US Citizens and Income Taxes

Thanks, Mug. This is helpful, and it's pretty much what I have been advised. I'm collecting SS and making some additional money with free-lance writing. What I've been told is that as long as my writing income doesn't exceed X (fat chance!) it's tax free.

Bob

Depends on how your income is reported.  If you receive Form 1099 and it is listed as non-employee compensation, then you are self employed and your net income over $400 would be subject to the self-employed combination SS Medicare taxes at 15.3%. It does not matter what other income you have, you must pay the self employment taxes.  However, since you are working overseas, you could qualify for the foreign income exclusion by filing form 2555. Also, if the income you receive is classified as royalties, then no self employment tax is involved.

Very helpful and pertinent info Mug's. I am pretty much lost in all things taxes, and rely on my Financial Advisor and tax preparer, but it's always really best to have a least a working knowledge yourself.
Again, Thanks
Neil

Read today that Bloomberg announced that 6 times as many American (USA) citizens gave up their citizenship in the second quarter this year than last.  The numbers are not big, 1,131 vs 189 of the estimated 6 million US citizens living abroad.  This is being caused by the tightening of foreign income reporting requirements, as USA citizens are the only people in the world required to pay taxes on their world wide income.  By July, 2014, FATCA will be in place world wide, requiring foreign banks to withhold 30% from certain US connected payments.  Rand Paul is currently trying to get said law repealed, but the chances are slim until after the January 2015 new congress is seated.

Thought Iraq was also required to report all income as well? Not that it matters I get your point. Though personally believe is only a matter of time until more countries start taxing their citizens on worldwide income. Why do you think the U.S. has cracked down so much on banking all over the world? By the way before everyone says it's the U.S. overextending their power again, bear in mind most of these other first world countries are in full support as well. They just support it from the sidelines, and let the U.S. take all the blame, and be the bad guys.

j600rr wrote:

Thought Iraq was also required to report all income as well? Not that it matters I get your point. Though personally believe is only a matter of time until more countries start taxing their citizens on worldwide income. Why do you think the U.S. has cracked down so much on banking all over the world? By the way before everyone says it's the U.S. overextending their power again, bear in mind most of these other first world countries are in full support as well. They just support it from the sidelines, and let the U.S. take all the blame, and be the bad guys.

It's not true that the rest of the world supports what the U.S. is doing.  U.S. citizens are financial pariahs around the world today.  Fewer and fewer foreign banks care to deal with U.S. citizens and, in many jurisdictions, have closed their accounts and told them to bank elsewhere. Those countries that sign up for U.S. reporting are simply doing what they feel is in their best interests....for now.

SawMan wrote:

j600rr wrote:

Thought Iraq was also required to report all income as well? Not that it matters I get your point. Though personally believe is only a matter of time until more countries start taxing their citizens on worldwide income. Why do you think the U.S. has cracked down so much on banking all over the world? By the way before everyone says it's the U.S. overextending their power again, bear in mind most of these other first world countries are in full support as well. They just support it from the sidelines, and let the U.S. take all the blame, and be the bad guys.

It's not true that the rest of the world supports what the U.S. is doing.  U.S. citizens are financial pariahs around the world today.  Fewer and fewer foreign banks care to deal with U.S. citizens and, in many jurisdictions, have closed their accounts and told them to bank elsewhere. Those countries that sign up for U.S. reporting are simply doing what they feel is in their best interests....for now.

Which is why this may be important for US citizens living abroad as the bank laws get complicated many will just stop doing business with US citizens.  Many expats in Ecuador keep banking through the USA, so it does not appear to be an issue yet.

Well I did say many first world countries, not the rest of the world? Their is a difference, and yes countries such as the U.K., and many others especially ones in the European Union fully support what the U.S. is doing, because they are in the exact same boat, that is of facing an ever growing disgruntled population that is moving abroad. You think they are happy about losing that income?

Now as for Caribbean Countries, Latin American Countries, etc., then yes you are right they don't support it, and many have stopped dealing with Americans not because they want to, but because of all the hassles involved. I'll put money down that another several years from now other citizens from countries such as U.K., Spain, Greece,etc., will have the same thing happening to them.

Most all banks in Switzerland, a "first world country" has cut loose American clients and is not the least concerned about its citizens hiding assets elsewhere, as an example.  Despite tightening, Caribbean countries still remain the easiest ones for Americans to open accounts.

Now, things have improved in Switzerland in the years post-UBS indictment days in the sense that SEC registered investment advisors have formed in Switzerland solely for U.S. citizens. (The rest of the world deals direct with the Swiss bank's wealth management team.)  These SEC registered firms have even begun to open offices in the U.S. to attract U.S. investors seeking foreign investment.  And, of course, these firms are fully compliant with U.S. reporting requirements.

Well we could throw Luxembourg as well as some other first world countries in there as well, won't argue that point. My overall point without trying to steal mugtech's thread is that the U.S. is far from the only country encroaching on their citizen's rights. If an American or a citizen of another country truthfully wants to believe there is any strict confidentiality in banking anywhere in the world left than more power to them. Yes, some are clearly more secure, and anonymous than others, but come on does anyone think that if someone wants to find their finances they won't be able to?
If more than one person knows then it's not safe and secure.

You really want to be safe, and secretive, then buy land, and bury your money somewhere.

j600rr wrote:

Well we could throw Luxembourg as well as some other first world countries in there as well, won't argue that point. My overall point without trying to steal mugtech's thread is that the U.S. is far from the only country encroaching on their citizen's rights. If an American or a citizen of another country truthfully wants to believe there is any strict confidentiality in banking anywhere in the world left than more power to them. Yes, some are clearly more secure, and anonymous than others, but come on does anyone think that if someone wants to find their finances they won't be able to?
If more than one person knows then it's not safe and secure.

You really want to be safe, and secretive, then buy land, and bury your money somewhere.

I agree.  Every wire transfer, every phone call, every airline ticket, every passport scan, every email, every debit/credit card transaction, etc. is just a part of the fire hose of data the U.S. collects on its citizens.

Folks, hate to burst everyone's bubble, do you really think the US of A cares about our paltry 1-2-3-4-5-6-700 thousand dollars? It is about US based multi national firms burying bucks off shore to avoid the corporate tax on profits. During my time in DC which ended 2 years ago the last number s we had exceeded $15 trillion dollars in untaxed abroad American corporate bucks. They are working very hard to force those funds to be repatriated. If accomplished the GAO indicates the treaury sees roughly $2.9 billion dollars roughly 1/5 of out national debt.
Let's not forget the drug cartels dough roughly $40 billion being annually deposited off shore which if taxed would bring another by GAO estimates another $1.5 billion taking almost 33% out of the deficit.

Come on folks do you really think your that high on the food chain that the US is "watching you" I think not and I think these blog forums allow the rampant government paranoia to be grossly misstate and abused by folks pushing their own hate agendas. Back up, take a breath and use the brain we were born with.
One last thing, I noted the income threshold of $22,500 posted for SS folks filing married is non reported earned income devoid of taxation. Does this apply to say someone 63-64 on disability. Can they to make that much money without being taxed?
Love to know your insights on that issue.
Smile, they're not watching you and remember you're freedom doesn't come cheaply.

No I'm not a big wig, and do not claim the government is after me. I know full well am a rather irrelevant person in the scheme of things.

Yes, I will use my brain, and history of the U.S. Government tells me that if lucky they will get back a small fraction of the numbers they are claiming, and they will spend 4 to 5 times as much as they actually bring in. Radical concept I'll throw out here, and that is if you're building up a huge deficit then stop spending so much on useless programs. Of course we all know that they're not going to cut their own power base, and easy money. No doubts if we just caught all the tax cheats, and money launderers every problem will go away. I do believe it's a run away Government with no checks and balances that is what upsets people, but just a guess.

Ecuador seems to be a little easier to open a bank account for U.S. citizens, but go travel to a bunch of countries, and tell me how easy it is opening a small bank account for the average Joe? Great your going after big wigs, which will be an utter failure, and disaster, and cutting off avenues such as the most basic things like opening up a bank account, or even trading account,. etc. for all us average Joe's.

timo31750 wrote:

Folks, hate to burst everyone's bubble, do you really think the US of A cares about our paltry 1-2-3-4-5-6-700 thousand dollars?

Yes, we do.  If you don't, then go ahead and fail to report and disclose your foreign assets or file your TD-90 90-22.1 late and see what happens. Your buddies in the Government have no problem penalizing taxpayers with "paltry" amounts well under six figures.

timo31750 wrote:

It is about US based multi national firms burying bucks off shore to avoid the corporate tax on profits. During my time in DC which ended 2 years ago the last number s we had exceeded $15 trillion dollars in untaxed abroad American corporate bucks. They are working very hard to force those funds to be repatriated. If accomplished the GAO indicates the treaury sees roughly $2.9 billion dollars roughly 1/5 of out national debt.

No, it's not. FATCA deals primarily with income reporting and tax collection on individual taxpayers. Corporations have little reason to hide the assets or income of their non-U.S. subsidiaries as they have no tax obligation on foreign earned income unless repatriated. The corporation hate-theme is liberal propaganda to try and sway public opinion for higher and higher taxes to support unsustainable levels of spending. Yes, there are many greedy corporations and corrupt Congressmen slobbering at taxing the world-wide profits of corporations and somehow try and require repatriation, but this has nothing to do with the topic of this thread.  Oh, by the way, there's a lot more individual American monies out of the U.S. than six figure amounts, but I do believe that the U.S. grossly exaggerates the amount of unreported foreign assets to justify its intrusion into the rest of the world's banking business.

timo31750 wrote:

Let's not forget the drug cartels dough roughly $40 billion being annually deposited off shore which if taxed would bring another by GAO estimates another $1.5 billion taking almost 33% out of the deficit.

Yeah, I'm sure FATCA has the drug cartels shaking in their boots!  Maybe the IRS needs yet another form to be completed and that'll do the trick to bring in all those additional tax revenues from illegal activities!

timo31750 wrote:

Come on folks do you really think your [sic]that high on the food chain that the US is "watching you" I think not and I think these blog forums allow the rampant government paranoia to be grossly misstate and abused by folks pushing their own hate agendas. Back up, take a breath and use the brain we were born with.

They're watching if they want to and one thing we now know is the Government finds interest in the everyday lives of many Americans. No one on this board is paranoid, at least I'm not, we're just realistic. Your message to relax, drink the Kool Aid and believe the U.S. Government is not watching you does not comport with reality.  Been in the States long?  Heard about NSA surveillance?  Heard about IRS targeting and other abuses of Government for political gain?  Heard about DOJ supplying assault weapons to Mexican cartels to try and advance their anti-assault weapon agenda? There are daily reminders how an irresponsible government can be and quite willingly will trample on the rights of citizens with no regard for the Constitution.  Of course the Government has no hesitancy to monitor any or all aspects of citizens' actions - if it chooses to do so.

timo31750 wrote:

Smile, they're not watching you and remember you're [sic] freedom doesn't come cheaply.

The price of freedom should not be its loss.

Whatever we think of it, we have to comply.  Where does one find  tax preparer able to keep one out of jail?  It's not like you can just go drop your stuff off at H&R block!  Is this easy?  Do you need to send thing back to the US?  Don't mean to be stupid.  I am planning to move 1st quarter next year and hadn't thought about it very much!

CB48 wrote:

Whatever we think of it, we have to comply.  Where does one find  tax preparer able to keep one out of jail?  It's not like you can just go drop your stuff off at H&R block!  Is this easy?  Do you need to send thing back to the US?  Don't mean to be stupid.  I am planning to move 1st quarter next year and hadn't thought about it very much!

If you have a foreign account whose balance tops $10,000 at any time during the year then you must file the form by 6/30 of the following year, no extensions and it must be in the hands of the IRS by 6/30, not just postmarked.  You can get the forms and instructions on the IRS web site, and it is quite easy to fill out, especially in Ecuador, which uses the US Dollar. Many expats keep their foreign bank account balance under $10,000 and need not file anything. 

The IRS usually goes for the high income taxpayers or the areas with the most amount of false reporting, such as the Earned Income Credit.  But once they decide to check you out you get the same treatment as a big income taxpayer, trying to get every dollar they can.  They can have more success with smaller taxpayers because it is time consuming and expensive to go to tax court, so many do the best they can and then pay hundreds of dollars in taxes rather than spend thousands to defend their position.

Thank you.  Note to self: schedule appointment with tax attorney for list of things to do/not do BEFORE I move.  I knew banking could be difficult.  and I knew that taxes needed to be paid, but I will be retired and at most working part time or volunteering.  My major sources of income are US.  The devil is in the details as they say-------

I am new here and this thread has been a good start for me as I plan on what to do when I retire in 6 to 9 years from now. Thanks everyone for all of the info.

Greg

BTW Starting in 2014 the 2013 form TD F 90-22.1 must be filed electronically at http://bsaefiling.fincen.treas.gov
Probably easier than the paper snail mail version.

Mugs,

Thanks for making your tax expertise available, especially without billing for it ... 

I don't want to belabor the following analogy, but my CPA experience has been in the lost art of auditing ...

With respect to the "chump change" argument that the IRS doesn't care about the small guy and won't make efforts to enforce compliance, there is the long forgotten concept of "deterrence".   The IRS realizes that if they DON'T enforce the laws against the small fry, then even more SMALL FRY'S will want to "cheat like a rap/country/rock star".

The SEC/CPA audit profession would do wise to re-familiarize themselves with this elementary concept from Auditing 101 ,,,  If the "client" (can you say "co-conspirator"?) knows you don't look at the small stuff, pretty soon the financial records become rife with (individually immaterial) fraudulent transactions, including the fraudulent omission of relevant transactions.  It's no wonder that the Big 4 audit firms have all but abandoned most statistical sampling techniques as it tends to dredge up crap that must be swept under the table in order to issue a clean opinion. 

Just imagine if whoever audited those pools of "secondary mortgage securities" had actually audited any stat sample of the underlying mortgage documents (assuming these myopics/sycophants could even find them)  ...

Back to the IRS for a moment ...

The IRS is still smart enough to recognize the importance of the deterrent effect.  Since they  have never had the manpower and other resources to chase down all of the deadbeats, they've always kept the deterrent effect alive with their draconian collection tactics and PR campaigns.

The heavy hitters have always had their "advisors" and "accomplices", but once the small fry's (the infamous 99% of "Americans") started cheating on their taxes like toothless pool room hustlers, our fiscal fortunes have collapsed and now EVERYONE is paying the price in one way or another.

We have laws because we have murderers and thieves amongst us. 

We get new laws when the murderers and thieves devise new ways to murder and steal.  I think it will be very interesting to see how the new way to murder your neighbor (Stand Your Ground) is addressed in the coming years.

The reason we will never see a flat tax or a substantially simplified tax code is because the heavy hitters and their dupes in DC will do everything in their power to avoid the transparency.

   Carlos  aka "ElGringoBueno'

PS  I have prepared income tax returns for several years now as a seasonal "retirement/survival" gig.  I think it is truly amazing that most undocumented aliens pay a higher effective rate of tax on their income than our vocal redneck contingent who (proudly, I might add) cheat on their taxes and then blame our economic woes on "illegal immigrants".  For every $1,000 of income an undocumented worker earns, they pay almost $75 towards YOUR Social Security/Medicare and mine.  I, for one, have thanked every Mexican client of mine for their "support".

[Moderated: Off topic]

[Moderated: Off topic]

oops,

In spite of rattling on for so long, I forgot something ...

Somewhere on this blog (including "references" therein) I read that there are over 350,000 US expats receiving Social Security whilst living abroad.  Since the average $$ check is approx $1,200/mo., that means that, even excluding the additional income of the fat cats and those "better situated" US retirees, the US economy is kissing good-bye to over 5 Trillion Dollars (with a "T", as they say) every year ...

  ... @ $1,200 a whack..

As one of my mentors at Deloitte once said ...  "a trillion here, a trillion there... pretty soon you're talking serious money ..."

Although I can't estimate how much the US Treasury loses in tax fraud every year (the GAO's estimate is astronomical, but doesn't publicly provide a breakdown between the antics of the 1% and the 99%), I'm sure the "small fry" component is a BIG aggregate slice of the pie.

   Carlos   aka "ElGringoBueno"

GringoBueno wrote:

[Moderated: Off topic]

There are 5 US citizens on this thread who have expressed gratitude at gaining some incite into said subject, and I have read many others on other threads both giving and getting good info.  It is dangerous to paint over 300 million people with such a negative broad stroke.

Mugs,

I've already expressed my gratitude for your excellent input in my first post on this (or the prior?) thread.

Thank you once again!  I'm sure you've forgotten more than I know about taxes, especially for expats.

I was simply taking a little "literary license" in making an observation about the state of political/religious/scientific/etc. discourse in America ... with an intention of being "humorous".

   Carlos   aka "El Rhetorical Gringo"

PS  I apologize if it appeared I was intending to insult any individual in particular (especially any US citizens on this blog). 

I did intend to insult a fairly large swath of the Americans that comprise "my experience" and stand by my description, even if clumsily/rhetorically overstated.

BTW, I can't recall if it was Mark Twain, Winston Churchill or someone else who said ... "I wrote you a 12 page letter because I didn't have enough time to write a 2 page letter" ...  Unfortunately, that applies to my posts, as well.

GringoBueno wrote:

Me again ...
From my experience, most Americans already know everything (it's genetic, you know ...) and are not in the mood to learn anything "new".

Do you ever get tired of slandering Americans? Good thing you're leaving since you're so much better than all those 'rednecks'.

Bob

PPS  Don't forget that in addition to buying Alaska from the Russians and Louisiana from the French, the US grew substantially by "acquiring" the Oregon Territory (which included California, Arizona, New Mexico, part of Texas, etc.) in a war that we started with Mexico precisely for that purpose.

Maybe you ought to brush up on your history -- the Oregon Territory had nothing to do with the war.

Hi all,

I would like to remind you that we are not on a political forum, so i would suggest we avoid going off topic.

Thanks
Armand
Expat.com Team

GringoBueno wrote:

Somewhere on this blog (including "references" therein) I read that there are over 350,000 US expats receiving Social Security whilst living abroad.  Since the average $$ check is approx $1,200/mo., that means that, even excluding the additional income of the fat cats and those "better situated" US retirees, the US economy is kissing good-bye to over 5 Trillion Dollars (with a "T", as they say) every year ...

  ... @ $1,200 a whack..

As one of my mentors at Deloitte once said ...  "a trillion here, a trillion there... pretty soon you're talking serious money ..."



   Carlos   aka "ElGringoBueno"

$1,200 a month times 12 months times 350,000 expats equals $5 billion, with a B.  Perhaps you ought to replace that calculator Deloitte & Douche gave you for retiring.  Point is, 350,000 US citizens living overseas is not going to do much of anything to the US economy. 

Many US citizens, especially the ones on here, can and know they need to learn new things to become an expat.  The ones who post on here for the first time after returning to the US because life abroad was not the way certain magazines told them are the ones you are talking about.  There will always be some of these.

[Moderated: Off topic]

Hey Carlos,

Any man that quotes Twain and takes a swing at Fox News is alright by me, but I'm an atheist hillbilly, so it's not like you won a prize.  Besides, I think it was Disraeli, not Twain.

They say one becomes more conservative with age, but I'm more deeply liberal with every year that passes.  At the same time, I'm more willing to find common ground.

My wife and I aren't in Ecuador yet, but we want to have both Ecuadorian and expat friends when we get there.  When we began to look into retiring overseas, Ecuador in particular, our first impressions were a little disturbing.  It seemed like the place was filled with geriatric lunatics - conspiracy theorists, space cadet hippies, angry proselytizers, militant vegans, end-of-the-world survivalists - so, I think it's legitimate to ask questions about the people you're going to be around.

The trick is to be polite.  I can't help you there.

John

Space cadet hippie lunatic...hmmm.  I should fit right in.

... no politics on Expat.com, please ...

Excellent.

More FATCA news, 6 more jurisdictions just signed agreements to report USA citizens foreign banking activities and income, bringing the total to 18 according to Accounting Today.  11 others have agreements in substance.  So if one has investments in Malta, Netherlands, Bermuda, Jersey, Guernsey, or Isle of Man you are now on the IRS radar.
MERRY CHRISTMAS

That is financing not politics I really think your over board sorry.  Sites are for info now if we discuss elections I could see it as politics or Obama politics or about gov politics but banking no.  Eyes are upon us.

Excuse me sorry  but you can not say liberal its a political word...I am trying to understand his logic but its way out there.....

smmr wrote:

That is financing not politics I really think your over board sorry.  Sites are for info now if we discuss elections I could see it as politics or Obama politics or about gov politics but banking no.  Eyes are upon us.

Huh?

smmr wrote:

Excuse me sorry  but you can not say liberal its a political word...I am trying to understand his logic but its way out there.....

Depends how one uses the word.  I could say you are very liberal with your use of the English language concerning spelling, punctuation, word usage etc and it would not be political at all, just true.

some people have to have someone to hate someone to say nasty things about it makes them feel taller bigger better more knowledgeable.  It makes them feel more educated more traveled but between the lines you really see how uneducated and how sad they really are.  So sorry for you.