EXpat Taxes IRS -- FTC or FEIE

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EXpat Taxes IRS -- FTC or FEIE


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Old 18th November 2017, 01:30 PM
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Default EXpat Taxes IRS -- FTC or FEIE

Iím an American who moved to Germany when I was a kid and have a dual German citizenship. Up until 2014 I was a university student and had practically no income. I started working in a hospital in 2015 filed and paid taxes in Germany in 2015 and 2016 for the first time. I have no connection to the IRS so far. I earned a gross amount of 61,000 Euros in 2016, I expect to earn a bit more in the years to come ó maybe I will make more than 100$ in 3 or 4 years. I have no kids, Iím single, Iím paying off stundent loans and have no other source of income other than the hospiital job ó my question is: whatís the easiest, best solution for me? Should I file the 2555 Foreign Earned Income Exclusion? Or would the Foreign Tax Credit 1116 be better in my situation? Thanks!

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Old 18th November 2017, 08:13 PM
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If you're looking for the quickest and easiest way to "prove" that you owe no US taxes, I'd go for the FEIE. You "exclude" (on form 2555) all your salary income, and as long as any other sources of income (bank interest, for example) is less than about $10,000 it's just a matter of filling in the forms and then mailing them in.

When and if your salary exceeds the $100K figure (or whatever the FEIE limit is at the time), you can combine the FEIE and FTC (which starts to get a little more complicated) depending on your situation at that time.

The other factor to consider is that as long as you use the FEIE, you can just keep doing so. If you start using just the FTC, you may be deemed to have given up your FEIE option. Usually better to stick with the FEIE as long as you can.
Cheers,
Bev

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Old 18th November 2017, 09:27 PM
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You should also consider whether it makes sense for you to file at all. Unless your bank knows that you have US citizenship and has reported your accounts under FATCA, the IRS does not know that you exist. You may want to keep it that way, particularly if you intend to stay in Germany.

Do some research and think carefully. You can stay non-compliant. You can renounce if the US birthplace causes problems with financial institutions (note that you can renounce without being compliant - many people get rid of the citizenship without ever filing taxes).

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Old 19th November 2017, 07:10 AM
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Just to add to what Nononymous has said, the question of whether or not to file at all may also depend on your plans - i.e. if you ever plan on "making use" of your US citizenship. And key, I suppose, is whether or not you have (or plan to have, or could possibly have) any significant financial assets in the US that could be available to the IRS in case of a dispute.

One unknown at this point is how much use the IRS will (or "can") make of the FATCA reporting from the foreign banks. So far they don't seem to do much with the information unless they have reason to suspect a problem (usually based on tax filings). Or unless a person comes to their attention (along with their US nationality), like Boris Johnson did.
Cheers,
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Old 20th November 2017, 09:09 PM
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Wow, thanks so much for the advice!
So I've been lookinh around and I take my best plan of action would be to go through the "streamlined" procedure -- which would mean filing the last three tax returns and the last 6 fbars -- (I havent filed any fbars either) --- Its seems like a bit of an overkill for me to do fbars 6 years back because i only had more than 10000 in my bank account for the last 2 ... but I guess I might as well just send them all 6 if thats what they ask for?
About not filing and staying under the radar -- its hard to say what my plans are really -- I have no immediate plans of going back to the States, but I can't categoricallly cross it out. And II looked up German my bank -and it says pretty clearly in the fine print that they can send information about american bank accounts to the United States --- so now I'm wondering if my bank has done that already an what they know and don't know -- too many hypotheticals, this can make your head spin --- it seems just being tax-compliant and doing the paper work is most likely to put my mind to ease -- probably better than always having in the back of your mind that your breaking American laws --- (and then maybe kicking myslef for not staying under cover one day when the IRS wants taxes? Who knows?)
I never registered for Selective Servce either, I just found out. That's not something I should worry about is it?
Thanks so much everyone!

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Old 20th November 2017, 10:31 PM
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Don't worry about the draft registration, it's only an issue if you're planning to go back before you turn 26, in which case you'd do it when you needed to do it, applying for a federal student loan or whatever.

Does your German bank know that you are a US citizen, and have you signed a W9 for them or anything like that? If yes there's a small possibility (only small given that your account balances don't sound very high) that you'll have had information reported to the US. But likely the US doesn't know what to do with that information.

There are a few arguments in favour of compliance: some people sleep better knowing they aren't breaking US law (while others like myself actively enjoy doing so); it's easier to make a clean exit from the tax system if you renounce US citizenship.

The arguments against compliance are that while you may owe nothing now, as you earn money and your financial affairs grow more complex, particularly if you start a business (no small bureaucratic feat in Germany, I realize) or make investments, you can easily find yourself in situations where you would owe the IRS money due to inconsistencies in the tax systems etc. That is of course stupid and unfair if you've never lived in the US as an adult, but such is American idiocy. So better not to have ever put yourself on the radar, although the US would have no means to collect tax debts against you in Germany - any payment would be voluntary on your part.

What is probably a greater concern is that at some point soon, if FATCA is not repealed, German banks and financial institutions are going to notice your US birthplace and begin denying you all but the most basic services - no investments, possibly no mortgages or pension funds. Thanks to US personhood, an employer might not offer you a job where you have signing authority over corporate accounts, if that's in your line of work. When this happens, your only recourse is to renounce US citizenship. (Note that you do not need to be tax compliant before renouncing, nor are you compelled to become compliant after doing so.)

The key thing is, there's no rush here. Take your time and educate yourself. Do not feel you need to become compliant tomorrow - it might not be the right decision.

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Old 21st November 2017, 07:02 AM
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One other "little" factor to consider in your decision about compliance and all is your "retirement planning" stuff. Your tax elections may affect your pensions and/or how you can handle your retirement savings.

It's a bit complex, but if you stay in Germany and ultimately retire there, the tax treaty gives Germany the sole right to tax any US sourced pensions (including deferred tax pension savings - like an IRA or 401K). Other tax treaties (e.g. with France) grant the US sole taxing rights, which translates into a flat 30% taken off the top if you renounce your US citizenship when you are drawing a US pension of any sort.

OTOH, you US citizenship can limit your ability to take out certain types of retirement savings accounts in Europe - assurance vie or various "tax free" savings plans - and in any event, they would be taxed by the US even if they aren't taxed in your country of residence. Plus, there can be "additional" reporting required for "foreign trusts" though at the moment, the main thing seems to be just to report the accounts, with or without the onerous extra forms.

It basically boils down to your own assessment of your risk level and how much you're willing to take on.
Cheers,
Bev

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Old 21st November 2017, 11:26 AM
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Hey Bev again!
Okay I haventy really put any thought in anything about retirement planning. All I know is that I automatically pay here into the fund here in Germany. -- If Germany has the sole rights -- is that a good thing then, seeing I've only paid into the German fund? Better than the situation France? So no worries there? What does that have to do with the 401k or IRA? Do I even have those?

As far as opening saving accounts -- thats a good question. Again -- never reallly thought about that. I guess I could try and just not tell the Bank about my American Citizenship -- but hm.

So many hypotheticals. I can totally see what Nonoymous is saying. This is a very very stupid law. I still feel complying would be the safest way to go -- at least for the Moment -- because it won't negatively effect me right now.
-- why then start breaking the law if u dont have to?
As to the future I'm like .. jeez. Thats hard. How am I supposed to plan my whole life right now? Are they any benefits I can look forward to by staying am American Citizen? This whole tax Thing has me like rethinking my whole life now haha

Thanks so much!

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Old 21st November 2017, 02:45 PM
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Quote:
So many hypotheticals. I can totally see what Nonoymous is saying. This is a very very stupid law. I still feel complying would be the safest way to go -- at least for the Moment -- because it won't negatively effect me right now.
-- why then start breaking the law if u dont have to?
Because there is no cost or risk to breaking the law, and potential future costs to obeying it. It's harder to stop filing in future if and when you realize that you'll owe the US - you can't exactly plead ignorance then.

Quote:
As to the future I'm like .. jeez. Thats hard. How am I supposed to plan my whole life right now? Are they any benefits I can look forward to by staying am American Citizen?
The only benefit is easy access to the US, should you choose to spend time there. Otherwise, no, it's purely a liability. You might soon find yourself facing restrictions from German financial institutions who don't want your business.

Take your time, don't think you need to be compliant this year, go explore the Isaac Brock Society and the American Expats Facebook group, you'll hear the horror stories from people in your position who've tried to become compliant and have had to renounce.

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Old 21st November 2017, 03:50 PM
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Basically, what I'm saying is to take your time in figuring out how to approach this particular issue. There are LOTS of folks in your situation - and each one of them has their own approach to the situation.

The big "risk" would be if you wanted to take up residence in the US for some reason - work, significant other, etc. That's when you'd start with things like US bank accounts, US Social Security and associated retirement accounts. As Nononymous mentions, when and if you have the desire and/or the opportunity to go live in the US for a while may be the best time to pull a "oh, you mean I should have been filing US taxes all this time!?" and rectify the situation with a Streamlined Compliance filing (or whatever they call it by that time).

Technically, once you have renounced your US citizenship you "may" be denied any form of visa for entry to the US (even a visa waiver for a short visit). At present, they don't seem to do much with this (except perhaps to take up lots of your time if they notice the US birthplace in your non-US passport) and most folks report no problems if they carry their paper showing that they have renounced. But, given the current "instability" of the political climate over there, there's no telling how it will be in 5 or 10 years from now.

I can also assure you that, if you simply continue under the radar, there seems to be no problem with entering the US related to your not having filed. There are any number of legitimate reasons that someone may not have to file in any given year, so no one is going to check your passport against IRS records. In theory, that could change (I suppose) but as far as I've ever heard, the IRS computer systems are not up to this sort of interaction and are unlikely to get there within our lifetimes.
Cheers,
Bev

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