Ricedoll's Issues with US Taxation

[ricedoll]

Hungary, Eritrea, the United States, and Singapore (from November 1, 2015) all have citizenship-based taxation (CBT). Other countries, such as Japan, have aspects of their tax codes that are CBT in nature (Japanese inheritance and gift taxes).

Alright, alright. No matter if the US is the one and only or one of many, this CBT law is still inhumane and unjustified. CBT came into effect to target tax-evaders, but we are hardworking honest expats! And please don't start on inheritance tax.

You are obliged to file only if you meet the income filing threshold. However, for the ~94% of Americans living overseas who genuinely owe zero U.S. tax, the penalty for failure to file a U.S. tax return is ZERO. (As a separate matter, they must file a financial account disclosure form if they meet that threshold, and there is a published failure to file penalty, but no tax is ever owed with that form.)

There you go, filing a financial account disclosure. What happened to the land of freedom? Wheres my privacy?

And when China start serious flexing it's newly found muscles in the South China Sea, I might make my move back to the US sooner than expected. You might want to think about that aspect as well and not just from a tax viewpoint.

True but what are your estimates on what will happen to Asia when that happens? I would love to have a discussion on this. I have no clue to this too. But if anything, I hope overall Asia will only improve in every mean and not take a step backward. And whatever the political scene, I'd believe we are still sticking to our good careers, and maybe hiding in our expat bubble. Can you name some reasons why you would leave your current job and move back the US (way before retiring)?

I assume some of you here are a lot older than me, I respect your wisdom. I also think that the reason you would not renounce, is because you are nearing retirement. So perhaps a few more years of paying US taxes with a bonus of open doors back to the US after you retire is beneficial to you. Please note that we are only in our late 20s.

[BBCWatcher]

CBT came into effect to target tax-evaders, but we are hardworking honest expats!

No. You're taking something personally, and for your husband. It's simply not personal. The United States (at least) democratically decides what its particular package of citizenship-related rights, privileges, obligations, and responsibilities are. Your husband participates in that democratic process if he wishes. (I do.) This is what U.S. society has collectively agreed to. Back in the early 1980s the U.S. democratic process led to adoption of what is probably the U.S. tax code's most generous personal tax break: the Foreign Earned Income Exclusion (and its partner the Foreign Housing Exclusion). This tax break, together with the already existing Foreign Tax Credit, exempts about 94% of U.S. citizens living overseas from owing any U.S. tax, with emphasis on exempting those with lower incomes or already paying equal or higher foreign income taxes. Those doing quite well (or better) and paying low or zero foreign tax rates are members of the Six Percent Club.

Tax policy is all democratically decided, at least for the United States. If your husband doesn't agree with this particular democratically decided tax policy, no problem, he can terminate his U.S. citizenship, including the rights and privileges (current and future, actual and contingent) that he and his future children would enjoy.

And please don't start on inheritance tax.

I don't have to. The United States does not have an inheritance tax with one exception: "covered expatriates" (some individuals who renounce their U.S. citizenships). Then there's an inheritance tax that applies to Americans receiving assets from such individuals.

Wheres my privacy?

A Singaporean is asking that question? Oh, that's ironic.

Please note that we are only in our late 20s.

So how confident is your husband in predicting the next 60+ years, plus the lifetimes for each of his future children? I can make only one certain prediction: renunciation of U.S. citizenship is permanent and irrevocable.

[ricedoll]

Who says he will be renouncing before we have kids?

[BBCWatcher]

Who says he will be renouncing before we have kids?

Who says he'll have kids only with you?

[sundaymorningstaple]

BBC,

Tax policy is all democratically decided, at least for the United States. If your husband doesn't agree with this particular decided tax policy, no problem, he can terminate his U.S. citizenship, including the rights and privileges (current and future, actual and contingent) that he and his future children would enjoy.

Not exactly true and that's how FATCA became SNAFU'd for the average man in the street. A lot of stuff was inserted by 'executive' action after the bill was passed. Our current jerk in the whitehouse is famous for his executive actions. Witness the directives to IRAS to hassle certain other politicians or people of note. Most tax policies are NOT democratically decided. At least in the normal sense. If they were they would be put to a public referendum and not hidden in other bills and voted on by the Senate and Congress which is not democratically elected any more than the president is. The entire voting mechanism is so bastardized in the US that calling it a democratic election is a total misnomer today. The electoral college and capitol hill make a mockery of elections.

[BBCWatcher]

Not exactly true and that's how FATCA became SNAFU'd for the average man in the street. A lot of stuff was inserted by 'executive' action after the bill was passed.

As Congress often does, Congress delegated FATCA rule making to the Executive Branch. But Congress is not powerless by any means. Congress has not chosen to exercise its power in relation to FATCA to my knowledge.

The President, Vice President, and all members of Congress are democratically elected, based also on the equal voting power of U.S. citizens living overseas who care to vote. (Most countries don't provide full and equal voting rights to their citizens living overseas, by the way. Singapore certainly doesn't, as an example.)

Our current jerk in the whitehouse is famous for his executive actions.

President Obama and Vice President Biden were democratically elected in 2008, assumed office in 2009, and reelected to second terms in 2012. As it happens they won majority popular votes in their elections. You have to go back to the 1988 election to find a president that won with a greater share of the popular vote than President Obama's lowest popular vote share (2012).

Democratic representative governance does not mean you personally will necessarily agree with every rule, every law, every policy.

[ricedoll]

So BBC are you voting? And who will you be voting to be the next President?

[BBCWatcher]

So BBC are you voting?

Of course. This year (2016) is a federal election year. I already cast a ballot in one of the two major political party's primaries (to choose the general election candidates for federal offices from that party) -- confirmed received in the U.S. now -- and I also plan to vote in the November 8th general election.

Perhaps I should also mention that documented U.S. citizen children typically also have the right to vote in U.S. federal elections, even if they've never stepped foot in the United States. My children will for as long as they care to maintain their U.S. citizenships.

And who will you be voting to be the next President?

Whoever I decide to vote for. Same for U.S. Senator and U.S. Representative (upper and lower houses of Congress).

U.S. citizens living overseas also have exactly the same rights as their domestically resident counterparts to make legal contributions to candidates and political parties, and to volunteer for their campaigns (e.g. make phone calls, which nowadays campaigns can provide to volunteers anywhere they have an Internet connection). They are equal political actors in the U.S. democratic system should they care to participate.

[Strong Eagle]

Thanks Eagle for your explanation.
You mentioned you have 3 passports - the US, the UK and Canada. By keeping your US passport, do you have any strong desire to live and work in the US in the future? Because I know many Americans are now moving to Canada. And those with US/Canada dual citizenship would now rather renounce their US passport for tax reasons.

I emigrated to the US in 1965 with my parents. I have lived continuously in Texas since 1966. I became naturalized in 1978. I am currently in Texas since leaving Singapore in 2013. I have no intention of moving to Canada... I have lived through enough winters there... and my wife would kill me if we went somewhere where the snow is on the ground 6 months of the year.

I don't personally know anybody planning on renouncing their US citizenship for tax reasons... or for any reason... except maybe Trump or Cruz getting elected I've read the numbers, though... around 5,000 in 2015, much larger than earlier years, more prompted by FACTA than taxation issues, and still only a tiny tiny fraction of the population.

Secondly, do you pay any US taxes from overseas? Yes we pay US taxes, but its all my husband's honest and hard-earned money! Just because we earn a lot doesn't justify citizenship based taxation! Its day-like robbery!

Ya know... everybody that pays taxes pays it from their "honest and hard-earned money". EVERYBODY. So what are you bitching about? I already told you that their is a foreign income tax credit to avoid double taxation. In fact, if you were living in a country with tax rates higher than the USA you could end up not paying any US tax. The forms are complicated but the rules are simple. You always pay foreign tax on the excluded income amounts. Foreign taxes above the excluded amount are deducted dollar for dollar from your US tax bill. Pay enough foreign tax and you won't have a US tax bill.

So, the only thing you seem to be griping about is the fact that the US tax rates are higher than Singapore tax rates, yes? I mean, why aren't you also complaining about graduated tax rates percentages?

I certainly paid US taxes while overseas. Not on my income because I structured my company to pay me the maximum excluded income amount and left the rest in the company. But, I paid taxes at the highest marginal rate on my passive US income.

Thirdly, you mentioned about benefits of your US citizenship while being overseas. Can you elaborate on this? My husband surely hasn't felt any.

I have already listed several benefits of US citizenship, perhaps not to your liking since they are not directly dropping coins into your pocket. The US has a huge network of embassies and consulates that are available to citizens and they will come to the aid of a citizen in distress.

If you hold property in the US, it is protected by police, by fire, and by a legal system that keeps it from being taken away just because you are not in the country.

You have the absolute right of return to the country, regardless of your status otherwise. You can vote from overseas. While some countries in the middle east don't like us too much, the US passport is one of the best travel documents you can have.

If he sells our house where we are living now, the US taxes the profit of this transaction! This is not just filing taxes, but paying taxes on what you make through your own overseas property!

Again, you are failing to take into account foreign tax credits and tax treaties with many countries. Capital gains are treated like income in most cases... your US taxes are offset by foreign tax credits.

Also, like I mentioned in another thread, the company will be paying 80% of our future kid's schooling. Whatever the company subsidised will be taxed too! His retirement fund is also NOT recognised in the US, so it gets cashed out every month and we pay taxes on it too.

How do you figure that subsidies paid to you shouldn't be income? There is absolutely no difference to you if the company pays the school $25,000 directly or gives you the $25,000. You are getting $25,000 worth of income from the company.

Singapore treats allowances exactly the same way... any kind of allowance. Allowances paid for schooling, day care, club memberships, trips back home... all are treated as ordinary taxable income in Singapore, as well as the USA, as well they should be.

As for your retirement fund, I have no idea what you are talking about. The US, like most countries, recognizes certain types of savings as retirement accounts, aka an IRA, but not others. If you are invested in a mutual fund, its gain/loss must be computed yearly and taxes applied.

Bottom line, you really strike me as someone living the good life, with a high income stream, much better than most, and plenty of assets, griping about taxes. So, what else is new?

[ricedoll]

Hahaha! Thanks Eagle for your humour. First, I am really glad to have this platform to discuss and learn from people of different backgrounds and different views!

Okay just briefly,

-The country we are in now has lower tax rate than in the US. So, if we are not living in the US, it is just unjustified to pay additional US taxes. When all our non-American colleagues are not going through this ordeal, we have to go through an intensive preparation of documents and tedious time filing and paying.

-Making things more complicated, try logging your every minute over International Waters.

The US does NOT recognise International Waters as foreign countries. So you get taxed for flying over International Waters!! (How absurd?)

As long as you are in “international waters”, you have to “start the clock” and log the hours. At the end of the year, you have to add all of your total flight time and then separate that total from flying over international waters and US soil; you then get a ratio of flight hours that you can/cannot apply to the Foreign Earned Income Exclusion.

This applies to ALL and ANY FLIGHTS over international waters - for example flying from Japan to Canada and forth, Australia to South Africa, France to America, Hong Kong to New Zealand and so on. A flight from Hong Kong to Los Angeles is about 12 hours, and 9 hours of which will be taxed by the United States.

-The above 2 points are enough to drive us up the wall. What if one day you are obligated to punch a time card in and out of the office, or more specifically your cubicle/room. Each time you leave your cubicle/room you log the time. Make sure you do that for any day you are in office. Then end of the year, calculate the ratio of how much time you spend in your cubicle/room vs that you spend in your office building. For every minute you are inside your cubicle/room, you are taxed. And what if they extends the taxation to the bathroom? Log your time whenever you are in the bathroom. This is just a wild imaginative comparison. You get it.

-Finally like I said, along with many others who want to apply citizenship for another country, its because they see themselves settling down and creating a life, making a living in that country.

-Sorry belladonna for hijacking/sidetracking your thread.. Not trying to focus 100% on US tax issue but since everyone is on the discussion of citizenships and passport, I am trying to use my husband's US passport as a case in point to elaborate the problems we face.

[BBCWatcher]

I've read the numbers, though... around 5,000 in 2015, much larger than earlier years, more prompted by FACTA than taxation issues, and still only a tiny tiny fraction of the population.

Also a tiny fraction of the 779,929 individuals who naturalized as U.S. citizens in 2013 (the most recent year I can find).

In fact, if you were living in a country with tax rates higher than the USA you could end up not paying any US tax.

It's even better than that. The U.S. will effectively pay off your higher foreign tax if you have future U.S. taxable income in the same category that is not foreign taxed. For example, if you go work in Denmark for a couple years, pay lots of Danish income tax (which is well above U.S. rates), then go work in the U.S., you can "unspool" that excess foreign tax in the form of credits against your ordinary U.S. tax. That effectively drops you back down to U.S. rates, as if Denmark never happened.

Nice, isn't it?

So, the only thing you seem to be griping about is the fact that the US tax rates are higher than Singapore tax rates, yes?

Less higher next year, we should note. Singapore is raising its income tax rates for Year of Assessment 2017.

The U.S. also has significantly lower social insurance tax rates than Singapore does, and the benefits are still quite good. (U.S. demographics are more favorable, fundamentally.)

While some countries in the middle east don't like us too much, the US passport is one of the best travel documents you can have.

Quite a few countries in the Middle East love Americans much more than, for example, Singaporeans. Kuwait offers U.S. passport holders free entry, undoubtedly because Kuwait is eternally grateful for its national existence thanks to the efforts of the U.S. military-led coalition forces that evicted Iraqi forces from Kuwait in the first Gulf War. And only U.S. passport holders are (often) able to get 5 year multi-entry visas to Saudi Arabia. Everybody else (except citizens of GCC countries) gets 180 day visas. Israel treats U.S. passport holders quite well, to pick another example.

The U.S. tax code generally exempts the first $500,000 of net gains (after all allowable costs) on primary home sales when the home is owned by a couple ($250,000 per spouse). That's a big gain, even in Singapore. Gains above that amount are not necessarily taxable either, and as you mention there are Foreign Tax Credits.

Singapore treats allowances exactly the same way... any kind of allowance. Allowances paid for schooling, day care, club memberships, trips back home... all are treated as ordinary taxable income in Singapore, as well as the USA, as well they should be.

The U.S. is more generous than Singapore at least when it comes to employer-provided medical insurance. Under the current U.S. tax code employer-provided medical insurance is completely tax free, even if the medical insurance is quite lavish and pays for such things as private maternity suites. In a couple years the U.S. is planning to put a cap on that form of tax free income, but the cap will be at least $10,200 per year per individual. Congress has postponed the introduction of this cap.

The U.S. tax code tends to be more generous with certain other employer-provided benefits, such as foreign housing.

....griping about taxes. So, what else is new?

Indeed.

[BBCWatcher]

Your husband is not required to apportion his flight time. He is not required to take the Foreign Earned Income Exclusion. If he wishes he can take only the Foreign Tax Credit, and that doesn't require apportioning his time in order to determine what is and is not foreign earned income.

Singapore also has particular tax breaks -- one in particular I can think of -- that are optional but that also require apportioning time if you take them.

Yes, if you want to take a particular tax break, you might have to document and calculate something. Sorry about that.

[ricedoll]

As for your retirement fund, I have no idea what you are talking about. The US, like most countries, recognizes certain types of savings as retirement accounts, aka an IRA, but not others. If you are invested in a mutual fund, its gain/loss must be computed yearly and taxes applied.

Oh yea you heard me, the retirement fund here is not recognised by the US. And we are in a tier-1 developed country. Like I previously mentioned, it all gets cashed out monthly and gets taxed on. I'd rather much have it in a fund. Sadly, the US does not recognise it. But colleagues from down under or Europe get to enjoy this retirement fund here in the country we work in?

[BBCWatcher]

Oh yea you heard me, the retirement fund here is not recognised by the US.

There is no such thing as a globally tax advantaged retirement account. It's a unicorn: it doesn't exist.

The Singapore tax advantages of its retirement funds (CPF, SRS) are not recognized by any other country unless it has a tax treaty that says so, and Singapore has very few tax treaties in the first place. At least the U.S. has several tax treaties that protect U.S. Individual Retirement Accounts from foreign taxation.

Some countries even have global or foreign wealth taxes. The U.S. is not one of them, but at least it has some more tax treaties that help on occasion.

Moreover, Singapore has zero social security treaties at present. Consequently your Singapore work history doesn't count elsewhere, ever. Unless you hit the minimum work history ("vesting") time in a foreign country (which can be as high as 25 years), your (often hefty, still mandatory) social insurance taxes in that country get you exactly nothing for retirement. The U.S. has lots of social security treaties, meaning that your work in any/every treaty country can qualify you for retirement benefits from that country even if you spend as little as a year working there, as long as you hit 10 years inclusive of your U.S. history. And your spouse (and even in some cases ex-spouse) gets retirement benefits too, even if that spouse never worked.

Have you ever lived in a developed country outside Singapore?

Here's another fun fact: the United States has the third lowest total tax burden among OECD members as a percentage of GDP, with only developing countries Chile and Mexico lower. Denmark is #1 by that score (and a lovely place also). The U.S. personal income tax counts for about 8% of U.S. GDP which is really quite low by global developed economy standards. All based on 2012 data (latest available).

[earthfriendly]

Okay, I understand that nobody likes to pay for something that they do not use. IRS does not have the ability to impose tax based on usage rate. It is an imperfect system run by imperfect human beings. So, it is really up to you at what point you wanna cut your losses.

Some Americans are giving up citizenships as it is burdensome trying to comply with the tax law. Not so much the payment of the tax itself. Incidences where foreign residents hire professionals to file their taxes. It wasn't done right or done to the satisfaction of IRS and they get caught in this whirlwind of fixing it and getting it right. It is cumbersome indeed and can take years off one's life. Bureaucracy can be fatal to your health .