GeoffM

US citizen living abroad, earnings under US$100k, is there any tax due to the IRS? I know filing is usually required; double taxation is minimised, but generally speaking would there be anything (much) to pay?

The US has become a bit too much for us, unfortunately. We just seem to get bill after surprise bill (yep: health insurance) which we either have to fight (which takes time) or pay, as appropriate, which is the worst aspect. Lots of niggles which each alone would be nothing, but all together it's becoming too much. It's been fun, we don't regret moving to the US, and our new destination will be tough for different reasons, and the decision itself with kids involved was incredibly tough and sad/happy/sad/happy.

So our intention is to start the citizenship process now (we became eligible last year) and then move in a couple of years.

carcajou

The Foreign Earned Income Exclusion this year was, I think, $102,000.

It's not quite that simple however - that income has to be foreign earned (ie, you move to London and are paid a UK salary there). If you are living overseas and rent out your house in Chicago - you owe tax on that rental income as it is not foreign earned.

You also have to have a bona fide tax home overseas that you are at, for at least 330 days per year.

Even if not, there are double taxation treaties in force, you will have to see what applies to you and what doesn't.

I would recommend consulting a qualified US-UK accountant to see what applies to you.

But, generally speaking? No there wouldn't be much, if anything, to pay if your income is foreign-earned under the exclusion threshold and you don't have income coming from the US (you would still owe US property tax etc on an owned house you aren't renting out). The vast majority, but not all, people fall into this category.

MidAtlantic

Are you abroad or in the US? Citizenship process where?

If you are "US citizen living abroad" why is health insurance an issue?

carcajou

I believe OP is currently living in the US, and scenario planning for a return to the UK as a dual citizen once US citizenship is obtained.

GeoffM

Not the UK but correct otherwise.

Thanks for the advice. Put very simply I sell software online and the vast majority of my customers are not US based, so the US income portion is small. No other US assets/income.

Krysalgir

Don't you have to consolidate your corp incomes to the US?

GeoffM

My US company would be dissolved. I'll look into it though - thanks.

Giantaxe

Potential capital gains on house sales is one area where you may end up owing taxes in the US but not UK. That is what tripped Boris Johnson up. Not just if the gain is over the current threshold, but if you don't meet the residency requirements when you sell. Another is capital gains in general where, iirc, there is a tax free allowance for UK taxes, but no such thing for US. Plus the general pain in the limitations you're placing yourself under in terms of non-US investments and the pain that you could run into trying to open bank accounts as a US person. Absent a nexus in the US (e.g. kids or investments) I wouldn't choose to take out US citizenship unless there was a significant likelihood I'd want to live in the US in the future.

durham_lad

I certainly agree with the part I bolded. Keeping compliant with the IRS and Treasury is a real pain in the butt. We now live in the UK and have US based pensions, IRA’s, after tax investments and SS plus UK pensions, savings and OAP. The double taxation agreement is complex and ambiguous in many areas.

Our son, in his early 30s, moved back end of last year and he brought everything with him except his IRA’s. His taxes going forward should be relatively simple compared to ours, using the FEIE to exclude his UK earned income but I expect he will face some other issues such as his new company contributory pension plan, and the fact that he can’t invest in stocks and shares ISA’s etc. He will also be required to file FBAR reports on every account he owns or have signatory authority on.

carcajou

OP has stated he has no US assets or income other than a company he is going to dissolve before leaving.

theOAP

This is a situation requiring careful planning. A potential tax obligation is only one consideration among many if the OP intends to acquire US citizenship then move abroad. Less than 20% of USCs abroad will owe any tax. If the OP intends to create a business abroad (selling software) there are several aspects that need considering. It becomes a foreign business controlled by the OP which can bring its own difficulties from a US point of view. Totalisation agreements are important regards self employment. The UK is perhaps among the most forgiving countries for banking (subjective when evaluating "forgiving"), for both personal and business, but other countries can be quite restrictive regards USCs (Switzerland, Germany, etc.). From the US perspective, most investments tend to require US based institutions which then requires adherence to the local requirements of the country of residence. Once one has US citizenship a permanent tie is established to the US which can only be broken by renunciation (also an expensive option).

The OP has indicated they are married (?, "we") in which case, if there is a desire to stay attached to the US in some form as a family with the option to return to the US, they have several potential scenarios. Perhaps one consideration is for one spouse to acquire US citizenship, allowing a permanent tie to the US, while the other spouse remains an NRA, allowing them to take advantage of local options without US restrictions, and the ability to carry on business activities with only the local restrictions applicable.

Selective reporting, or the (long) odds of the US acquiring Residence Based Taxation? There are many possible scenarios for which there are no answers.

GeoffM

Yes, we want to keep the door ajar for possible return to the US in the future - whether us or our kids. I may have unintentionally misled when I said no assets: I forgot there is a 401k but not much in it, only 4-5 years' worth.

I believe that's only if the aggregate value is $10,000 or more at any time in the year. Or is it different in this scenario? In any case, a trivial form which I have submitted before.

durham_lad

Correct but they don’t use real arithmetic in calculating the aggregate value so you need to be careful.

Suppose you accumulate $6,000 into your checking account then move $4,000 into a savings account. You still only have $6,000 total but for FBAR arithmetic the maximum you had in your checking at one point was $6,000 and the max you had in your savings account was $4,000 so the aggregate was $10,000 and an FBAR has to be filed.

penguinsix

You'll unlikely have to PAY any tax, but you will have to FILE your tax returns, basically.

In a general sense, the exclusions that cover the first $100k of your foreign income ONLY can e applied if you file a tax return. The exclusion only applies IF you file a return--it is not automatic. If you make $50,000 and just say "heck, I won't owe so I won't file" you'll get dinged.

The other bits and bobs about FBAR and eventually FATCA (when you hit it big) will also apply. For FATCA you have to note that some 'accounts' are counted that aren't considered in FBAR. Can be annoying.

durham_lad

For tax year 2017 we will be close to hitting the limit for FATCA since we moved a bunch of money over to buy a house.

1) What 'accounts' in FATCA are included that are not included in FBAR?

2) Does FATCA use the same flakey arithmetic as FBAR? e.g. I transfer $300k to a checking account and then move it to a savings account for a while until it is needed then move it back to checking to send the money to a lawyer. I have only ever had $300k but FBAR sums say that is $600k max - is it the same for FATCA meaning we would have to include FATCA forms in our return?