to sell shortly after, this needs to be factored in

Canadian Tax Form T-1135

Canadians are in the obligation to report any foreign property that is purchased at a price of $100,000 or more. From what I understand it does not cause any other impact. Form T-1135 needs to be filed on an annual basis.

Anything Else?

There are obviously other factors to consider such as the value for your buck, local taxes, etc. But I was personally happy to see that there were no major hurdles for me to go ahead with the purchase. Have any of you bought property in the US? How did it go? Are you considering it?

Biggest Downside For US Citizens Living Abroad?

By: Pete
Date posted: 01.16.2013 (11:12 am) | Write a Comment

In the past, I’ve discussed many of the consequences of being a US citizen abroad. There are obvious benefits of course (if not, myself and others would simply forfeit our citizenship) but the downsides must be considered.

The More Obvious One

It’s fairly obvious to anyone on this blog that the following are major downsides:

-Being in legal obligation to file taxes every year to the IRS
-Possibility of owing money on those revenues if taxes are lower wherever you are located
-Being in legal obligation to file the FBAR every year

Another One To Consider.. Estate Taxes..

Estate taxes are often called “death taxes”. In most countries around the world, including Canada (since 1972), dying is tragic but there are no fiscal consequences to giving away all of your possessions. That is not the case in the United States though.  To be fair, up until the recent crisis, $5,000,000 could generally be given away without paying taxes. That might be changing though because of the fiscal cliff and taxes rising everywhere.  We all know that taxes are increasing and deductions are slowly being taken away but it’s unclear how much things will change in the next few years/decades as the US government tries to get its budget back in control.

Possible Solutions?

One thing that I’ll be looking into both to protect myself from Canadian and US taxes since they could change significantly between now and my death (which is hopefully several decades away!) is having a trust created where I could hold most of my assets. This would diminish my income taxes, make it easier to postpone such payments but also reduce the impact of estate taxes if some major changes occur (or in the less likely scenario that my net worth is over $5M by then).

Have you spent any time looking over these? 

More info: Estate taxes in the US (Wikipedia)

Is That US Citizenship Worth It?

By: Pete
Date posted: 11.08.2012 (1:52 am) | Write a Comment
As expats, there are some obvious downsides to holding a US citizenship. I think it’s clear that the main ones are the need file at the IRS and to file the FBAR. Those end up costing me time and money. It could be a lot worse though. As a Canadian resident/citizen, the taxes I pay here are more than what I’d pay to the US government so I don’t expect to owe any money in the near or even long term. If I ended up working In a low tax environment such as much of the middle east or Asia though, it would end up making a huge difference. I would likely owe money every year to the IRS. It’s never fun to pay taxes but it’s even less so when you’re not even enjoying the benefits (infrastructure, etc).

The Benefits

Of course, the reason why most of us still prefer to keep our US citizenship is that there are still more benefits. Some would say that being able to enter the US easily is one although Canadians are about to get in just as easily. Another might be that in some countries, it’s easier to get in as an American, to get a visa, etc. Again though, that seems fairly limited.

The One Big Advantage

The one benefit that few would argue is the possibility and the right to move to the United States at some point in my life. Not only has it always been incredibly difficult to get a green card but it has gotten worse since the tragic 9/11 attacks. Personally, I appreciate my life in Canada a great deal, having my family around, etc. That being said, there’s no denying that the weather, economic opportunities, high quality of life and significantly lower taxes could eventually give me enough incentive to make the move. There’s no doubt that the average Canadian would probably struggle a great deal to make such a move and be stuck in a lot of paperwork.

In The End

I find it frustrating and time consuming at times to file all of the yearly things to simply remain “compliant” but in my opinion it’s still a no-brainer because I know there’s a decent chance that I would move to the US at some point.

What about you? Is having the US citizenship worth it? If so, is it because you intend or are considering moving at some point?

Got An Answer From The IRS

By: Pete
Date posted: 10.23.2012 (1:02 am) | Write a Comment

As many of you know, I had initially filed my 2010 income report with the IRS only to receive a very surprising letter back asking me to send $10,000 or so. Wow! I had clearly made a mistake and when I ended up looking into it to file a revised form along with my 2011 income tax filing, I was hoping to get a quick answer back. Nothing came.. no reminder to pay but also no confirmation that everything was alright. I was told this was completely normal which I found very surprising. No news is good news it seems. How in the world would I get a confirmation that everything was ok, that the IRS was not simply preparing a sophisticated attack to capture me? 🙂 haha.. I’m joking but it was a concern for me to not have this whole story put to rest.

After Finally Giving Up

Last week, after going to my mail box I saw a letter from the IRS. My heart started pounding. If no news is good news… then what does getting a letter, 4 months after getting some news mean? It’s probably not a good sign right?

But then I saw this after opening the envelope:

$0.00 is now due

Thank god!!! Even better would have been to get some kind of confirmation regarding 2011 but it does seem like they really don’t send those. I’m guessing the only reason I got the 2010 confirmation is that they had already sent me some documents regarding that year so they needed to officially “close it out”. I guess that 2011 is also ok since it was done in the same way and sent in the same envelope:)

Am I Fully Compliant?

I guess not. I mean ideally, I would have filed for every year that I’ve worked both my income report and my FBAR… That seems unrealistic though. I did file for 2 years and will do so going forward so as the years go by, I should become “more compliant”

Estate Taxes For Expats..Do You Worry About It?

By: Pete
Date posted: 09.25.2012 (2:03 am) | Write a Comment

Today, I found a very interesting post describing the main differences between US and Canadian taxes. I will surely reference it in the future but one thing that clearly stood out was the estate taxes. At the moment, I don’t have enough assets to actually owe money but it’s not impossible that I will one day. There are no taxes owed on the first $5.12 million but that number could change or I could end up making more money than expected.

What bothers me more though is that I had not really considered that aspect of the dual citizenship which could clearly end up having an impact at some point in my life. I had in mind that while it is bothersome and creates more work, I would never really have to pay more taxes because of my US citizenship (given the fact that US rates are so much lower than what I pay in Canada) but thinking about US Estate taxes has reminded me that it wasn’t necessarily true.

One possible scenario would be for someone in my family to leave a large sum of money to my wife and I, an amount that would end up making us liable on taxes.

I highly recommend that you take a look at that article here:

How about you? Are there some aspects of being an expat that you have recently discovered and have bothered you? Do you worry at all about changing laws?