Is being a US expat unreasonable?

[blazinblasian]

Hello Staches,

I am form the US, but currently live in Australia. Thinking about my financial situation (belatedly) I am starting to wonder if I have it all wrong. Are there any expats in the crowd? I need some moral support as a new Mustachian and soon to be immigrant.

I currently earn income from Australia, and a small amount from the US.
If I were to switch my income to all US income, I would be doing contract work, and would not bet the benefits of being a full-time employee. . . (I am assuming there are retirement accounts for self-employed people, I just don't know about them extensively)
And if I continue to work in the US, but live in Australia, I would still be taxed on my US income in Australia because of my residence.
Plus, I accidentally invested in Australian ETF's and I am reading now that the US taxes these heavily as passive foreign investments.

I am so confused, and the more I read into things, the more I realize I don't know, and I feel like I am leaching money from my previous decisions based on "hey, it would be fun to live in Australia."

[marty998]

You are going to need some very detailed tax advice from a specialist accountant. This forum is not the place to get it :)

Tax residency rules for Australia are quite complicated, no wonder you are confused!

Worst case scenario you owe tax in both Australia and the US on the same income...

[maizefolk]

So I am not a specialist accountant, but at least a couple of pieces of info/pointers:

-Yes there are retirement accounts for self employed people in the USA. Among other options you can set up at 401k and shelter $18k + ~20% of your total income from american taxes.

-Even though the US taxes worldwide income, it's hard to end up actually owing tax on the same income in the USA and your country of residence.

--If you're in Australia for at least 330 days out of the year, you won't own US income tax on your first $100k/year of income.

--You can also get a credit on your US tax return for foreign income taxes paid that usually works out to either the amount of foreign tax paid, or the amount of US income tax you would otherwise have owed on the same income (whichever is smaller). So in practice you'll generally owe in total the higher of your local income tax rate and the USA's tax rate, but both the entirely of both tax rates combined.

I am not a tax accountant, don't take anything posted above on faith, both hopefully it at least gives you a place to start researching.

[mspym]

You are going to need some expert advice in this situation. (Source: my husband is American)

Of the top of my head
- There are a lot of restrictions for Americans living abroad having US-domiciled bank accounts  & investments.
- There are reciprocal tax agreements between Australia and the US so you should not be taxed twice on the same income but you will need to file in both countries.
- You should be able to claim back any Australian Super you earn if/when you leave the country permanently but again, this may change in the future.
- Are you considered a tax resident of Australia or the US? If it's AU, then the ETFs are not a problem but then the US bank accts may be an issue.

Good luck

[blazinblasian]

You are going to need some expert advice in this situation. (Source: my husband is American)

- Are you considered a tax resident of Australia or the US? If it's AU, then the ETFs are not a problem but then the US bank accts may be an issue.

Good luck

Oh really? That is great to hear!! I am a tax resident of Australia. I will be visiting the US in a week, and am planning on speaking with an accountant there to clarify things. All I heard was bad things about owning ETF's outside the country. I will make sure to ask about that specific point. Also thanks for the other advice.

Thanks all!

[nonsequitur]

To answer your title question in a single word: yes. 

It is definitely unreasonable.  But that does not make it impossible, and does not mean you shouldn't do it.  Lots of people do it.   

- Are you considered a tax resident of Australia or the US? If it's AU, then the ETFs are not a problem but then the US bank accts may be an issue.

This is definitely more sanguine than is warranted.  A US citizen is always classified as a "US person" for IRS purposes, regardless of tax residency in another country.  ETFs domiciled outside the US will definitely be considered as PFICs (Passive Foreign Investment Companies) and taxed punitively by the US.  If you have purchased Australian-domiciled ETFs, I'd advise you to sell them immediately.  You can get most of the benefit (except the franking credits!) of them by purchasing US-domiciled versions or similar ETFs through a broker that caters to US expats (Schwab or Interactive Brokers are two possibilities).

Generally, investing and planning for retirement will be significantly more complicated for a US expat than for a local, but it is not impossible.  Your investment choices and tax planning strategies will be limited in comparison.  However, there are lots of good reasons to live in Australia.  If you like it here, don't let the tax tail wag the life dog. 

A good place to start to find out more is http://fixthetaxtreaty.org, which discusses the defects in the Australia/US tax treaty and is lobbying for change. 

[blazinblasian]

If you have purchased Australian-domiciled ETFs, I'd advise you to sell them immediately.  You can get most of the benefit (except the franking credits!) of them by purchasing US-domiciled versions or similar ETFs through a broker that caters to US expats (Schwab or Interactive Brokers are two possibilities).

A good place to start to find out more is http://fixthetaxtreaty.org, which discusses the defects in the Australia/US tax treaty and is lobbying for change.

Hey thanks, nonsequitur, I just sold of my ETF's before the start of the US financial year! Unfortunately, it is a bad time to sell :( so I am losing money AND paying someone to do my taxes since I read the paperwork is daunting. That goes in the "I don't give a ****" category because at least it will soon be over and done with.

Do you happen to know if I need to buy the ETF's in the US, or can I purchase international or US ETF's through an Australian account such as Vanguard Australia? I earn money here, so it would be more convenient.

Thanks for the help!

[SnackDog]

If you go to a contract job in Australia, simply set your rates slightly under what it would cost the employer to hire a full-time American on complete expat benefits, including housing, vehicle and tax-protection.   It will be a very high rate, but cheaper than the alternative for the employer (assuming they can't hire an Australian to do the same work).  The extra you earn will cover your tax obligation in the US.  I have an Australian (!) friend who has done this for years. I forget what he was earning but it was like $3000/day.

[blazinblasian]

If you go to a contract job in Australia, simply set your rates slightly under what it would cost the employer to hire a full-time American on complete expat benefits, including housing, vehicle and tax-protection.   It will be a very high rate, but cheaper than the alternative for the employer (assuming they can't hire an Australian to do the same work).  The extra you earn will cover your tax obligation in the US.  I have an Australian (!) friend who has done this for years. I forget what he was earning but it was like $3000/day.

What are these "expat benefits" you speak of? I currently work full time in Australia and do not get anything above and beyond my fellow Australian colleagues (was that a negotiation problem? :l  ) Holy moly! $3000 a day! I need to change my field.

[blazinblasian]

So I talked to a tax pro . . . and will give up some hard-earned money to have my taxes filed correctly, but here are some bits of info from what he said.

US earned income (if you are physically in the US) is viewed differently from foreign earned income.

• I earn my US money online, so it still counts as foreign earned income.
• Unless you earn more than $100,000 USD/year, you won't pay US tax, and even if you earned more, if your country taxes you more heavily than the US, you will not have to pay US taxes
• Australia taxes income much more heavily than the US, and I will be unlikely to pay taxes (foreign tax credit)
• Since my foreign-earned income including my US/online job (US contract work done online from Australia) will likely not be taxed by the US, it will make minimal difference if I try to squirrel it away in a tax-deferred account. I will just not be able to touch it

Put your international address on ALL correspondence with financial institutions (esp in tenacious states like California) so that they don't "inadvertently" try to charge you state taxes.
Even if they do you can file as a non-resident and avoid all state taxes if you haven't lived there
Avoid mutual funds and ETF and other passive investments purchased through international financial institutions like the PLAGUE
You can buy mutual funds and ETFs through a US financial institution
You can buy property or stocks in a foreign country without problem
Buying property through a structure such as a trust can complicate things-seek advice first.

[MrThatsDifferent]

You have good advice now and I’m not sure what to offer more. I don’t seem to have any problems except I have to pay an accountant in Australia who specializes in US tax to file for me and it costs me about $1500/yr. Annoying, especially considering I owe almost no tax. Had to pay some this year because of some dividends or something that sit outside of income. I found an accountant who considers superannuation to be a retirement account, but another accountant didn’t. Now, I don’t have any income from the US or assets there and I stay away for at least the 330 days. I have a life strategy fund at Australia Vanguard but apparently this has made it a little more difficult (expensive) for my accountant because the US considers it a trust. If I was smarter and better with numbers I’d do my taxes myself but it seems like something to not mess with and I’m making enough that’s it’s nbd in the grand scheme.

So, tldr: no, not unreasonable at all, just a bit more costly, but isn’t living here awesome?

[blazinblasian]

You have good advice now . . .

I think H&R Block are going to charge me about $650 US to do mine, but that is including PFIC, FBAR, foreign bank accounts, and my Aus income. I guess I'll see when I get the final bill . . . I will file my own FBAR next year, and report on my own bank accounts, and that should save at least another $100. I sold off my PFIC's (Vanguard ETF's) so that should come down to about $500 US. Yes, I also owe the US $0 :/ The tax advisor told me that in most cases, they advise against owning passive investments managed by foreign financial groups. Another tax advisor (Australian who does US taxes) said they advise against owning them unless you make a lot of money from them.

Pricey, but it does pay to have good advice when you need it, though.

[MrThatsDifferent]

You have good advice now . . .

I think H&R Block are going to charge me about $650 US to do mine, but that is including PFIC, FBAR, foreign bank accounts, and my Aus income. I guess I'll see when I get the final bill . . . I will file my own FBAR next year, and report on my own bank accounts, and that should save at least another $100. I sold off my PFIC's (Vanguard ETF's) so that should come down to about $500 US. Yes, I also owe the US $0 :/ The tax advisor told me that in most cases, they advise against owning passive investments managed by foreign financial groups. Another tax advisor (Australian who does US taxes) said they advise against owning them unless you make a lot of money from them.

Pricey, but it does pay to have good advice when you need it, though.

Be careful with H&R Block. Yes, they are cheaper but they kept telling me that they count superannuation as income, whereas the people I use don’t.