Author Topic: Is being a US expat unreasonable?  (Read 821 times)

blazinblasian

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Is being a US expat unreasonable?
« on: September 28, 2018, 07:32:51 AM »
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

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Re: Is being a US expat unreasonable?
« Reply #1 on: September 28, 2018, 06:43:11 PM »
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...

maizeman

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Re: Is being a US expat unreasonable?
« Reply #2 on: September 28, 2018, 06:58:52 PM »
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

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Re: Is being a US expat unreasonable?
« Reply #3 on: October 09, 2018, 10:45:00 PM »
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

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Re: Is being a US expat unreasonable?
« Reply #4 on: October 22, 2018, 09:53:46 PM »
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

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Re: Is being a US expat unreasonable?
« Reply #5 on: October 27, 2018, 01:29:10 PM »
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.