US Citizens and Income Taxes

Another one

smmr wrote:

some people have to have someone to hate someone to say nasty things about it makes them feel taller bigger better more knowledgeable.  It makes them feel more educated more traveled but between the lines you really see how uneducated and how sad they really are.  So sorry for you.

I don't hate nothin' at all except hatred.

US Treasury Dept just announced signing FATCA agreements with Hungary and Canada, so there are two more places US citizens will be challenged to hide their foreign earnings.

Hello out there,
Charlie and Alla, new to the blog, but still stuck in the US. hopefully not long.

My Wife and I are planning to move to Ecuador to retire, and you mentioned the long reach of the IRS still expects you to file.  Does that still apply if you give up your US citizenship? and if you do that are you also giving up your hard earned social security benefits?  I am curious where it ends with them sucking you dry.

Charlie

If you surrender US citizenship, as I understand it, you cannot collect Social Security.

However, Ecuador is highly unlikely to sign a bank disclosure agreement with the US. The relationship is strained you might say.....

From what I have read so far, the US is currently targeting only three south American countries for for FATCA negotiations -- Brazil, Chile, and Argentina. Panama has already signed disclosure agreements.

These are two informative websites for US expats to keep an eye on:
http://isaacbrocksociety.ca/http://www.nestmann.com/

These have good info too, but they are investment motivated websites:
http://www.sovereignman.com/http://dollarvigilante.com/

All of those websites also have useful links to other websites.

The long arm of Uncle Sam's wealth confiscation reaches into every pocket.

gardener1 wrote:

If you surrender US citizenship, as I understand it, you cannot collect Social Security.
The long arm of Uncle Sam's wealth confiscation reaches into every pocket.

If your combined SS benefits and pensions plus taxable IRA distributions totals $32,000 or less for a married couple, then all you have to do is file and pay no tax.  A couple can live quite well on $32,000 in Ecuador and pay no taxes.  And if you are out of the USA 330 days a year there are no Obamacare non-coverage health insurance penalties.  2,999 people renounced their citizenship last year, mostly higher income tax avoidance people.

sorestanoc wrote:

Hello out there,
Charlie and Alla, new to the blog, but still stuck in the US. hopefully not long.

My Wife and I are planning to move to Ecuador to retire, and you mentioned the long reach of the IRS still expects you to file.  Does that still apply if you give up your US citizenship? and if you do that are you also giving up your hard earned social security benefits?  I am curious where it ends with them sucking you dry.

Charlie

Charlie,

Why would you be entitled to US SS if you renounce your citizenship. When you renounce your citizenship you are not entitled to anything an American citizen would receive. This means you will need a visa to enter the US (if you plan on getting Ecuadorian Citizenship.) And if you ask a citizen of Ecuador how hard it is to get a visa to come to the US you may quickly change your mind. In addition you will need a visa to most other countries outside South America.

It really is a foolish move, I suggest you keep your citizenship.

usmc_mv wrote:

It really is a foolish move, I suggest you keep your citizenship and just not declare your income.

DO YOU REALLY WANT TO ENCOURAGE PEOPLE TO VIOLATE USA LAWS ON THIS FORUM?
Isn't that against the rules of this forum?  I know it is on other forums.

Better?

Important information about US Exit Tax if you plan on renouncing US citizenship, it is extremely expensive taxwise:

Excerpt from the Wall Street Jornal:

"Expatriation can have stiff costs of its own. People who renounce often have to certify they have complied with U.S. tax laws for the past five years. That means expatriation is a bad strategy for cleaning up past problems.

In addition, U.S. citizens and some green-card holders who formally expatriate are treated as though they sold their property on the day before they renounce. There are few exceptions, says Stow Lovejoy, another lawyer with Kostelanetz & Fink in New York.

Such people owe an exit tax if their net worth is $2 million or more or their average annual income tax for the past five years is greater than $155,000. The exit tax is due on net gains, above an exclusion of $668,000. Deferred income in IRAs and some other tax-deferred accounts becomes taxable at ordinary rates, up to 39.6%, according to Mr. Lovejoy.

Expatriation can also bring severe estate-tax consequences. The U.S. heirs of people who paid an exit tax often owe a 40% tax on assets they inherit from the expatriate, whether the assets are in the U.S. or not. Unlike with typical estates, there usually isn't a $5.25 million exemption.

In addition, law requires that the names of people who surrender their citizenship be published by the government, which some consider embarrassing.

At the same time, there are important exceptions to the exit tax. For example, people who have been dual citizens from birth can be exempt. For more information, see the instructions to IRS Form 8854."

So if you decide to drop your US citizenship you've got to consider the current market value of ALL your worldly assets, your home, bank accounts, investments, annuities, inheritances, and total them up, this is what you're going to be taxed on if it is over $2 million, which considering real estate values isn't too hard to exceed nowadays when you add in the value of your home. This makes renouncing US citizenship an option only for the richest of the rich.

Anyone on here with net assets over $2 million thinking of renouncing American citizenship to avoid future income tax and no SS benefits, no medicare?  Must be a very short list.

Don't know real estate values in the US mugtech, but in Canada you don't find many houses under $1 million anymore.

When you start adding up your home, car, bank accounts, investments, annuities, furnishings and everything else you own at present market value as if you were selling off everything the day before you renounce citizenship, as the law requires I don't think it would be too hard to have a net worth of $2 million.

That's why it is not an option for anybody but the extemely wealthy.

I can get pretty annoyed at the USA sometimes (and even more so at its government), but I cannot imagine any circumstances under which I would renounce my citizenship.

The bottom line, once you renounce and leave just don't return. You aren't a citizen anymore however if you return to the USA you could face penalties for never paying the tax. Best place to renounce is an embassy/consulate abroad. I mean after all, if you are renouncing your citizenship and have not intention of ever returning then I wouldn't be too concerned about it. The embassy is not going to arrest you for not paying the tax as it is do to the IRS not the state department - instead you could just become a wanted person in the US.

What if you leave US not owing too much (say $5K or less) in taxes can the government still garnish your SS if you have it deposited in EC bank? What would be consequences?

suefrankdahl wrote:

What if you leave US not owing too much (say $5K or less) in taxes can the government still garnish your SS if you have it deposited in EC bank? What would be consequences?

If you renounce your US citizenship you are entitled to nothing, period. Don't pay your taxes and/or exit tax you just become a wanted person. (and it is unlikely they will pursue you if you are not worth the time and tax evasion is hardly an extraditable crime in South America, especially Brazil.)

The IRS can garnish money from SS and just about everything else of monetary value.

I have no idea if SS can be deposited in a foreign bank account. Maybe mugtech can enlighten us, as he specializes in this topic. I am thinking the US will NOT deposit in a foreign bank account unlike Canada, even though Ecuador uses the USD.

http://www.irs.gov/Individuals/Social-S … vy-Program

If you are a US citizen you can have your SS deposited in a foreign bank account, but most prefer the use of a USA bank account for the $250,000 FDIC coverage of the money, transferring what they need when.  If you have extra money in a foreign account, that is if the total ever hits $10,000 on any day in the year, then extra forms besides the usual 1040 are required to be filed separately.  Failure to pay USA taxes will eventually result in some kind of confiscation, but it could take years and add extra penalties and interest to the tax bill.  The IRS will negotiate monthly payments to satisfy an outstanding tax liability, but the going IRS interest rate, always higher than you could get elsewhere, is figured into the payments.  If you are making monthly payments to satisfy a prior year bill, then all subsequent years must be paid on time and in full or the whole monthly schedule collapses and everything is due immediately.  The amount due does not matter to the IRS, for there is no amount too small for them to pursue.  They would rather spend more than they are receiving to collect a small debt because to adds to their intimidation persona and word spreads that you might as well pay as soon as you can unless you are arguing a point of law.

wjwoodward wrote:

Don't know real estate values in the US mugtech, but in Canada you don't find many houses under $1 million anymore.
That's why it is not an option for anybody but the extemely wealthy.

I agree with your conclusion, but the percentage of houses in the USA worth $1 million is very low.  I know of a few people locally out of 500,000 with such a house.  Most professionals and doctors own houses more in the $500,000 to $600,000 range tops, although the market shows signs of coming back.  Most people live in or rent houses in the below $300,000 range.

Sorry if this was already mentioned, but all this talk about renouncing citizenship is pretty premature. You guys do realize that you basically will need to have citizenship in some country?  That is if you want to be able to do pretty much anything. Now some may have the ability through ancestry, or have dual citizenship, etc. to obtain citizenship. However for the vast majority those aren't options. Not like all you have to do is say I renounce my U.S. citizenship, and there will be a line of countries trying to grant you citizenship.

Most of the responses on this thread in the last couple of days were directed at this post of frustration-

---------------
"Hello out there,
Charlie and Alla, new to the blog, but still stuck in the US. hopefully not long.

My Wife and I are planning to move to Ecuador to retire, and you mentioned the long reach of the IRS still expects you to file.  Does that still apply if you give up your US citizenship? and if you do that are you also giving up your hard earned social security benefits?  I am curious where it ends with them sucking you dry."

-------------

The poster never said he was going to renounce citizenship, he just stated his unhappiness with the US govt picking his pocket at every turn, and was exploring ways to circumvent this theft. The replies here then ran amok.

And now back to our usual programming......

gardener1 wrote:

And now back to our usual programming......

And the answer to the first question is no, if you give up your US citizenship and are not in the USA, then you need not file with the IRS.

"Don't know real estate values in the US mugtech, but in Canada you don't find many houses under $1 million anymore."

Personally, I thought the numbers you were throwing out seemed a tad high. The Canadian Real Estate Association as of January 2014 pegs the average home sale at 388,553, which is not anywhere close to a million. I also think you would be hard pressed to find  but a fairly small percentage of people whose net worth tops 2 million. I stress percentage, because obviously there are folks that are multi millionaires, and billionaires.
I might be missing something, as I see you are an expert on all things Canadian, I just questioned the million dollar price tag. I guess the Canadian Real Estate Association could have their numbers skewed?

Sir,
I have a question I hope you can help me understand.
I am retired Military and live in Quito with my wife who is from Ecuador. My tax guy in the US said I would get a larger return if I got an ITIN for my wife. I asked him what would be the ramifications of doing this i.e. would or could I be taxed more based on her earnings? I have posed this question several times in several ways and cannot get an answer out of him! I don't want extra money just for the sake of it, I just don't want any problems. He also said it would take 6-8 weeks to apply and cost $100-$200 to get an ITIN. When I looked up the form it said nothing about costs. I would like to talk to you about the possibility of your services in the coming tax years. Please contact me at [email protected] or 0983448724 to discuss this matter further.

Sincerely,

Jim

Surrender anything regarding citizenship and everything goes with it.

If you owe IRS funds you pay em one way or ANOTEHR.

Jesus folks surrender your American citizenship?? Are you kidding? When the shit hits the fan and you want those Marines to repel in and safe your asses you'll want it back. SURRENDER! Come on for what pennies.

If everyone out there is on the "know" and you're not, instead of surrendering you can suspend your citizenship like Tina Turner did just recently. That allows you to reinstate your citizenry with a penalty when you want.
Give up American Status???!!! Dear God as a former Marine gunny what did they do to you all to have you even think that. To save some Medicare bucks a couple bucks in taxes.

I live in Cuenca nd just sent then $3500 dollars which I owed from investments in the American market. pretty simply if you make money you pay money. Whats so damned bad about that.
Surrender your countries credentials! My God.

GMC(SW) wrote:

Sir,
I have a question I hope you can help me understand.
I am retired Military and live in Quito with my wife who is from Ecuador. My tax guy in the US said I would get a larger return if I got an ITIN for my wife. I asked him what would be the ramifications of doing this i.e. would or could I be taxed more based on her earnings? I have posed this question several times in several ways and cannot get an answer out of him! I don't want extra money just for the sake of it, I just don't want any problems. He also said it would take 6-8 weeks to apply and cost $100-$200 to get an ITIN. When I looked up the form it said nothing about costs. I would like to talk to you about the possibility of your services in the coming tax years. Please contact me at [email protected] or 0983448724 to discuss this matter further.

Sincerely,

Jim

It could help with filing status and dependents to get her and any children a ITIN, but it should not be very expensive.  Any EARNED income in a foreign country could be excluded on form 1040, so unless your wife earns $100,000 or more, her income would not cause additional tax problems.  I am retiring in 13 months and 10 days, not taking on any new clients, just trying to point people in the right direction.  GOOD LUCK!!

More information Jim is at:

http://www.irs.gov/Individuals/General-ITIN-Information

SawMan wrote:

More information Jim is at:

http://www.irs.gov/Individuals/General-ITIN-Information

Good info, should answer any ITIN questions concerning filing

Before on the thread someone was asking about just how important the little we pay matters to the IRS.  This year I was randomly selected to be audited.  This is done by numbers that are generated  (eg, 123, 789,569 etc) and if your tax id ends in any of those numbers generated, you are audited.  My refund was $663 but I was still audited.  This is done every year and if your number comes up...then the IRS is going to look at your return, no matter how small the amounts.

Since the audit group got Al Capone...don't want to mess with them.

Mike

The budget crunch has left the IRS with less resources and the number of audits has decreased.  Aside from concentrating on known trouble areas (high income, foreign accounts, EIC) there are always a  few random audits, and it is usually just a waste of time, unless you are  Al Capone.  His audit was not random.

mugtech wrote:

The budget crunch has left the IRS with less resources and the number of audits has decreased.  Aside from concentrating on known trouble areas (high income, foreign accounts, EIC) there are always a  few random audits, and it is usually just a waste of time, unless you are  Al Capone.  His audit was not random.

Mugs, correct me if am wrong, but along the lines of having less resources hasn't the what perhaps was once unlimited powers of the IRS to do as it pleased greatly decreased as well? Granted wouldn't want to piss them off, and they can still make your life miserable if they want. In actuality would appear the IRS is more desperate for money than ever, and is more  reasonable and willing to work with individuals than it was in the past.

j600rr wrote:

Mugs, correct me if am wrong, but along the lines of having less resources hasn't the what perhaps was once unlimited powers of the IRS to do as it pleased greatly decreased as well? Granted wouldn't want to piss them off, and they can still make your life miserable if they want. In actuality would appear the IRS is more desperate for money than ever, and is more  reasonable and willing to work with individuals than it was in the past.

They can't just take money out of your bank accounts or seize assets quickly, but the courts slowed them down there.  There are more US citizens and less resources for the IRS, so the odds of getting audited have decreased, but the audits themselves are as painful as ever.  It is a guilty until proven innocent system, which can be a problem

ZenSPIKE wrote:

"Don't know real estate values in the US mugtech, but in Canada you don't find many houses under $1 million anymore."

Personally, I thought the numbers you were throwing out seemed a tad high. The Canadian Real Estate Association as of January 2014 pegs the average home sale at 388,553, which is not anywhere close to a million. I also think you would be hard pressed to find  but a fairly small percentage of people whose net worth tops 2 million. I stress percentage, because obviously there are folks that are multi millionaires, and billionaires.
I might be missing something, as I see you are an expert on all things Canadian, I just questioned the million dollar price tag. I guess the Canadian Real Estate Association could have their numbers skewed?

Spike, I wasn't just “throwing out” numbers as you so delicately put it. Please give me credit for having enough brains to do a bit of research first. BTW, when was the last time YOU were in Canada to even have the vaguest notion of real estate prices there? If you're relying completely on the self-serving figures “thown out” by the Canadian Real Estate Association, yes they are skewed and that is done on purpose.

Average prices are very misleading because they include the entire spectrum of properties and prices. While you can buy an older 2br, "fixer-upper" in the city for around $420,000 they're few and far between. A newer 2 br. home in that same price range you'll only find in small towns in the north where you're going to freeze your butt off in the winter, suffer with blackflies in the spring and summer and be hundreds of miles from anyplace with a half decent population. You're going to be living in places like Sudbury, ON lovingly know as the "Land of the Big Nickel and the Midnight Sun" because it's so far north.

If you want a 3 or 4 br. home in cities like Toronto, Montreal or Vancouver that's any newer than 10 years old, you can count on shelling out over a million easily. Don't believe it, just check some of the online real estate sites!

For example Remax has a 40 some odd year old 2 br. 3 bathroom house in Vancouver's Kitsilano neighborhood (pretty Tudor style, but nothing special) listed for just under 2 1/2 million - not much when you say it fast! You can steal a 1 br. apartment in the (slummy) Fairview neighborhood for $368 thousand.

In Toronto you can pick up a 50+ year old 3 br. 2 story brick house that Remax says "needs work" and advertises as "not for the faint of heart" for just under half a million. One and a half million will get you a decent 4 br. + den (looks to be about 10 years old) in Parkview Hills, nothing to sneeze at, but nothing to write home about either.

Montreal, well let's just say you don't even want to know about the house prices and selection there. Not to mention the fact that if you don't speak French fluently you're in for a hard time as far as working, owning and operating a business and if you're a religious kind of person you can't wear any kind of religious adornments or jewelry that would be visible or you could wind up getting a free ride to the local police station to explain why you were doing so, because this is now against the law in Quebec.

So yes, I won't disagree completely with the “average” price of $388 Grand, but for that you can count on getting a below average house in most places in Canada. And while I never claimed to be an “expert on all things Canadian”, I sure as Hell know how to look at a few listings online before I start trying to shoot down other people's information with “average prices” that are, after all, the Canadian Real Estate Association's way of playing down the actual high cost of housing in Canada, which is a completely misleading statement in their own best interest designed to keep from scaring off potential homebuyers.

As I stated before, I don't know about real estate prices in the USA, but it would appear that they're probably considerably higher in Canada.  Since you're the expert on all things American I will defer to you on the prices there.

Still, I don't think it would be too hard for someone to rack up a net worth of $2 million or more, not to difficult at all if they have a home, business, a few investments and a couple of cars in the garage. Just one of the thousands of reasons that I thank God, every single day, that I was fortunate enough to have been born north of the 49th  parallel.

So the question remains, what percentage of Canadians have a net worth of $2 million or more?

Still no FATCA intergovernmental agreement [IGA] between U.S. and Ecuador.  Get ready to have 30% withheld from your U.S. sourced payments, including transfers from your U.S. bank to your Ecuador bank.  From the IRS website:

The following jurisdictions are treated as having an intergovernmental agreement in effect:

Jurisdictions that have signed agreements:

Model 1 IGA

•Canada (2-5-2014)
•Cayman Islands (11-29-2013)
•Costa Rica (11-26-2013)
•Denmark (11-19-2012)
•Finland (3-5-2014)
•France (11-14-2013)
•Germany (5-31-2013)
•Guernsey (12-13-2013)
•Hungary (2-4-2014)
•Honduras (3-31-2014)
•Ireland (1-23-2013)
•Isle of Man (12-13-2013)
•Italy (1-10-2014)
•Jersey (12-13-2013)
•Luxembourg (3-28-2014)
•Malta (12-16-2013)
•Mauritius (12-27-2013)
•Mexico (11-19-2012)
•Netherlands (12-18-2013)
•Norway (4-15-2013)
•Spain (5-14-2013)
•United Kingdom (9-12-2012)

Model 2 IGA

•Bermuda (12-19-2013)
•Chile (3-5-2014)
•Japan (6-11-2013)
•Switzerland (2-14-2013)

Jurisdictions that have reached agreements in substance and have consented to being included on this list (beginning on the date indicated in parenthesis):

Model 1 IGA

•Australia (4-2-2014)
•Belgium (4-2-2014)
•Brazil (4-2-2014)
•British Virgin Islands (4-2-2014)
•Croatia (4-2-2014)
•Czech Republic (4-2-2014)
•Estonia (4-3-2014)
•Gibraltar (4-2-2014)
•Jamaica (4-2-2014)
•Kosovo (4-2-2014)
•Latvia (4-2-2014)
•Liechtenstein (4-2-2014)
•Lithuania (4-2-2014)
•New Zealand (4-2-2014)
•Poland (4-2-2014)
•Portugal (4-2-2014)
•Qatar (4-2-2014)
•Slovenia (4-2-2014)
•South Africa (4-2-2014)
•South Korea (4-2-2014)
•Romania (4-2-2014)

Model 2 IGA

•Austria (4-2-2014)

mugtech wrote:

So the question remains, what percentage of Canadians have a net worth of $2 million or more?

Well, if we Canadians were subject to the same tax rules that apply to US citizens who renounce (i.e. evaluated as if they sold off everything they ever owned and liquidated all their investments on the day before they renounced); I'm sure you would find that the average Canadian wouldn't have to try too hard to fit into that over $2 million net worth category. In many cases one's house alone would almost put them there. Add to that, cars, bank accounts, investments, businesses if any, etc., and that surely would put many Canucks over the top. As far as an EXACT percentage goes, since I'm not a statistician I can't give you a figure, but the number would be way up there for sure, probably in the over 50 year age bracket it would be upwards of 25 percent or maybe even more.

Please gentlemen, brief easy explanation of FACTA.

It has many tentacles.  The provisions commonly known as the Foreign Account Tax Compliance Act (FATCA) became law in March 2010.  According to the IRS website:

•  FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts

•  FATCA focuses on reporting: 

- By U.S. taxpayers about certain foreign financial accounts and offshore assets
- By foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest

•  The objective of FATCA is the reporting of foreign financial assets; withholding is the cost of not reporting.

See:  http://www.treasury.gov/resource-center … FATCA.aspx

So, many reporting requirements enacted under FATCA are already in place. The reason for the latest discussion is the next wave of the law dealing with required withholding by U.S. banks and U.S. payors for a 30% withholding tax on payments and transfers from the U.S. to countries that (so far) have not agreed to report to the IRS on American owned or controlled accounts (such as Ecuador and Panama).  The withholding is effective July 1, 2014.  With no IGA in place, transfers from your U.S. bank to Ecuador will be subject to tax withholding at a rate of 30%.

Undoubtedly, the IRS will later on flag your return and match up transfers to foreign accounts in non-IGA countries [countries not listed above] and look to see if you have filed your FinCEN Form 114 (formerly FBAR Form TD F 90-22.1), your Form 5471 (report of ownership or control of foreign corporations - more applicable to Panama than Ecuador) and Form 8938 (report of foreign assets).

Practical problems:

- IRS audit trigger
- Need to file return and await refund of withheld tax
- Difficulty in transferring money to or receiving direct payment into an Ecuador account
- Likelihood U.S. banks will not process transfers at all to non-IGA countries such as Ecuador (to avoid withholding and reporting headaches)