IRS taxation for US expats
- Assume you are a US citizen living abroad - The country of expatriation is NOT a low tax jurisdiction (Switzerland, Hong Kong, UAE…) Under what scenario would you have to pay any federal income taxes to the US in addition to local income taxes? If you use the income taxes you pay locally as Foreign Tax Credit, then it will always offset the federal tax liability that you have in the US, because it’s higher anyway? Example: - you make $300k in the UK, or GBP 250k - your UK income tax paid is $116k or GBP 97k - your US federal income tax liability is $75k - you apply the UK income tax paid as foreign tax credit, which more than offsets your US federal liability - Effectively you don’t owe any cash to the IRS Federal taxes are always lower than foreign local income taxes because foreign countries don’t have separate federal+state taxes, they just blend it all, which looks always higher than just US federal. also because salaries are lower than in the US so you get into a higher tax band much quicker. Is that right?
Above 110k I believe
That’s FEIE, I think FTC is more useful for high earners
State tax. California will try to claw you. Every state different
UAE doesn't have income tax
That’s what I said bro
It’s true for sure in your scenario: All income is local to your work country and your work country has a tax treaty with the US. If no tax treaty or you have gains from investments in the US then could be different. As an expat I owed 40k last year
40k out of...? What's your gross?
They be talking bout capital gains, not income
US citizen living in a high tax province in Canada. I’ve only ever owed the US after selling off shares resulting in large capital gains. The most painful part has been that any RSUs that were granted to me while in the US but are now vesting while I’m in Canada, both the US and Canadian taxes are withheld. At vesting I elect to automatically sell to cover taxes and it results in me having to sell more than half the shares. Ultimately at tax filing time I get it refunded but at the time it sucks to lose shares.
Thanks. Did your large capital gains happen in Canada or in the US?
They were US investments I sold the year I moved to Canada. If I were to sell more now that I’ve been in Canada a few years, I’m not actually sure what will happen - I guess both the US and Canada would tax a portion?
You’ll get the worst of both worlds. Max of taxes, min of deductions. foreach(asset type) taxes += max ( US tax liability, UK tax liability) deductions += min ( US deduction, UK deduction) Read up on UK’s pm owing US taxes after sale of UK home
Interesting thanks So the IRS would get annoying if I had $500k capital gains at my primary residence. I don’t see that happening but good to know. The strategy should be to sell and buy a new residence whenever I reach that?
Mostly hear to learn, but I would guess none or maybe any payments toward maintaining US housing?