Pulaski

Just because people do it doesn't mean it is correct/ logical/ sensible. I.e. some people obsess about saving tax but end up wasting money. If you drive an SUV that does 15mpg, and drive 15 miles round trip to save 20¢/gal on 15 gallons, when the price of gas is $3/gal, you have just wasted your time, but that's not to say that people don't do it, because they absolutely do. FYI, the tax on gas in SC is much lower than in NC, .... which those close to the state line can take advantage of, but if you live in SC you get absolutely hosed on the personal property tax on vehicles, so there is a simple example of why basing your decision on where to live based on one tax is likely pointless, because like many other things in life, it's all swings and roundabouts.

You also returned to an outlier example of retirees (lower income, smaller houses, less expenditure), when my previous post was specifically about "most" people people/ families in an average situation with one house, job(s), who spend most of their income. .... In short I am not, and never did, dispute that some groups of people can make a tax gain, it's just that for most people the opportunities are few and the benefits, if they bothered to calculate them, are marginal or illusory.

This whole argument was brought to my attention maybe 8-10 years ago in a Wall St Journal article that for a notional "average family" with a specific income, asset ownership, and expenditures, that calculated for each state, the aggregate tax they paid to local, state, and federal government varied almost entirely between 8% and 11% of income, IIRC. And within that range something like 30 states were clustered between 9% and 10%. Alaska was an outlier at the lower end, with about 7%, and there were one or two around 12%-13%, probably CA and NY, or MA.

nun

You can read a lot of garbage on the internet. My favourites are the articles encouraging US citizens to move to Panama or Costa Rica that never explicitly explain that you won't save anything on income taxes

nun

I must admit that subconsciously I have considered taxes when choosing where to live....I've gone with high tax states because I value the wider range of services they tend to provide.

Steve_

So in other words, if you live in NC and do a lot of driving, it makes sense to live near the State line with SC. Ergo proving my point.

Retirees are a not an "outlier". OMG.

They are not - I provided a pretty major example, you may not own your property, you might rent it, so property tax is not the same issue - or are you going to say that renters are an "outlier"?

Tax avoidance is not in any way "marginal or illusory". There are definite ways of doing it and residing somewhere with lower taxes based on your situation is one of them. For example you mention registration fees for cars. Well I think Arizona is at the top of the heap because of the VLT and several towns in Arizona have no property tax, which would lead a logical thinking person to live in a certain town with access to public transport to save money.

Oh just the States with the largest populations then. Complete outliers. Like I said, "overall tax burden" is based on assumptions about who the "average" tax payer is. No-one is completely average when it comes to taxes as any accountant will tell you, moreover if you're close to average you can find by changing your behaviour or circumstances slightly you can take advantage of ways of avoiding tax.

Anyway going back to the original point, there seems to be lately on here several people complaining about how hot it is in Florida. You don't have to shovel humidity.

Steve_

I'm not saying they're not crap, because everyone's tax situation is different, what I always find fascinating is accountants telling you not to move somewhere because they don't want to lose you as a client and financial advisors telling you the complete opposite because they make money out of coming up with a plan of your move...

But the fact of the matter is that tax rates and tax types vary from jurisdiction to jurisdiction and not taking them into account when moving is foolish. How many people for example have moved from the UK to avoid IHT? Huge numbers.

Pulaski

We are arguing from different premises, you are "right" to the extent that your basis and assumptions are different. I made a different set of assumptions. ..... I will say one thing though, renters most definitely DO pay property taxes. Unless a landlord is totally inept with his money and determined to get rid of it, rent always has the tax embedded in it, and worse some states give owner-occupiers a break on the tax on their home, so renters actually pay MORE property tax than an owner-occupier!

One other thing, my comment about NY and CA being "outliers" was meant in the statistical sense, that they are far from the cluster around the median value, not that they are in any way minor or irrelevant. .... And you'll probably get a kick from the fact that property taxes in the greater NYC area (incl NJ) was one of the factors that drove me out if the area!

JAJ

Interesting. But do they actually enforce it? Really?

Noted that California is something of an outlier - most States start with Federal adjusted gross income and then make their own adjustments.




Except that the IRS do not routinely enforce form 8833 compliance, in everyday foreign pension cases. In other words, whether or not form 8833 is theoretically required, it doesn't really matter. At least for now. Form 8891 is a little different. It was created to deal specifically with Canadian RRSP cases and should be completed by any U.S. resident RRSP holder. Although up to now, when someone files an 8891 first time, there is no evidence to suggest that IRS routinely audit prior years, even if they are open within the statute of limitations.

However, foreign pensions should be declared (as applicable) on form 8938 and/or FBAR.

nun

I agree, an explicit treaty declaration is not required for foreign pensions covered by the a US tax treaty....the IRS says so as does the IRS office at the US Embassy in London.

GeoffM

Being self employed myself I have to pay quarterly estimated taxes. Despite these being a good 25% lower than in the UK, my wife still raises merry hell about it 4x a year. Think yourself lucky it's only once! She seems to think we should do all the tax avoidance schemes her "friends" claim to pull.

Steve_

Not necessarily, depends on the property tax is done on a multi-occupied unit, say you live in an apartment. I.e. the overall tax on the multi-occupied unit is less than it would be if each renter owned their own apartment (because the valuation will work out less). And you might live in public housing, where the rent equation is different.

Apparently most Americans are now single: A Majority of Adult Americans Are Now Single although that seems to mean they're not married which isn't really relevant.

Steve_

I haven't got a clue, but that's their interpretation of the law so that means you have to follow it. I can't comment on how to do things illegally.

I think California does their State tax that way as well, what they're saying is, if your Federal adjusted gross income is based on a calculation that includes a tax treaty claim for a foreign pension plan, we aren't going to recognize it. So if you get audited...

8891 is basically a half-completed 8833. You can use 8833 instead if you want.

You say they don't enforce it, but the whole tax system is designed in a way to encourage you to comply. Sooner or later you've got to start pulling that money out and when you start declaring on your 1040 you're going to have problems if you haven't deferred the tax because where is this money coming from? Oh a foreign pension, what is the basis of that? It just causes you problems. You are technically liable for the taxes on the phantom income and capital gains, so if you get audited they can pick up on it.

Well exactly, and $10,000 isn't much for a pension (in fact nor is $50,000), so therefore why file one piece of paperwork and not file the other? The IRS will clearly be aware of the account at that point.

nun

For the US/UK tax treaty the gains in UK retirement accounts are US tax deferred. Some professionals might say otherwise and there has yet to be an IRS ruling, but the IRS office at the US Embassy in London has told many people not to include gains in UK retirement accounts on their US taxes. There is also no need to explicitly invoke the tax treaty for UK pensions. Once income is taken it must be entered on line 16 of your 1040.


Final salary pensions don't need to be included on FBAR

Pulaski

Moving into low income multifamily rented housing is a pretty radical way to reduce your indirect liability to property tax!

JAJ

Clearly, when pension income is drawn down, it's taxable. Unless basis was established by paying taxes earlier. If there's no basis, then the entire income is taxable. Not usually a problem.

As to the rest, I don't think anyone here knows what the audit/processing culture on this specific issue is in California. How many Californians with RRSPs actually declare the income year by year, and to what extent does the state authority actively search this out on audit? Presumably they get copies of federal returns, including form 8891 (although many people never file that - another story). And California has a statute of limitations, 4 years from memory.

Discussion points aside, it seems clear that technically, a Californian who holds a Canadian RRSP should declare for CA tax purposes the embedded income year on year. And then, later on, when the RRSP is drawn down, California will not tax the entire amount, since basis has been established. How many Californians actually do things this way, and the extent to which the California authorities know about that (it can't be hard to work out how many CA taxpayers may have Canadian RRSP accounts) and actively pursue compliance, isn't quite so clear.

hungryhorace

Then he's an idiot.