TL;DR
Please send your hardest questions about expatriation. This will help us prepare an upcoming workshop–we will know the real problems that are bugging you.
Workshop
We are planning to put on a multi-part workshop in a couple of months. It will be highly technical–to the level of “this is how you answer Line 8”. Yes,
that specific.
The workshop is going to be aimed at regular people–people with net worth under $2,000,000, so they (probably) will not be covered expatriates.
Workshop Mailing List
We have a special mailing list just to get information on expatriation topics only. Sign up for the
Expatriation Only mailing list by clicking on that glorious hyperlink. 🙂
Real Life Problems Needed
In order to prepare a workshop that is highly, highly useful to you, we need to know what problems you are facing.
Yes, we have worked with a gazillion people and talked through their exit tax problems. But there is always something new. I want to know about it.
And then there are the utterly common questions that are so obvious that we don’t even think about them. That’s dumb. They’re common problems to us, but not necessarily to you–this will be the first time you see the problem, when you expatriate. We need to be reminded of the obvious!
Please Send Your Problems
Please submit your comments, suggestions, or real-life problems so we can build these topics into the workshop. The easiest way is to use the
Contact Us page. Or email me. My email addresses on on the Contact Us page.
Or you can use the comments on this blog post to write your question or vent about the problem you are having with expatriation.
I cannot guarantee it, but it is highly likely that as a reward for participating your precise question will be answered to the best of our ability. 🙂
Questions Submitted Already
We already have many questions that have been submitted. Here they are. You can say “Me too” or tell me about some variation on the theme you see there–facts specific to you.
Certification Test
- Do I have to have already filed amended tax returns I think I might need to file when I file Form 8854?
- Are FBARs (and amended FBARs) covered under the certification test? Do I have to file those prior to filing Form 8854 to meet the certification test? (different due dates for 8854/tax return and FBARs)
- What is the best way to amend an FBAR if the FBAR people and IRS told me not to report the account but we later found out that we needed to?
- Can we use the foreign tax credit on the amended returns if we didn’t on the original returns? Is it better not to?
- If you never owed any tax do you still have to file the five prior years of returns to meet the certification test or can you just sign off on the 8854?
Form 8854 Questions
- Does renunciation have any effect on final tax return due date, or is it the date that you would normally file tax returns?
- Do we have to complete Part V of Form 8854 (balance sheet and income statement) if we are not covered expatriates?
- Is it possible to file Form 8854 prior to filing the tax return for the final year?
- Should a married couple split assets in half (in other words, show each asset at 50% of its value) when computing a balance sheet for Form 8854?
Are personal loans included as an asset on Form 8854?
Determining Whether You Are a Covered Expatriate
- Why is there the need to calculate the net tax liability for the prior 5 years when determining whether I am a covered expatriate (referring to Phil’s blog post on the subject from April 25, 2013)? Why not just enter the taxes you owed as shown on 5 prior years of returns?
- How is appreciated real estate valued for determination of covered expatriate status? Is it based on the current assessment or on the amount of appreciation since acquisition?
- I am right near the covered expatriate mark; how do I make sure I’m below?
- How do I value non-controlling shares of a foreign small business for determining whether I am a covered expatriate?
- How do I value a term life insurance policy for determining whether I am a covered expatriate?
IRA/401(k)/Pensions
- I have an IRA account; how do I get it out of the US? Are there any brokerage firms that will accept this type of account?
- Should I roll over my 401(k) to an IRA or cash out when I leave? Or neither? What are the rules for IRAs on foreign addresses?
- My employer allows me to take a loan against my 401(k). Should I take that and immediately default on it, thereby making it declarable income but with no withholding?
- My child is a dual citizen (US-UK). I want to open a child ISA. I will be the custodian. There are no withdrawals allowed until the child is 18. What are the rules for this as relates to income/capital gains?
- Are there benefits to liquidating US pensions (IRAs, 401(k)s) just after expatriation? Are there benefits to taking distributions over time with the 30% withholding? What is the best option?
Other/General
- I live in a country with a different tax year (not calendar year like the US). How is that handled, particularly for a final year tax return?
- At what point does a green card holder (with a US citizen spouse) no longer have an obligation to file a US tax return?
- A green card holder planning to expatriate who has a US citizen spouse who is not expatriating is going to split up their assets and move them to separate accounts. What is sufficient to make the split “real” for US tax purposes? Should they do this prior to filing Form 8854? Does the timing affect to whom the assets belong?
- Is Form 1040NR filed for the entire portion of the year in which I am a nonresident?
- Is timing of income payments important? Is pro-rating an option, or do I just report the entire year of US income even though I expatriated in the middle of the year?
- How is W-8BEN filed? Does it go directly to the brokerage firm/other or to the IRS?
- If I have no US source income in the years after expatriation, should I still file a nonresident return for those years?
- If I expatriate and I am a nonresident at year end, do I need to file an FBAR for the year of expatriation?
- What happens with S-corps at expatriation? Can I own a C-corp or LLC after expatriating? Do I need to wind up US companies before expatriating?
- If there is a 30% withholding on dividend payments after expatriation, do I still have to file a nonresident return since the full tax due has been withheld?
- I am the sole trustee and, according to an attorney I spoke with, a “contingent beneficiary” of an irrevocable trust. How does the IRS view this and how would it be handled for expatriation purposes?
Thank you very much for your most helpful responses.
I have learned some additional information and have a few follow-up questions, if you don’t mind. Again, my goal is to understand options and implications and minimize tax implications should I want to work long term – even permanently / indefinitely in Singapore.
I’m trying to develop scenarios for myself given tax and immigration implications and interdependencies. I am also trying to identify if I have misunderstood any of the financial implications below (I appreciate you can’t comment on the immigration situation):
Context
• Canadian citizen
• Green card holder since March 2005
• Currently eligible to apply for US citizenship; estimated processing time approximately 5 months
• Approximately $300K in company 401K
• Approximately $100K in IRA, rollover from previous employers
• Approximately $100K in CA tax exempt money market account
• Approximately $250K in CDs, regular savings and checking accounts
• Eligible for “early retirement” from employer in five years; pension will pay out at that time at about $2000 per month
• If I leave now, it will pay out at about $1700 a month starting at age 62
• My intent has never been to retire in the US or Singapore; I could see living in Southeast Asia, Mexico, or spending time in a number of places also including Canada and Europe … the desire to work in Singapore is forcing me to make some fairly significant decisions
US Immigration Implications and Risk
• USCIS is giving contradictory information – all written information states green card can be revoked if out of the country six months or more, or if holder shows intent to live / work “permanently” abroad
• Must maintain bank accounts in the US, address, etc to demonstrate ties if out of the country although there are no guarantees that the green card won’t be revoked – not sure if anyone has deep case experience on this – web is littered with horror stories and immigration lawyers saying the green card means you intend to live and work permanently in the US AND NOT GO WORK ABROAD … called
• Called USCIS and they said “nothing in my literature states you can’t go work abroad as long as you have a re-entry permit or come back to the US once a year, and there are no time requirements on that”
Immigration and Financial Implications and Risk
• Becoming a US citizen would allow me to leave the country without travel or work restrictions; however; it would require me to file US income tax indefinitely AND pay income tax on worldwide income / revenue
• That said, because I have had a green card and lived permanently in the US for almost 9 years, I am ALREADY and a SURPRISE to me, subject to the same tax laws as a US citizen anyway
• I would not move to Singapore and renounce my Canadian citizenship in order to become a citizen of Singapore
• I can hold dual citizenship US / Canada but Singapore does not allow dual citizenship
• Canada taxes based on residency, US taxes based on citizenship
• IF I were to apply for and be granted Permanent Residence status in Singapore, this would be in direct conflict with the intent of the US green card; it would allow for subsidized medical care, which may be of significance depending on health insurance offered by a perspective employer; it would also require mandatory participation in the Singapore “retirement fund” whereby 20% of my salary would be placed in an account for medical, education, financial aid with a 12% government match … this $ would be available to me in a lump sum but to receive the full pay out I would have to renounce my Singapore Permanent Resident Status
Practical Considerations
• How do I move my $ out of the country if / when I do leave
• Assume by wire transfer if I move to Singapore and open up a bank account there…
Scenario 1 – (ATTEMPT to) Keep the Green card
• Avoid high taxation and 10% early withdraw penalty on 401K and IRA
• Avoid any potential immediate and high taxation, if applicable, on future pension payments
• This option would require returning to the States annually, or using a re-entry permit
• There is no guarantee immigration would not revoke the green card at any point in time as it could leave the impression that I have disregarded the intent to live permanently in the US
• This option becomes less feasible the longer you stay out of the country
• If it triggered an “event” with immigration I understand the same issues that I’d face if I were to renounce the green card now come into effect
• This might be a good “test the waters” approach that would give me flexibility to return in case I regretted my decision to leave or wanted to return
• I’d have to maintain US bank accounts, a mailing address etc
• File US tax annually, be subject to dual income tax Singapore and the US on earnings over approximately $100K at perhaps 28% noting that “credits” are available to reduce this
Scenario 2 – Renounce the Green card
• File form 407 with Immigration to renounce the green card, likely through the US Consulate in Singapore vs through US immigration in the States and be immediately subject to taxation on all 401K $ and IRA likely at likely the highest possible rate for federal, assume I’d also have to pay CA state tax on the money which is around $400K – or do they just withhold the money (I believe IRS said the bank / employer would withhold whatever % I told them to withhold)
• Pay an additional 10% early withdrawl penalty on the 401K and IRA (around $40,000 in penalties)
o Did I understand correctly that this can be deferred somehow so you pay interest on the deferral amount but not actually have to lose all of the $40,000K
o Also, in theory, the only place I’d be able to put the $ is in an account in Singapore so in theory, I could only renounce the green card once I’m there and have an account otherwise I have no home or residence and therefore no bank account – can’t put it in Canada as I’m not a resident there, officially, although maybe I could but that would take researching more into Canadian laws – or maybe just a phone call
• What would they do with the pension? Nothing until it’s paid out when I’m 62 and then tax me 30% because I’m a non-resident/non-Citizen? They wouldn’t tax me in advance on that I assume because I haven’t been given anything….
• Benefit: no dual taxation on Singapore earnings over $100K (Phil said that would be minimal based on housing credits etc); no taxation on the $ I’d put in the Singapore “retirement account”
• No denial of a bank account abroad for being a US permanent resident / citizen because foreign banks don’t want to deal with hassle or reporting to IRS
• No fear of what rules IRS is going to come up with next and subsequent taxation
• No future filing
• This appears to be, by far, the most costly option … I have to also guestimate if the future income I would make in Singapore and subsequent US taxation would justify renouncing it
• Say I had access to the 401K at age 59 and were to take out $40,000 a year for the next 10 years … I have to see what the tax tables say about what tax rate that would be vs the 28% I’d likely be hit with now
• Also, what’s that money even going to be worth in 10 years – it’s a mystery, and if I’m living abroad, what might the exchange rate be of US vs foreign currency of country I may be living in
• While this seems to be the most costly financially, and leaves no options to return here for employment, if I don’t intend to live in the US permanently anyway I am going to repeatedly face this question unless I obtain US citizenship
• IF I do renounce, my guess is try to do it earlier in the tax year than later, because once you renounce you also stop having to pay US taxes, true? 13% tax in Singapore is attractive and I’ll need the reduced rate given cost of living.
Scenario 3 – Obtain Citizenship
• Avoid early 401K and IRA 10% withdrawl penalty because I’m under 59
• Avoid immediate and higher taxation on 401K and IRA
• Avoid any possible early taxation with employer pension
• Travel in and out of the US as I please, work here or elsewhere as I please, subject to foreign immigration laws
• Always file US income tax with IRS
• Likely maintain and with fewer issues US SS payments – if there are any later on
• Pay tax on WW income including any “retirement” fund matched by the Singapore gov’t – guessing that would be $15,000 US a year taxed at 28%
• IRS said non-resident and resident tax tables are the same so I shouldn’t lose anything there, in theory, if living and working abroad
• Maintain US bank accounts in the US if I so choose
• Possible challenges getting bank account if I live abroad due to IRS reporting requirements
• If I had a Canadian RRSP it would be subject to US taxation but I believe this could be deferred until the money is withdrawn and hopefully do to a taxation treaty you wouldn’t be hit with both US and Canadian tax
• Travel in and out of the US on a US passport
• I think US citizenship may be the most flexible and least costly option – I don’t know if my future earnings abroad would be so much that they would justify renouncing the green card (in order to save US tax on WW income) vs the tax hit I’d take on the 401K and IRA
• BUT, if you could defer penalty for early withdrawl (if I understood that correctly and the interest isn’t too high, maybe the impact isn’t as bad as I think
• Why understanding details on renouncing matters is that if I am given the job offer of the job in question – that I really want and is very unique, they may not be willing to wait five months for me to get my citizenship … I could request expedited processing, although that’s not guaranteed, or could possibly come back for the processing … although immigration could say, what, you want to be a US citizen but you live in Singapore?
So it’s a bit of a mess…. No one scenario is perfect but understanding implications is key, particularly when I don’t have total control over how this will unfold.
If I don’t get this particular job offer and I want to move to Singapore, my sense is it would therefore be smart to apply for citizenship so I can be “free” to go. The irony is too much….
Limiting the tax hit to renouncing would be ideal, if there are ways to do this. But if there isn’t a way to do this, I am going to have to watch how this unfolds, make some decisions and maybe bite the bullet.
It just depends on how this progresses but I need to be informed because I likely won’t have a lot of time to research this when it does start to unfold.
Sorry for the long posting. I just wanted you to have transparency to the nuance.
From a tax perspective it’s likely relatively black and white but I can’t completely separate the taxation from the immigration piece.
Infinite thanks!
Exit tax: I now understand the liability vs income. Thx for the patience. Glad it’s not an issue.
The only other debate is advantages of greencard vs citizenship.
If I possibly want to work outside the US longer than two years, and avoid the six month trips to the US that immigration could view as questionable anyway, I think the citizenship option is a good one. Having lived here for 9 years with a green card I think I am basically treated as a US citizen in terms of tax purposes anyway, isn’t that true?
Are there any disadvantages? Yes, you have to do WW reporting but I would have to now anyway I think … unless I renounce.
The good news:
1. I can go to Singapore and the tax situation should be managable.
2. Taxation for greencard or citizenship seems to be the same except I would avoid a possible 401K hassle if I were a citizen. I do have $ in 401k.
@bubblebustin
•your average net Federal income tax liability for the prior 5 years exceeded $155,000 (for expatriations in 2013); or
https://hodgen.com/expatriate-without-filing-fbars-sure-thing/
…..1. You earn more than approx $155K on an annual basis for last five years before renouncing –
No, you are confusing something here :
it is the net US income tax liability and the emphasis is on net not the level of your salary.
2. The job I am currently discussing has a high range of $120K…
You will be fine with FEIE , FTC and FHE / maybe AMT but definately not anywhere near the $10K you were quoting.
Relax, you are totally fine !
Bubblebustin, thank you for your insightful advice. It’s great to know flexibility and global experience can be pursued with limited tax impact.
I spoke to an Expat working in Singapore with my company and he indicated his understanding was that in his income range he’d be hit with a $10K IRS bill somewhere down the line, after he returns to the US, but the company covers that on his behalf. I don’t know if I would be hit with the same kind of tax obligation or if my company would cover it. And if I left my current employer for another, obviously not.
The job I am currently discussing has a high range of $120K which is quite a bit less than what I’m currently earning. I don’t know if they’d adjust it up if I got the job – I’m just starting to explore this. I also don’t know if it is bonus eligible so details to be learned.
Re the Greencard, while it appears possible to work through IRS implications, USCIS/INS implications are a bit different I understand. If you are outside of the US for work that is perceived as contrary to the intent of the greencard (meaning work permanently in the US) the greencard is potentially at risk. You can get permission to be away for a year without re-entry to the US but then you disturb your residency requirement of five years which you need to qualify for citizenship. Which means I’d have to live and work here five years consecutively again if I wanted to apply for citizenship later.
Why does greencard / citizenship matter? Greencard is limited mobility. Citizenship much greater mobility. Having paid into SS at my highest earning years and of course not into Canada’s, that’s also a lot of payments with no return. Although of course who knows what level of benefit will pay out at what age in the future. Just trying to be mindful of all implications.
Re exit tax: I understood you had to pay exit tax if you give up the greencard and one of the following two criteria apply:
1. You earn more than approx $155K on an annual basis for last five years before renouncing – I misquited the figure earlier – right now that’s not an issue but moving in that direction
2. Worldwide assets are over 2M. I understand that also has to include future pension benefits, 401K, all assets, bank accounts etc – right now that’s not an issue
Yes, I would rent in Singapore.
What I take away from your postings is:
1. Don’t let fear of double taxation hold you back from Singapore (not withstanding the $10K issue my expat colleague mentioned)
2. I still have to better understand and think through cost of living and if / how that would decline comparing life in LA to life in Singapore – obviously also thinking about the benefits of having a new life experience (if I wasn’t strongly already down that path I wouldn’t be researching this)
3. Greencard vs citizenship – I’m curious if I could file for citizenship and use a friend’s address then come back for my interviews and processing. Works around the 6 month limitation from USCIS. Why I ask is there is a job now in discussion, I don’t want to tell them no, I can’t go for it because of the limits on my greencard, which in fact are real. That said, I do qualify for citizenship now so if I apply now maybe I wouldn’t have to wait the 5 plus months it takes for processing. Or maybe the company would wait. Don’t know how dynamic the job market is in Singapore, how quickly they turn jobs around….
I’ve also been told people who go to work there get large accommodation allowances otherwise the cost of living is too unfavorable. But it seems from what you say maybe there is a credit for this as well etc etc.
It’s not all about the money. But it’s smart to know what you’re dealing with and be thorough so you don’t end up with surprises … like I did with the rules around the greencard.
Thank you.
@Normal ….
You are absolutely right flexibility and global experience should be your two main goals and they need not be enemies.
Imo. keeping your green card (with all the options of returning later back to the US) and pursuing your job opportunity in Singapore by far outweigh the possible small double taxation disadvantage.
Of course if your salary at some point would exceed a certain $figure than FEIE,FTC and FHE would not make a big dent anymore but even than as a HNW individual there are some interesting options for you, such as those centered around life insurance, specialize retirement structures, etc., that you may qualify to take part in which would reduce your “global” income tax bill.
http://intentblog.com/pursuing-two-opposing-goals-often-leads-loss-both/
@Normal….
……..Keep the greencard. Waste my vacation and $ on flights and gain a lot of jet lag every six months for a max of two years to get a stamp in my passport while maintaining permanency in the US so I can come back to the US after my Singapore experience….
You do not need to do that :
file Form 8833 to claim the non-discrimination benefit (i.e., being able to claim bona fide residence without jeopardizing your green card)
@Normal….
…..I avoid the exit tax as I have only one year surpassing the salary cap and am under the $2M mark…..
May I make a remark towards your phrase salary cap.
It is net US income tax liability and the emphasis is on net / not line (7) wages,salary or even AGI …. so there is no salary cap.
The FEI exclusion is for tax year $99,200.
It will be very likely that you rent in Singapore therefore more good news for you : Singapore had the largest increase from $67,500 to $89,800 in section 911 FHE (foreign housing exclusion) for 2013.
Form 2555 : line (45) > $155K (estimate)
I do not know what salary you will be making but your AGI will not be as high as you think , hence the impact of the marginal tax rate difference between the US and Singapore not as bad.
Based on a true story … very true.
I am a “normal” unsuspecting Canadian who came to the States and ended up staying longer than intended, first under TN then, after having to leave the country with a job change and not appreciating the liability of an expensive long-term lease in Chicago, I started the process of applying for my greencard. (Which took five years to get approved thanks to 911 and stalls in processing.)
I received my greencard in March of 2005 and have been working full time in the US ever since, saving for my retirement, plugging into my 401k, growing my pension at a company that actually still offers one.
Then surprise. In January 2014 I decide maybe I want to go work in Singapore. Surprise number two: I discover all the PR issues and tax implications if I want to leave the US.
If I renounce my greencard now, I avoid the exit tax as I have only one year surpassing the salary cap and am under the $2M mark. BUT, because I apparently have to “cash out” I get hit with a 30% tax withholding on my 401K, plus an additional 10% because I am under 55. Although I understand you can defer that penalty until you actually withdraw (hopefully at a lower rate when I am 55+) although you pay interest on that which you defer. AND I guess they hit your pension too, which you don’t actually get to touch for another decade.
Goody. So much fun.
OR
You apply for citizenship. Speaking strictly from a financial perspective, you then bypass the immediate hit to your pension and 401K meaning no 30% plus 10% withholding.
However, Singapore and the US don’t have a tax treaty. Your first $95k of earnings or so is apparently spared from dual taxation but after that my guess is you pay on both. Not sure if you also get to pay into an IRA if you are outside of the States. Doubt it. Interest on your bank accounts (if Singapore lets you open one given the reporting hassle with the US) is potentially hit with double taxation if – and this is about a 100% probability – you go over the 95K mark for earnings.
The cost of living in Singapore is super high so taxation is lower than the US. So the two systems are basically in conflict.
If I had a crystal ball, which I don’t, this would be easier to resolve. But I met many Americans living happily in Singapore, even given the high cost of living. So how do they work it out?
The options appear to be this:
1. Renounce the greencard realizing that if you ever want to work in the US again (higher salaries, lower taxes, more opportunities) chances are that may be difficult. USCIS I am sure wouldn’t appreciate it. I understand this. AND while you can possibly defer the taxation on your 40kK / pension the implications of that ie cost and procedure are not clear. Maybe the interest on the tax deferral is high and over the period of a decade or more might be a lot of money. Right now I have about $400K in 401K not including $24K annual pension starting at 55.
Also maybe say good bye to any SS you may have earned that likely won’t be available to you when you are eligible to collect anyway.
2. Get your US citizenship. Know that if you go to work in Singapore you will pay “local” tax on any amount up to $95K and potential dual tax “local” and US on amounts above $95K. And I have yet to figure out how much that would actually be in both Singaporean and US taxes. Have I mentioned yet this is a nightmare?
3. Keep the greencard. Waste my vacation and $ on flights and gain a lot of jet lag every six months for a max of two years to get a stamp in my passport while maintaining permanency in the US so I can come back to the US after my Singapore experience and try to figure out the exact scenario all over again if I want to go and work in another foreign country, like Belgium, for example.
All I want to do is get some global experience. I’ve lived in 5 countries already. This seems like a healthy thing to do. But alas….
So if I could ask some humble advice from someone who seems to know almost all there is to know about this, what’s a girl to do?
Obviously there are implications either way. I don’t have a crystal ball. I want flexibility. I had not intended to retire in the US. I perhaps want to spend large chunks of time outside of the US. I’m not trying to avoid taxation but I don’t want to be unfairly penalized by it either.
My Canadian friends say get your citizenship. It will give you flexibility. They say the pros seem to outweigh the cons. Mostly it’s the taxation issue in Singapore that concerns me…. and elsewhere…. I believe I can still go back to Canada and work, just file a US tax form although taxes may not be collected because Canada taxes a higher %.
Singapore however is the location in question….
The world is changing. I just want options. It’s not about disrespecting the US. It’s just about having a life with diverse experiences. Citizenship then seems like the way but maybe I am missing something.
Thanks. And thanks for the info on the site. It’s already brought so much more clarity to a surprising and difficult situation.
I’ll bite too.
Many emigrants from the US work in their new country of residence and contribute to a retirement plan. In plain language, what do the terms “foreign,” “non-qualified” and “ineligible” mean in the 8854? If the IRS attaches those words to a retirement plan, how then is that plan reflected in the calculation of net worth? If there is a surviving spouse clause in the defined benefit retirement plan, can the present accrued value of the retirement plan be split, and if so, how?
Sure, I’ll bite.
You are a Canadian with an unwanted second U.S. citizenship. You are a USC because you were born in Vermont, where your parents were working; you were brought home as a baby. You are now concerned about your Canadian financial institution flagging your account as having U.S. indicia under FATCA. You want to wind up your U.S. citizenship with a minimum of expense and life-sucking paperwork. You have no U.S. assets. You have never even considered filing a U.S. tax return. Your Canadian assets are below US$640K.
What is the real downside of solving the problem by a) renouncing and b) filing an 8854 as your first, last and only piece of US tax paperwork, listing your assets and saying that you haven’t filed for the previous five years? What is likely to happen?