Just about to make the leap

[Vincent Sottile]

We just returned to the US after making settlement on our brand new apartment (with its brand new kitchen) in Grasse (Traverse Victoria).

We now have to put up the house for sale (here in the US) and pack for the big jump. We are retiring in Grasse (January '09) and my wife is returning after 37 years in the US. So! We are effectively 'Newbies" When it comes to some of the changes we will experience, especially in the area of income taxes.

We have the “Tax Foncier” and Habitation tax down pretty well, but how to handle US and French income taxes (since all of our income stream will be originating in the US (pensions and IRA distributions) is our next major "bush" to jump over.

Is there anyone out there who can offer a primer on what our tax profile may look like?

[Bevdeforges]

Hi, and welcome to the forum.

I've been living in France for some 13 years now, and "just happen" to be a CPA (though I don't work as one anymore), so perhaps I can shed some light on your soon-to-be situation.

As a US citizen, you will remain subject to US income taxes for the rest of your life. Your wife's situation will depend on whether or not she has taken US citizenship in her 37 years away. Both the US and France tax based on your "worldwide" income so you have to report everything twice.

For a good primer on how US taxes work from overseas, check out Publication 54 from the IRS (available on the website, or you can order it from your tax package for this year). There are tax treaties between the US and France to avoid double taxation, but as I understand it (not yet on retirement myself) the area of retirement income can be a little bit tricky since it's not "earned income" in the sense that allows you to exclude it for US tax purposes. You have to juggle tax credits to avoid getting taxed twice - and foreign tax credits can push you into the "alternative minimum tax" category.

You may also want to look into one (or both) of the two main American expat groups which deal with taxes and other legal issues: AARO (Assocation of Americans Resident Overseas) based in Paris, or ACA (American Citizens Abroad) based in Geneva. Both are pretty good on providing updates on tax law affecting overseas residents and AARO also provides some explanations in English of French tax developments.
Cheers,
Bev

[Vincent Sottile]

Bevdeforges:
Thanks for deleting the private info for me. "Rookie Mistake" on my part. Thanks also for the tax info. I have been reviewing Publication 54 but am confused on the nature of our income in the US (it will be pensions and IRA distrubutions) and the impact of it on the two tax systems since we will have no income from the French side. My wife holds duel citizenship. What would be the impact of me taking French nationality too. Any benefit or should I take the "Carte de Sejour" route. We have been taking deductions for our French real estate taxes (over the years) since, apparently they don't qualify on the tax credit side. An I correct? I am reviewing those sites you recommended. Thanks for the input. Stay in touch. I am wondering if we need a tax professional when we make the jump in January. At this point in my life, I want to sit on the balcony and watch the soliel rise up from Italy sipping Cafe and munching "tartine". I don't necessarily want to be grinding out tax problems. Your thoughts?

[Bevdeforges]

Honestly, your taking French nationality won't affect your tax situation at all. (I have been paying French taxes with my French husband for the whole time I've been here - just took nationality myself a couple years ago. I only did it so I could vote against the local mayor, who jerked me around when I had immigration problems at the beginning. )

At least with both of you having US citizenship, you'll be able to continue filing joint returns in the US! (It's amazing how "restricted" you are when you have to file married- filing separately, as I do.)

If you're not moving until January 09, you won't need the heavy tax assistance until early 2010. (And you'll simplify enormously your transition year return for the US! Normally, you file extensions until you fulfill the "one complete year outside the country" rule. You'll be spared that "fun and games.")

The US-France tax situation is actually fairly simple. You file everything with both countries. France then grants you a tax credit (which you don't have to figure out for yourselves - they do it for you) equal to the French tax on any amounts that aren't subject to French taxes by treaty. The US expat associations normally can provide info on how to report this on your declaration to make sure it is treated properly.

Your IRA distributions will definitely be taxed by the US (since they are "tax-deferred" by nature - and Uncle always gets his due. ). The pensions are the questionable side of things (along with your US Social Security - which is direct deposited into your account in France thanks to the Consulate). Don't worry about it yet - French tax law tends to change late in the year, so you have to wait until the final regulations come out anyhow.

More important, start looking into what expat health plan you want. You'll need it to qualify for your visa, since you're not eligible for the French national plan.
Cheers,
Bev

[Vincent Sottile]

Bevdeforges:

WOW! Thanks again for your input. You have simplified and answered a lot of our questions and concerns.

That is a funny anecdote about the local Mayor thing.

Yes! You are correct about the married filing separately option.

Our plan was to keep our accounts here in the US except for a small checking account with the bank that has our mortgage in France. We already have direct deposit and automatic payments for various things with our bank here in the US with the addition of on-line banking options (no check writing necessary).

Notwithstanding the current Dollar/Euro exchange cauchmare we thought that we would adopt the strategy of just being able to (subject to exchange rates and minimal transfer fees) transfer, on-line, only those amounts that we would need to pay normal monthly expenses. Is it necessary to have a direct deposit account with the US Counsel? Can’t we just keep our direct deposits here in the US and deal with just exchange rates etc.? We look at them to be the premium that we must pay for the privilege of living on that mountainside in Grasse. If you know what I mean.

By the bye. While we were in Grasse an couple of weeks ago, my wife found out, from the local social security office, that she qualifies for a minimum pension or complimentaire because she worked for a short time in France, Uk and Germany before coming to the US. In addition she qualifies for the “Carte Vitelle” green card. I bet there will be tax implications for that also.

Again, Thank you for your help. You are a jewel. My wife and I are grateful for and appreciative of your information and help.

[Bevdeforges]

If you've still got your bank account in the US, I don't suppose Social Security will insist on your using direct deposit in France. (Why should they?) Though it may confuse them a bit if your legal address is in France. But "let it be a challenge to them." <g> You will need some pocket money over here, too, and the way I hear it, the exchange rate the consulate gets is probably better (especially when you take transfer fees into account) than what you can get doing it yourself. Depending on how your finances work out, you might want to consider taking your US SS here in France, and just having your other pensions and IRA transfers direct deposited into your US accounts. It could well save you having to transfer any funds at all.

The Carte vitelle shouldn't have any tax implications for you - other than you may want to see if she can put you on her card, which reduces the need for an expensive expat policy. (You can just get a normal "mutuelle" for top-up coverage.)

Qualifying for a French (or "european") pension may subject your wife to the infamous "Windfall Elimination Provision" - but talk to the Social Security people before she starts collecting from the US. There may be a way around it - and at least the SS folks in the Paris office are VERY helpful in working out ways to minimize these sorts of hassles.
Cheers,
Bev

[giantpanda]

Originally Posted by Vincent Sottile

We just returned to the US after making settlement on our brand new apartment (with its brand new kitchen) in Grasse (Traverse Victoria).

We now have to put up the house for sale (here in the US) and pack for the big jump. We are retiring in Grasse (January '09) and my wife is returning after 37 years in the US. So! We are effectively 'Newbies" When it comes to some of the changes we will experience, especially in the area of income taxes.

We have the “Tax Foncier” and Habitation tax down pretty well, but how to handle US and French income taxes (since all of our income stream will be originating in the US (pensions and IRA distributions) is our next major "bush" to jump over.

Is there anyone out there who can offer a primer on what our tax profile may look like?

Hi!

First look as this, concerning the Health Insurance. It can be important.

As regards Income tax, when you are a French fiscal resident, you are required to deeclare your world wide income ( which does not necessarily mean you have to pay taxes twice) and at the same time, the taxes paid on the income
outside France. ( so you may have to make 2 declarations, one in US too).

If you have interests or shares, then you could be required to pay also in France.

At present you will have of course a problem, with the conversion rate US dollar and Euro.

Yours ,

giantpanda