US expats- do the taxes and citizenship laws make it financially feasible?
Posted by Minute_Truth_8986@reddit | expats | View on Reddit | 19 comments
we’ve been researching leaving the US for 2 years and have been traveling. I feel like every time I do more research I open Pandora’s box.
so you get taxed… twice? I’ve heard different things from different sources about this! some say “if you’re taxed at 45% in Denmark but in the US your state only taxes at 35% then you’ll get a 10% tax credit” and other says “nah you’ll just be taxed 45% in Denmark and then have additional US taxes” and you also are ineligible for pensions in your residing country and cannot have them in the US either or a 401k.
and you have to pay a few thousand to ever renounce citizenship and then you may not be allowed to come back to visit??
can anyone help me understand then how on earth I as an expat would ever have any financial freedom and safety? how could I possibly grow wealth?
DifferentWindow1436@reddit
No. You get taxed in your new country, where you reside. You do have to file in the US. There are two ways to deal with that. The FEIE which is simple and basically a massive deduction (currently about $133k for a single person) or, FTC which looks at what you paid in the other country.
In 22 years abroad, I have only had to pay US taxes once and that was due to a large severance with preferential tax treatment in Japan.
Or...just keep your citizenship?
No, you are no longer able to contribute. Your 401k will be there, just frozen until you take distributions. A company pension would not be affected. An IRA - cannot contribute if you don't have US earnings is the short version.
neuromancer88@reddit
My understanding is that you can contribute to an IRA so long as you have earnings - doesn't matter if it's US or non-US generated? Not a CPA/tax professional but worked as an expat for \~15yrs...
DifferentWindow1436@reddit
I am not a CPA, but I am referring to a traditional IRA and my own CPA was quite clear that I cannot contribute. I would check before making any additional contributions. I needed to reverse a contribution which eas a PITA.
neuromancer88@reddit
Ok... my own CPA told me that I could contribute, but this was \~10yrs ago so maybe the rules changed...
Minute_Truth_8986@reddit (OP)
Thank you
Sufficient-Job7098@reddit
First figure out what do you want to do travel or move abroad.
Let’s say you want to travel then use travel sub.
Let’s say you want to move abroad for two years
Now let’s figure out where can you legally move for two years.
Once you figure out what are those countries then we can talk about taxes in those specific countries. For average people ( average Americans) on this sub taxes aren’t the biggest issue to overcome
Anyway if you plan to move abroad for 2 years then any talk about renouncing citizenship is pointless.
Minute_Truth_8986@reddit (OP)
Well I have narrowed it pretty well to the Netherlands and Germany for work purposes and the fact that I can speak German fairly well and Dutch is an easy language to pick up if you already know German and English. We would want to live there, in theory forever but I know that even a few weeks of a vacation/trip to another country doesn’t give you a full perspective of life abroad.
No-Caregiver8049@reddit
They were asking if you’re legally allowed to move, not where. Has your company offered a transfer? Do you have a job offer in Germany or the Netherlands?
Also, why do you think you could “grow wealth” there and not where you are?
Minute_Truth_8986@reddit (OP)
No no, that’s not what I was saying, like, I can grow wealth here, I do. I have a 401k and money market, etc. I am saying like- can you save money there even with all the taxation or are you basically going to move there and become poorer and poorer due to all of the taxation and costs of being an expat even if your salary is good?
No, our companies do not do any international business. We will have to start looking for new jobs at new companies once we are more certain.
Sufficient-Job7098@reddit
Theoretically you can grow your wealth anywhere.
But if your goal to maximize your wealth growth than you have more opportunities for that in US. US has better environment for this but also because, as US citizens and long time resident, you are well familiar with the whole process.
It is less common for Americans to choose to move to NL or Germany for wealth accumulation, Americans go to NL and Germany for other reasons: “European lifestyle”, healthcare, walkability and similar reasons.
Minute_Truth_8986@reddit (OP)
No my goal is not to build wealth I guess poor word choice- I just mean “is it possible to save money or do you essentially immigrate and then accept that life will not include savings?” And ultimately people have answered “yes” so I guess I’m ok haha My husband and I both have degrees in IT and work in AI/analytics and cybersecurity so I am not like terrified about getting jobs or having money, more just asking HOW oppressive are the US tax demands in perpetuity Trust, I am not worried about being a millionaire lol, very much trying to escape the high savings demand that comes with living in the US
Sufficient-Job7098@reddit
“And then accept that life will not include savings”
Everyone who says “yes” exaggerates. You can definitely have some savings in Europe just not as much as in US.
But also you don’t need as much savings in Europe as in US because many of the things you will pay in US will be “free” to you ( I think you agree with this as well)
I am not saying US is better than Germany/Netherlands, and I am not saying Germany/Netherlands are better than US.
I am European, my partner is American. We happen to settle in US but settling in Europe would be fine as well.
Minute_Truth_8986@reddit (OP)
Yes exactly, the hope is we won’t have to push so much to savings because health care will be covered. But everyone was making it sound like ill be paying 60-70% to taxes annually because the US is gonna come rob me weekly if I dare to leave them
No-Caregiver8049@reddit
you will need a skill that is needed in the new country, and it sounds like you haven’t done any research at all.
good luck.
BioHazardBuzz@reddit
I’m a reasonably affluent, middle-aged, US citizen who relocated to NL last year. I did this for lifestyle reasons, not for wealth accumulation. There are tax treaties that ensure no double-taxation on income. But on the whole, taxes are higher and wages are lower across most jobs and levels. The Netherlands also taxes unrealized capital gains on non-pension investments, which is a factor that may hit US citizens harder. Overall though, it’s an excellent life. Securing reasonably-priced housing is a challenge, but otherwise cost of living is slightly lower than many US cities.
RightShoeRunner@reddit
You have a lot of specific questions about generalities. And you’re going to receive a variety of answers because the tax obligations vary by country, by income source, and citizenship. We’re not tax professionals and you should hire a fee consultation with one to get your answers.
Generally speaking, you are not taxed twice. You pay federal taxes to the country in which you reside first. You’ll use that amount to receive a credit on your US taxes, and pay the US any remaining differences. If you’re living off of retirement accounts and pensions and you’re residing overseas, you’ll want to instruct your US financial institution to not withhold any taxes. You’ll pay your taxes when you file.
jasutherland@reddit
On the US side you have to file, but can get credits for tax you paid to other countries, or exclude a chunk of foreign income - the usual outcome is just that you file reporting income and tax already paid there, so don’t owe the IRS any more.
Things like pensions and 401ks can get tricky just because you have to follow both sets of rules: a Danish retirement account exempt from Danish tax might cost you US tax, or vice versa, so you need a good expert to work it out.
Jncocontrol@reddit
I'm in China. Until 2028, I'm tax exempt from China, and I'm the US. I'm technically tax exempt because I don't earn enough to be taxed
DiaBall@reddit
The great benefit of that blue passport is to file world wide. Now filing does not mean owing taxes. You have a pretty large amount of foreign income you can earn before you have to starting paying US taxes. If you do owe taxes each country has it's own agreement.