U.S. Expat Taxes – An Introduction

Guest post by John Ohe, IRS Enrolled Agent and chartered Financial Analyst.

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American expats are subject to U.S. income taxes regardless of where they live and where they make their income. For tax year ending 2013, individuals with income over $10,000 USD (see chart below) must file a federal tax return. However, self-employed people have a much lower threshold. They are obligated to file a tax return if they have $400 USD or more in earnings.

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Over the past few years, the IRS has been increasing its scrutiny over U.S. expats. As such, “better safe than sorry” is fast becoming an applicable quote if you are an American citizen living outside the United States. Note that there are penalties for not filing.

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For many people, a trip to the dentist is preferable to preparing a tax return. The good news, however, is that many U.S. expats end up not owing taxes because of certain exclusions and credits available to the expat community. The most important of these are the foreign earned income exclusion (FEIE) and foreign tax credit. With the FEIE, up to $97,600 of foreign earned income while living abroad is excludable from federal tax. The $97,600 USD works in conjunction with other deductions. As a result, one can have more than $100,000 USD in income, and pay no taxes. With a working spouse, the excludable amount is doubled. In order to qualify for the FEIE, one must meet be either the bona fide residence or physical presence test. With the foreign tax credit, taxes that are paid to a foreign country offset U.S. tax liabilities. The foreign tax credit is normally utilized when one has paid income tax to a country with a higher tax rate than that of the U.S.

Reduce your spending footprint. Increase your lifestyle and financial longevity.

On a very practical note: many people with modest income do not file tax returns (e.g., not required to file because their income falls below the dollar thresholds). However, they are losing out on valuable tax credits that are fully refundable. For example, the Child Tax Credit is worth up to $1,000 USD per child. There is a good chance of qualifying for this credit (if you have a child under the age of 17 that is a dependent) as long as earned income is at least $3,000 USD.

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Lastly, the U.S. government is increasingly interested in knowing about the foreign assets held by its citizens and residents. The FBAR (Foreign Bank Account Report) is one of the key reporting requirements that Uncle Sam utilizes in its monitoring efforts. FATCA (Foreign Account Tax Compliant Act) is a second and distinct requirement. U.S. expats often get these two confused with one another. With the FBAR, the reporting threshold is met if the aggregate balance (combining all the accounts) exceeds $10,000 USD at any point during the year. The second report is Form 8938 (FATCA). The threshold is much higher. For expats filing an individual tax return, it is $200,000 USD aggregate balance on the last day of the year, or $300,000 aggregate balance at any point during the year. For expats who are married filing jointly, the threshold is double.

The penalties for failing to disclose are onerous. With the FinCen 114, failure to report carries a penalty up to $10,000 USD. Willful non-compliance potentially raises the penalty up to $100,000 or 50% of the taxpayer’s foreign assets (whichever is greater). With FATCA, The maximum penalty for failing to file Form 8938 is $60,000 USD for each foreign asset that you failed to report (even more onerous than for the FBAR).

If you would like to submit a tax-related question, please visit us: HolaExpat.com .

All responses are provided by John Ohe (IRS Enrolled Agent and Chartered Financial Analyst).

Hola Expat helps Americans living abroad with their U.S. tax returns. Our professionals are IRS Enrolled Agents with expertise in expatriate tax return matters. Take a look at our fee schedule. We offer the most sensible pricing among our competitors.

Disclaimer: The answers provided in this article are for general information, and should not be construed as personal tax advice. Tax laws and regulations change frequently, and their application can vary widely based on the specific facts and circumstances involved.

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Chased By a Hippo…and Lived!

Guest post by Stacey Ebert. Stacey is a traveler at heart who has visited over 50 of the world’s countries and met her Australian-born husband while on a trip in New Zealand. An event planner by day, she is creative with a love of writing, travel, the beach, yoga and all things chocolate. Always ready for an adventure, she believes that any day by the ocean with her toes in the sand is a great day! Check out her blog at thegiftoftravel.wordpress.com.

Bio Photo for Articles“Run, Stacey, run!” Maria screams in my ear as we jump out of the mokorro. Grabbing our bags, we follow the polers to higher ground jumping over trees that block-in the hippo pool.

My husband and I were on an adventurous trip in southern Africa. After traveling from Capetown up the Skeleton coast through Namibia, we arrive in Maun, Botswana to spend two nights in the Okavanga Delta. At the Delta Station, much different than the likes of Penn or Paddington, we meet our transport that will take us on our journey. Local transporters are known as polers. These men and women stand at the back of the mokorro (boats from hollowed out trees-now there are some of fiberglass) using a very long pole to literally push the boat through the delta.

With the hard work of Samuel, our poler, we reach our destination in just over an hour. The ride takes us through reeds, riverbeds and many water lilies saturated with the ever-present African flies! We have on our long pants, long sleeves, hats, sunscreen and bug spray and clasp our constant supply of water as this journey is in the direct sunshine.

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We aren’t just passengers in this mokorro. When the water level is too low, it takes all of us to keep the boat from dredging. Strategic maneuvers are often implemented since every reed that Matthew can block snaps back as he passes by and then hits me. After awhile I learn to scoot down really low so some of the reeds pass over my face.

Our mokorros

Our mokorros

We have three days living among nature in the environs of the Okavanga Delta. We set up camp, dig our toilet, cook over an open fire and are gifted with incredible sunsets, astounding wildlife and Ouma Buttermilk Rusks that when dunked just right into a cup of tea make the morning that much more perfect.

On our last evening in the Delta, we take a sunset cruise and a get a chance to see hippos in their natural habitat. We find hundreds of birds, a sky filled with multiple hues and a family of hippos on their way to wherever it is they go. We’re reminded never to use our flash when photographing. Sitting in the hippo pool, one swimmer allows us to get close enough for great photos. He is the most dangerous animal in all of Africa and we are sitting just feet away from his wide, strong jaw. Amidst many camera clicks, my heart beats loudly.

His mate, the next hippo to pass by isn’t as agreeable. As we get close, some ‘tourist’ snaps a picture with a flash and the hippo loses it. She gets angrier and more frustrated by the minute. Most of the mokorros in our group make it safely through the weeds that separate the hippo pool from open water; but two are stuck with a thrashing hippo charging.

Hippo pool with hippos

Hippo pool with hippos

This is not my mother being worried about me traveling to far off places; when the polers freak, you know it’s real. With panic-stricken faces they paddle to the edge as fast as they can and frantically gesture to us to get out of the water. “Follow me and run-run, fast!” Samuel yells, and we do as we’re told. Maria’s Portuguese accent behind me bellows, “Run Stacey, run!” as we leap over fallen trees while dodging droppings of elephant dung. As they keep running, the polers look back and shout, “If she comes on land, we have to climb a high tree!” Now I’m really rattled!

We run until Samuel tells us to jump back in the mokorro. We’ve reached a point where they think we are safe and past where our deadly stalker can break onto land and charge. We fling ourselves over the edge and Samuel and his mate pole as fast as their arms can carry us. Through the darkness they stealthily maneuver to find their way threw deep brush getting us back to land unharmed.

Sunset on the delta, Botswana

Sunset on the delta, Botswana

Shaking with adrenaline we make our way back to camp to retell our harrowing tale. After sharing dinner and introducing s’mores to our poler saviors, we finally stop shaking and realize this is one of those stories to wait to share with our parents until they can count all of our fingers and toes right in front of them. According to the polers, it makes sense that the momma hippo rushed. They believe there was a baby with her and as so many know; there’s nothing more ferocious than a mother protecting her young.

The Okavanga Delta is just one of the many brilliant gifts we were given on this African journey. We’ve seen wildlife, gorgeous sunrises and sunsets, landscapes that make you sit up and take notice and a had a chance to commune with nature as a humble guest. We used a ‘bush toilet,’ practiced being a ‘poler,’ hiked past elephant bones and really listened to what the Delta had to teach. A few days of bush camping in the Delta are definitely worth the stink that all of us have been covering with baby wipes and powder.

If you are lucky enough to visit, please remember the following three rules: take out whatever you bring in, never use your flash in a hippo pool, and if that hippo comes on land run as fast as you can and head up the highest tree you can find.

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Sashimi Anyone?

IMG_9083aYesterday we went out for an evening of sashimi. There is a Japanese restaurant within a block of our residence at  Compass Living, so at about 6 p.m. we took a short walk and arrived a few minutes later.

The first thing we saw was fresh sushi and sashimi on small plates that were traveling on a moving transport system up and down the sides of a counter. All the restaurant seats were lined up at this counter so if you wanted an appetizing dish you simply took it off this moving belt.

Menus were given to us right away. There were so many choices and it all looked so scrumptious it was hard to choose. We ordered a plate of sashimi and began taking plates off the conveyor system too. We wanted it all!

Our tea arrived and we dove in on our plate selections with gastronomic pleasure. Excellent!

After half a dozen dishes our bill with tip came to 500VNDong or about US$25. We couldn’t have eaten this amount of Japanese food for as low a price in the States. What a deal!

For more stories and photos of Vietnam, click here.

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Growing Up Dangerously

Guest post by Laverne H. Bardy whose humorous, often irreverent, slant on life in general, and aging in particular, draws a large readership. She has been syndicated with Senior Wire News Service since 2004. Her book, How The (Bleep) Did I Get This Old? was released in January, 2012, and is a compilation of the best of her columns.

LaverneI was four years old when I started kindergarten. My mother spent two weeks walking me back and forth to Hamilton grammar school the summer before school opened. The walk was every bit of a mile long and included crossing a busy thoroughfare. The only instructions I had, or needed, were:  look both ways when crossing the street and don’t speak to strangers. At the end of that two week rehearsal I was sent to school all by myself. I followed my mother’s directions.

Incredibly, I lived.

I remember being in the house and hearing friends outside shout, “Heeeey, Laverrrne.” I have no idea why they never used the door bell or knocked, but when I heard them call I ran outdoors to play with them. We’d leave the house early in the morning and wouldn’t return until dusk. We rode double on our bikes without helmets, precariously balanced ourselves on monkey bars, climbed trees, hid in open sewer pipes, lay down in tick infested fields, while we licked Good Humor ice cream bars and discussed boys. My mother never called the police, even though I’d been gone an entire day, without a cell phone.

Incredibly, we lived.

When I was eight and my brother was four, we traveled alone, by bus to the movies, every Saturday. We’d get off the bus in the middle of the bustling town of Elizabeth, and head straight for the bakery where I would buy us each a Charlotte Ruse. I can still taste that wonderful sponge cake piled high with fresh whipped cream. We would eat the cake as we walked through town to the Ritz Theater, where for a twenty five cent ticket each, we’d watch Perils of Pauline, a double feature, three cartoons, a newsreel, and a brief stage act. Nobody yet knew words like “abduction” or “child molestation”, so nobody worried.

Incredibly, we lived.  

Do not let Fear make your decisions for you. Risk has a price and so does security.

When my grammar school principal punished me for carving my and my boyfriend’s initials into my desk, my mother never sued the principal for hampering my creativity. She backed him up by further punishing me at home.

Incredibly, I lived.

Returning from high-school in a public bus one day, I looked to my left and  realized that an elderly neighbor of mine was exposing himself to me. When I got home I told my mother who explained that Mr. Drake was an old man who didn’t realize what he was doing and I would be wise to steer clear of him. Then she told Mrs. Drake. No police were involved. No lawsuit occurred. No psychological treatment was required.

Incredibly, I lived.

Not only didn’t my mother bleach the cutting board and knife after she cut up raw chicken, but when I was in college she regularly send me CARE packages that included fully roasted chickens she sent via regular mail. Sometimes they took three days to arrive. My three roommates and I sucked every bit of meat from the bones of those chickens.

Incredibly, we lived.

And when I became a mother I was equally as reckless. I drove three kids around in a station wagon and none of them wore seat belts. They jumped up and down, fought over whose turn it was to sit by the window, and climbed over the seat to the back of the station wagon where they stretched out on their stomachs and colored. Today I wonder how they managed to keep from flying around the car and out of windows.

Incredibly, they lived.

I sat with two of my grandchildren the other day, ages 9 and 11, and listened as they told me about all the horrors that go on today – horrors in the TV news, in the headlines, online, discussed in school, and reinforced by their parents in the names of Enlightenment and Protection. These children were worried in a way I could never have imagined when I was their age. They had lost their innocence.

I wish they could live the magical childhood that I did.

Other posts by this author

Watching Real Beauty

Hell, Not on the Map, but I Was There

Cellulite: A Rite of Passage

Camping: Not for Sissies

Don’t Count Me Out

Aging, Not All Fun and Games

Challenging My Legacy

Behind Closed Doors

Battle of the Bulge

How the Home Shopping Network Turned Me into a Zebra

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Coffee in Saigon

coffee in SaigonCoffee choices are everywhere here in Saigon. No matter if I want a traditional Vietnamese iced coffee served in a tall glass with condensed milk and an iced tea spoon or whether I want a Western version of cappuccino with the foamed milk on top I can pretty much get a cup of coffee anywhere.

We even make coffee in the mornings in our residence at Compass Parkview. But for this I need freshly ground coffee beans.

Billy and I discovered several shops that sell coffee beans and tea, and I purchased 500 grams of Arabica beans for 175,000 dong or $8.22 for 1.1 pound of coffee. Since we drink coffee every day, I soon needed to replace my supply. However since I was shopping on a Sunday, my favorite coffee shop was closed. So I made a visit to my neighborhood Starbucks coffee shop to purchase beans. I purchased 250 grams of Columbia coffee for 200,000 dong or $18.80 for 1.1 pound of coffee!

Even though I enjoy the Starbucks brands of coffee, I think I will stick with my favorite local brand!

For more stories and photos of Vietnam, click here.

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Box Lunches

box lunchOne of the things we like to do while staying here in Saigon, Vietnam is go out for an hour walk around the city, just to see what we can find.

The other day we saw these stacks of box lunches that were being delivered to a construction site! I love these things! They are all stackable and easy to transport.

In another area there was a woman filling up these plastic boxes with food and two construction workers stacking them up to take them off to the other workers.

Lunch time!

For more stories and photos of Vietnam, click here.

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Kindest Regards, You Miserable People

LillyPadsJust read your article about Bali..the “Lost Paradise.” 

There is no paradise on earth.  Paradise is a state of mind.

You nitpick every single little thing in this article to the point of sounding like little children who don’t get their spoiled ways.  Too bad you could not enjoy Nyepi, one of the most amazing days of religious significance to the Balinese; a day of total silence with all necessities of life set aside to become introspective.

Apparently, introspection is not part of either of your makeup.  You are spoiled, greedy, egocentric people who will never find happiness as long as you put every small thing under your lopsided microscope.

Kindest regard you miserable people.

Ron

Hi Ron,

Thank you for taking the time to write and to express your opinion. We appreciate it.

We, too, feel badly that we had a difficult experience in Bali. We did not come with a bad attitude. Our plans were to stay 2 months, but we only stayed 2 weeks because of what we encountered. I understand that sometimes travel presents challenges and that’s part of the adventure. Billy and I were disappointed that we were not able to shake out of the negative circumstances that met us in Bali because we pride ourselves in our flexibility.

Do not let Fear make your decisions for you. Risk has a price and so does security.

I do believe that it was just “one of those things.” On the other hand, Bali seems to be dealing with some growing pains and it is our hope that they can come up to meet the demand.

When we came to Bali we did not want to stay in a gated community or resort and be insulated. We wanted to be part of the community and stay closer to the people. We were frustrated to find old cockroaches in the bathroom drains and cobwebs on the furniture in Ubud. The lack of cleanliness in general was also disturbing – and we do a lot of world travel to make a fair comparison.

Perhaps we’ll give Bali another chance and if we do, we hope to find the paradise that so many people speak about. But it could just be that Bali is not for us. We are happy that you and Bali suit each other and that your experience matches your expectations.

Wishing you all the best, and thanks again for taking the time to write.

Regards,

Akaisha and Billy Kaderli

 

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Watching Real Beauty

Guest post by Laverne H. Bardy whose humorous, often irreverent, slant on life in general, and aging in particular, draws a large readership. She has been syndicated with Senior Wire News Service since 2004. Her book, How The (Bleep) Did I Get This Old? was released in January, 2012, and is a compilation of the best of her columns.

LaverneI was sitting in a diner, enjoying my solitude and absorbed in thoughts of my father. It was the anniversary of his death and I was missing him.    

From the corner of my eye I noticed a magnificent looking couple in a nearby booth. The woman was incredibly beautiful with large, dark, seductive eyes, thick black hair pulled sleekly into a French knot, and an airbrushed complexion. Her movements were fluid. She was poised and composed and appeared to be detached from her surroundings. I watched as she sipped her coffee and I realized that hers were the looks I’d always wanted.

The man was gorgeous. I stared shamelessly and smiled as I allowed my fantasies to ramble. His skin was tanned, he had rugged features with a strong cleft chin and clear blue eyes. The cut of his expensive three piece suit accentuated his broad chest and shoulders.

He was reading a newspaper. She was drinking coffee. They never spoke.

I heard myself sigh and tried to pull my thoughts back to where they had been before they’d been so pleasantly invaded. It was difficult. I was drawn to the two of them and their robot-like movements — turning his pages, lifting her cup. No speaking. No smiling. No communicating.

Dream, dream, dream

My thoughts were further interrupted when the hostess escorted another couple to a booth diagonally in front of mine. They appeared to be frequent patrons of the diner because they joked familiarly with the waitress, who asked if they wanted their “usual.”

The man was in his mid-sixties. His hair was steel grey and he wore baggy shorts that slung low on his hips, inviting his belly to hang over. He wore a horizontally striped polo shirt and a red billed cap. Black dress shoes and short black socks accentuated his thin, white, bowed legs.

The woman, about fifty five, had short frizzy brown hair with long grey roots. She wore plaid Bermuda shorts, a sleeveless polka dot over-blouse, white sandals with white anklets, and carried a small white patent leather handbag. She had no forearms. Finger-like appendages hung from her elbows.

I tried hard to ignore her deformity but found myself sneaking peeks at her reflection in the window alongside me. Distance made their conversation inaudible to me, but their perpetual dialogue, laughter and playful animation revealed the warmth and the depth of their feelings for each other.

I stalled by reordering cups of tea. I was intrigued by the contrast in the appearance and behavior of the two couples.

The beautiful people slid across their booth seats, stood and prepared to leave. I observed that the woman was tall and willowy. The man appeared to be about 6’5″ and, in my humble opinion, was a perfect specimen of manhood. The woman walked in front of the man, past the cashier and out the door. He paid the check and followed. They never spoke or so much as acknowledged each other’s presence. They were perfectly sculpted pieces of cold marble.

Loosen your grip on routine

I was on my third cup of tea by now and feeling uncomfortable about lingering any longer when the second couple stood and prepared to leave. When he reached the woman’s side of the table, the man leaned over and whispered something into her ear, causing her to visibly blush and giggle. They embraced. I hid behind my menu and softly cried.

They were walking towards the cashier when the man suddenly turned and came back to his booth. He reached across the seat on which he’d been sitting and came up with his red cap.

My eyes were still moist as I managed a smile and said, “Good thing you remembered it now, instead of after you were on the road.”

He grinned  broadly and walked over to me. “See this here pin?” he asked with great pride as he pointed to a small brass heart stuck in his cap. “My wife gave it to me over 40 years ago and I’m never without it.”

I smiled approvingly and he returned to the cashier where he paid his check and walked out with his arm over his woman’s shoulders.

As my eyes followed them to the parking lot, memories of my father trickled back into my mind and I was struck with thoughts of something he had told me when I was a youngster working beside him in his roadside fruit and vegetable stand. “The sweetest fruits are often the ones with blemishes and imperfections.”

I was warmed by thoughts of my father’s words and realized that while the beautiful people had caught my eye, it was the second couple who captured my heart.

Other posts by this author

Hell, Not on the Map, but I Was There

Cellulite: A Rite of Passage

Camping: Not for Sissies

Don’t Count Me Out

Aging, Not All Fun and Games

Challenging My Legacy

Behind Closed Doors

Battle of the Bulge

How the Home Shopping Network Turned Me into a Zebra

 

Posted in Guest Blog Posts, Heart Song, Humor | Tagged , , , | Leave a comment

Should I Move My Retirement Funds to Mexico?

Do you know where to look into moving retirement funds to Mexico upon having citizenship??

Daniel

Dream, dream, dream

Hi Daniel,

It is our opinion that moving all of your retirement funds to a Mexican bank would be putting you at a currency risk. We would suggest that you keep your money in the US and access it through ATMs. Having a working bank account in Mexico with some of your holdings there would prove to be practical but putting all of your money in Mexico could expose you to risk that you would not need.

I would suggest becoming familiar with some Expat forums and see what others do in your circumstances. You can find this information on our Newsletters and Forums Page. Forums are free to join.

Good luck!

Best,

Akaisha

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Are You Afraid to Retire?

Thank you for your web site, at 53 I have 25 times what I need in retirement income. I really think that that is enough, at a 4 percent withdrawal rate. I am having trouble with severing the ties and just doing it, actually retiring. I seem to be so institutionalized to work that the fear of retirement is real.

Looking at your web site gives me a peek through the retirement door that freedom can offer.

How can I deal with the fear of stepping over the retirement fence?

Brant

Hi Brant,

Thank you for your kind words about our site and for taking the time to write.

Congratulations on your (possible) upcoming retirement!

What you are feeling is perfectly natural. You are considering making a huge lifestyle change, and of course, you don’t know what the future will bring. But at some point, you must take the training wheels off the bicycle and ride on your own.

While you might have enough money to retire, there is an emotional component of retirement that is seldom addressed. This is where you are finding yourself.

That being said, you might try semi-retirement by getting a part time job or  volunteering for pay. This could ease yourself into having more free time and will give you a schedule for your days.

Life is an adventure, follow your dreams.

You could make a list of all the things you want to do with your time, all the things you want to learn, places you want to see, and have the excitement of this list pull you forward.

One thing that will surely help you is if you track your spending. In this way you will know in real time how much of your net worth you are consuming. Tracking spending is a great way to bring one confidence in their retirement plan because you always know where you are financially.

Have you already decided what sort of retirement you are seeking? Do you want to keep your home? house sit? exchange your home with another couple and travel? move to a less costly location? Do you have hobbies you want to pursue?

The more you think about what sort of retirement you want and what will fill your days, the easier it is to move forward into your dream.

I hope you will find these suggestions useful. Please keep in touch and let us know how you are doing.

Wishing you every good thing,

Akaisha and Billy

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