Americans who move abroad to work face a particularly difficult job in preparing tax returns. Let’s cheerfully ignore income tax problems today, and instead look at Social Security taxes.
Technically, I am talking about FICA1 taxes: the taxes you pay to fund your old-age pension, survivor’s pension, disability insurance, and Medicare benefits. But for simplicity’s sake–and to match the way normal people talk about these taxes–I will refer to these taxes as “Social Security” taxes.
Let’s look at the semi-established digital nomad. You are a U.S. citizen who owns an operating U.S. business, formed as a corporation. You plan to move abroad and travel for a few years.... continue reading
This is another piece of the rewrite project for The Exit Tax Book.
Distributions from specified tax-deferred accounts after expatriation are unremarkable: an expatriate (covered or not) is treated like any nonresident alien, and taxed accordingly. The only difference will be for covered expatriates: since they are taxed when they expatriate, they are not taxed a second time when they receive distributions of money that was previously taxed.
This chapter discusses distributions from every type of specified tax-deferred account except IRAs:
This is a question we get frequently through email:
I have a pension fund. Is that a PFIC?
Unfortunately, there is no easy answer to this question, because every country has a different pension system, and they can be classified wildly differently depending on how the country’s pension works.
For this post, I will pick on the retail Australian super fund again, because I happen to see a lot of them. This post merely illustrates one process I use to determine if there is a PFIC problem.
It is a retirement savings schemes.... continue reading
Here are the answers in a hurry:
Covered expatriates risk being taxed twice: once by the United States on assets they own when when they expatriate, and a second time by their home country when they sell assets or take pension distributions.
The double taxation problem has been largely solved for expatriates who live in Canada, but not (as far as I know) for other residents of countries.What’s a Double Taxation Problem?
Let’s talk first about what a double-taxation problem is. It occurs because two countries want to tax you, and neither country cares that the other country taxed you.
If you are a taxpayer in two different countries, both countries will impose their domestic tax laws on you, and insist on the right to force you to pay tax on your income.... continue reading