Thursday, March 20, 2014

Taxes for Expats

The Frau can tell any American hoping to live abroad what the worst part is: taxes.


Yes, there is a $97,000 (CHF 84,750) exclusion (not excluding the pain of still having to file). But if one lives in a high-cost country like Switzerland, this is a joke. Graduate students often make more than this in Switzerland. Hey, you’ve got to pay for your CHF 28 plate of Kung Pao Chicken somehow.

For The Frau, the worst part isn’t actually the requirement of paying U.S. taxes, even if it feels like taxation without representation.

The worst part is that it is all so confusing. The worst part is that it costs Americans abroad so much time, stress, and extra cash beyond the tax owed. And finally, the worst part is that the government gives you no mercy and treats you like a criminal despite how well intentioned you may be. If you don’t pay your U.S. taxes by April 15 each year, you pay huge penalties, UP TO 25%. The Frau asks you, what bank do you know of do you get 25% interest rates from?

Anyway, this means that most American expats, besides paying double taxes, also pay yearly penalties (and huge postal fees since electronic filing isn't possible) for their double taxing pleasure. This is because you can’t figure out what you owe the U.S. government until you file your local country taxes first. So you are always behind. You can’t win. This is the worst part of the worst part.

Big companies, most recently, Ernst & Young, were hired by Mr. Frau’s company to help to do the complicated taxes that most Americans living abroad face. But Ernst & Young did more harm than good. In fact, one year, Ernst & Young USA failed to translate Swiss Francs to U.S. dollars on the U.S. tax forms. Failed! The Frau had to correct them. And every year, The Frau and her husband kept paying huge penalties for late U.S. taxes despite so-called professional advice.

Finally. Finally, after another $4,000 late fee from the U.S. government, The Frau and Mr. Frau decided to ditch Ernst & Young. This year, they tried Taxes for Expats.

Disclosure: Taxes for Expats offered $350 off the service if The Frau blogged about the experience. Nothing said she couldn’t blog about them negatively, and trust The Frau, she would have had it been a bad experience!

To be fair, Ernst & Young had done so terribly, both in communication and in actual taxation form filling, that it didn’t take much to be better. But Taxes for Expats was much, much better.

First off, it was shocking, because whenever The Frau or her husband had questions, Taxes for Expats actually returned their emails promptly. This had never happened with Ernst & Young.

Then, Taxes for Expats translated Swiss Francs to USD correctly. In fact, everything appeared to be done correctly, both on federal and state forms. 

Then…which had never happened in six years with other big tax preparers, Taxes for Expats actually told The Frau and Mr. Frau that they could avoid some of the huge late penalties by paying estimated tax by April 15 and they estimated it for them with a form they could mail in! Who knew? Not Ernst & Young.

So, moral of the story.

Double taxes suck.
Taxes for Expats doesn’t.

If you’re an American in a confusing tax situation, The Frau highly recommends giving them a try. They are fast, accurate, and give better advice than any company The Frau has worked with in her almost 8+ years abroad.


Anyone else have taxing troubles or want to recommend a great person or company?

12 comments:

Amanda said...

I'm glad you found a solution to your tax-filing woes, even though it doesn't eliminate your tax-paying woes! Considering the exclusion doubles to $195K for married couples, when we lived in CH we were well under that limit. And since we knew we wouldn't owe anything, we always filed for an extension, so no worries about penalties here. I understand that is definitely not the case for well paid, two income American couples living in CH. If we ever lived in CH again and would be making enough money to actually owe the US taxes, I think I'd actually be pretty happy about that. Annoyed, yes, but I would look at it as a premium I must pay to be able to enjoy the Swiss life...

Blueridge said...

I have lived in CH for the last 5 yrs and "so far" have not had a tax bill. But our situation is a bit different as we are a single income family with three kids etc. But I can tell you the whole tax thing comes close to making me want to pack up and move back to the US, just because of the pressure/penalties involved for a mistake on the taxes let alone all the hassle with banks over here now. In the IRS's enthusiasm to catch the big fish (who mostly can find a way around such things anyhow), they torment those normal people who just happened to find a job out of the country. And don't get me started on all those who are the "accidental" US citizens, caught up in all this craziness. I have a colleague who happened to be born in the US, lived there for 5 yrs as a child and now 45 yrs later has had to spend a lot of money and time to try and get compliant as he is afraid of getting in trouble if he goes back to the US for a visit. He will owe no taxes, but the whole process has been extremely stressful.
The US really needs to rethink their position on this taxation of non-residents, but since we as ex-pats have basically no representation in Congress, I don't foresee anything happening in the near future.
Anyway, rant over. I don't usually comment - just read, but this topic drives me a bit crazy.

Anonymous said...

Good to have some company in all of this annoyance!!

But if you're living abroad, at least you can get an automatic extension :)

http://www.irs.gov/Individuals/International-Taxpayers/U.S.-Citizens-and-Resident-Aliens-Abroad

Adrian said...

One thing you have to keep in mind is that parts of U.S. taxes are payments to Social Security, i.e. your retirement. Imagine you live abroad until your retirement but then move back to America. If you had not filed any taxes how or actually why should all the other tax payers come up for your retirement money and Medicare. You are not so much filing "taxes" than update your "Social Security records" for your retirement benefits in the future--and you shouldn't be paying actual taxes thanks to an agreements between the U.S. and Switzerland (and many other countries). Also you should be able to file for extension even from abroad which gives you time to send in your report later.

Here's how it works the other way around. As a Swiss abroad you don't have to pay taxes but you should consider paying into the AHV, the Swiss retirement fund--if you intend to ever go back and retire in Switzerland. You should also save your money like you would pay into the 3.Säule (401k); good luck with that. If you don't do both you'll end getting pretty much nothing from your AHV which even in a best case would be enough.

Allison said...

Adrian, if what you said were correct then one might be able to use logic to explain the US tax laws for expat; however, unfortunately what you've expressed does not reflect US laws. Just because we as US expats are required to file tax returns, does not mean that we are eligible for any social security benefits should we decide to move back to the US upon retirement (indeed, we are not entitled - as is logical - to social security pension benefits, unless there are SS agreements with the country or countries where we have worked abroad and even still we will most likely have to have worked for a minimum number of years in the US in order to collect a pension).
Also, US citizens residing abroad have an automatic extension to file taxes but as the Frau points out correctly in her post, the two-month automatic extension does not pertain to taxes due, which means that indeed by April 15th one must estimate any owed taxes and pay them... just in case and in order to avoid being fined for late payment.
And lastly, you are also mistaken when you write that "you shouldn't be paying actual taxes" - because we as US expats have an exemption of our "actual taxes" on the first $95k (not sure of the exact figure this year, but the Frau states it in her post) for a single person (it's higher for married couples filing jointly) but indeed we are required to PAY "actual" taxes on all income over those amounts. Therefore, there is no double taxation up until those amounts, but there MOST CERTAINLY is double taxation for salaries that exceed those amounts.
Apparently, this is the tax (price) we pay in order to maintain the "privilege" of holding a US passport - which is outrageous.
I attended a US expat taxpayer sesssion offered by the Tax Office team located in Paris and they stated that only two countries in the entire world require their citizens to file taxes regarldess of where they are living or earning a salary... unfortunately, they never mentioned what the other country was in addition to the USA.
What might be helpful for other expats to know is that if you have NOT filed your taxes while abroad and you make under the exempted salary amount, when you do file them (and you must) you will not be fined because your balance due is zero... so file, even if you're late. If you're late and your salary has exceeded the exempted amount, still file but be prepared for fines in addition to what you owe.

Mona Lisa said...
This comment has been removed by the author.
Chantal said...

Thanks for the comments. The Frau thinks they point to just exactly how confusing the entire situation is. The fairest solution? Stop the double taxation. Americans can't compete for jobs because of them. Many companies abroad don't want to hire Americans because of the trouble we are tax-wise. But at the same time, American corporations save on taxes by moving their companies overseas. Oh, and the NFL is tax exempt but Americans abroad trying to make an honest living are not. Something is truly broken. The Frau needs to stop thinking about how broken or she will go crazy. That is all. yodelers.

Robert Brewer said...

Allison, the 2 month automatic extension for expats is for both filing and paying, unlike the extension available for people living in the US. Interest on any due tax starts from April 15 though, but that should be much less than any penalty. Source

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Anonymous said...

Interesting blog. I will read with a pleasure next time! us expat tax services

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