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Learning, Sharing, and Teaching => Investor Alley => Topic started by: johnintaiwan on March 28, 2014, 08:38:50 PM

Title: Am I okay on taxes?
Post by: johnintaiwan on March 28, 2014, 08:38:50 PM
I have a bit of a unique situation so I hope someone can give me some advice/feedback. I have 4 main questions.

#1 I live and work abroad, so I am unable to use an IRA in the US. They say that an IRA has to be funded with income earned in the US, which I dont have any of. (is this correct?)

#2 So I have a taxable account. I am a little unsure of the tax strategy I should use. Since I have no income in the US except for my investments, will me dividends and such be taxed at a low rate or will there likely be no tax at all due? (i know you probably cant tell me for certain).

#3 I am currently invested in SCHX and VWO. Do you think these are a good idea with regard to taxes? or should I switch to a much lower dividend yielding ETF that focuses more on growth?

#4 The dividends I get in my taxable account are treated as income, so can I use those dividends to fund an IRA?

Let me know what you think or if you need any extra info.
Title: Re: Am I okay on taxes?
Post by: innerscorecard on March 28, 2014, 08:57:37 PM
The test is taxable earned income, not money earned in the US. Dividend income isn't earned income, so you can't use that.

I believe if you use the foreign earned income tax credit rather than the foreign earned income tax exclusion than you can still use foreign earned income for your IRA. Would be nice if others on here could confirm. Still figuring this out for my own taxes too.
Title: Re: Am I okay on taxes?
Post by: johnintaiwan on March 28, 2014, 09:19:43 PM
I figure my income from investments now is so low I probably wont be taxed. I am talking around $100 a year from dividends. I plan on only earning around 20K a year during FIRE anyway. I think with that low of income I should be okay on taxes.
Title: Re: Am I okay on taxes?
Post by: innerscorecard on March 30, 2014, 08:45:18 AM
Filling my taxes in right now. Would appreciate any seasoned expats' chiming in right now. :)
Title: Re: Am I okay on taxes?
Post by: kyleaaa on March 31, 2014, 07:02:42 AM
1.) I am 70% yes on this one, 30% no. I don't BELIEVE the tax code specifies the income must be earned in the US, but I don't know for sure. Ask an accountant.
2.) No idea. It probably depends on the specific tax treaty with the country you live in.
3.) This is not a very well-diversified portfolio in general. But in terms of tax-efficiency, it's probably fine.
4.) Nope. It has to be earned income. Investment income doesn't count.
Title: Re: Am I okay on taxes?
Post by: arebelspy on March 31, 2014, 07:05:32 AM
1.) I am 70% yes on this one, 30% no. I don't BELIEVE the tax code specifies the income must be earned in the US, but I don't know for sure. Ask an accountant.

It must be earned income that is not already excluded.  If you earn above the FEIE amount, you can contribute those dollars,  but if you're under, then you won't have any earned, non-excluded income.
Title: Re: Am I okay on taxes?
Post by: johnintaiwan on March 31, 2014, 06:38:20 PM
thanks for the help everybody.