Straightpoop

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About Straightpoop

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  • Nationality USA
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  • Year of birth 1949

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  1. Hi @Straightpoop, are you a Steuerberater that can work with both USA and German tax filings simultanously?

     

    Or can you refer one (assuming legally you can) ?

     

    Thanks,

    AI HAL

  2. American filing American taxes for the first time since moving...

      You mentioned that your wife has a US social security (tax) number.  I surmise she received this incident to working in the US.  Assuming she was tax resident in the US at that time but not a "lawful permanent resident" i.e. a "green card" holder, she would have been a US resident under the "substantial presence" test.  When she left the US and ceased to have a substantial presence or (presumably) a green card, she reverted to her non-resident alien status.   The election under § 6013(g) applies only when one taxpayer is a citizen or resident and the other is not.   You did not need to elect under § 6013(g) when both of you were residents. You had the same right to file jointly as all married US resident taxpayers have.  Thus, when she ceased to be a resident, your decision to file MFS did not involve any revocation of an election under § 6013(g).   Consequently, your right to elect under § 6013(g) remains viable.
  3. American filing American taxes for the first time since moving...

      Your understanding of the advantages of not claiming the FEI exclusion are essentially correct.  The obvious one is the "refundable child credit" (similar in effect to Kindergeld) which requires you to have certain threshold amounts of employment or self-employment income included in your MAGI (modified adjusted gross income.)   While it is true that German taxes will likely exceed your US income taxes on the same amounts of income thus making it worthwhile to claim the foreign tax credit, you must bear in mind that the FTC must be computed separately on different "baskets" of income.  The one that most people think about is the "general limitation" basket that includes wages, pensions, self-employment, etc. but the taxes paid to Germany on those types of income do NOT offset taxes on income in the so-called "passive" basket.  This includes foreign source dividends, interest, gains and rental income.  Rental income is the only one of the aforementioned "passive" items that are exposed to the full fury of the German income tax system.  The rest are classified as "Kapitalertrag" and taxed under the Abgeltungsteuer at a maximum of 26.375%.  But don't forget:  until you have at least €1,602 of joint KAPSt you have zero German taxes to offset your foreign-source "passive" income.  And, although Art. 23 (5) of the treaty will allow you to resource some US-source passive items (e.g. interest) significant US source items such as dividends and rental income will remain US source and thus ineligible for offset by foreign taxes.   Late filing and late penalties are computed as a percentage of what is owed and so, you are correct, late filing a return in which either nothing is owed or a refund is due will be penalty-free (provided any amounts owed were paid prior to April 15).  Filing late is, however, technically a no-no, is a bad habit to get into, mostly unnecessary and should be avoided whenever possible.  You don't have to wait for a Steuerbescheid from the FA to compute your German tax liability.  The Steuerermittlung generated by your Steuerberater or the software you use to file your German return are satisfactory.   Yes, itemizable deductions are largely independent of where you live but the new limits on deductibility introduced by the TCJA will make it difficult for you to come up with itemizable deductions in excess of the $18,000 standard deduction for head of household or $24,000 for married filing jointly.   FBAR:  you have the right attitude.  Just file the stupid thing.  There is little or no evidence that FINCEN or anyone else at the IRS or Treasury gives a rat's patootie about FBAR unless you are in their sights for major tax evasion prosecution.  By and large the IRS and government in general is uninterested in enforcing penalties that they cannot assess automatically, i.e. without going to court or being otherwise forced to expend their increasingly scarce resources.  When filing your "catch up" FBARs proceed as follows:   U.S. persons who inadvertently failed to file FBARs but properly reported all income related to their foreign financial accounts on their U.S. tax returns and paid all tax can take advantage of a penalty-free option currently being offered by the IRS. Delinquent FBARs can be filed on a penalty-free basis if two further conditions are met: (1) the U.S. person is not under IRS examination (or criminal investigation), and (2) the U.S. person has not been contacted by the IRS about missing FBARs. The delinquent FBARs should be filed electronically using the BSA E-Filing System (or other approved electronic system). Because there is a six-year statute of limitations for FBAR penalties (regardless of whether an FBAR is filed), the relevant years for missing FBARs are currently calendar years 2012-2017 (with the statute for 2012 closing on June 30, 2019). FBARs filed under this delinquent submission procedure should select “Other” (in the drop-down menu) as the reason for the late filing on the cover page of the electronic form. Selecting “Other” will open a window that will allow the delinquent filer to provide a statement indicating that the criteria for penalty relief have been met: The filing failure was inadvertent; all income related to the foreign account(s) has been reported; all U.S. income tax has been paid; and the late FBAR is being filed before IRS contact.         Conversion rates:  Don't bother with the IRS/Treasury's reported rates unless you are trying to reduced the USD value of income denominated in a foreign currency. The Treasury's rates seem to always exaggerate the real value of the USD.  There are several more reliable alternatives that are much easier to use and more flexible.  The best is the ECB's:   https://www.ecb.europa.eu/stats/policy_and_exchange_rates/euro_reference_exchange_rates/html/eurofxref-graph-usd.en.html   Another very handy publication (in .pdf format useful for record keeping) is the monthly Bundesbank Devisenkursstatistik.  (no link.  Just Google it.)  It provides monthly averages for the past several years plus annual average and "last day of the year" rates for the last 15 years.   "XE" is a currency trading website that is also useful for historical cross rates:  www.xe.com   The IRS doesn't care what rate you use provided it is arguably reliable and you use it consistently.  Pick one you like and stick with it.       Your questions:   1.  Filing status:  You have 2 choices:  1) Head of Household (assumes your wife is a NRA) and you provide more than 1/2 the support for your children or 2) jointly by filing an election - joined by your wife - under IRC 6013(g) for your wife to include and be taxed on her worldwide income by the US.   Of the two, I would recommend you go with HoH.  The standard deduction is $18,000 as opposed to $24,000 for joint and may be all you need to eliminate your US tax burden while simultaneously claiming the refundable credit.  Filing jointly may be advantageous but remember: if it ever ceases to be advantageous and you revoke the election you can NEVER do it again either with your current spouse or a future replacement spouse. So hold it in reserve against the day when you really need it.   Also, by keeping one spouse safely out of the clutches of the US tax system you can structure your family investments for maximum flexibility, e.g. your wife can hold foreign ETFs and funds in her name ALONE without fear of having to deal with the PFIC rules. (The German rules are bad enough but with a German brokerage account the accounting burden is shouldered by the bank.)  She can also hold the US source income generating investments while you put your money into foreign-source income producing investments. That way, if and when you get hit with KAPESt. at least some of those taxes will be creditable for the "passive" income bracket on your US tax return.   2.  Computing your share of family taxes.  Extracting "your" taxes from your wife's is a simple mathematical allocation exercise. Look at your German joint "Steuerermittlung".  You will see that it tracks two separate income streams (His and Hers) before totaling them both and then adding them together for a figure known as "Gesamtbetrag der Einkünfte".  Your share of whatever "tarifliche Steuer" is eventually computed on that income is the ratio of your "Summe der Einkünfte" over the "Gesamte".  Simply apply the resulting fraction to the "festgesetzte Steuer" and SolZ and voilà! you have your share of German taxes on general limitation income.  (If there is passive income in your share - e.g. from rental income - then do a 2nd allocation to extract the taxes due on the "passive" portion of your share of the family income taxes.   3.  Proving "anything" to the IRS.  Don't bother.  No one will read your "proof" and even if they did they won't understand it.  Keep records supporting all the figures that appear on your US tax returns forever (electronic is fine) and sleep well.  The odds that the IRS will ever audit you are vanishingly small.  Other than possibly information generated by your foreign financial institution pursuant to FATCA, the IRS has no knowledge of any foreign income and little, if any, practical means of locating or determining it unless you tell them.  So disclose to them all that you are required by law to disclose. Theoretically they care.  As a practical matter they don't.   4.  Will German taxes always be higher?  Not necessarily.  See my remarks on "passive" income above.   5.  How does kindergeld affect your US taxes?  If because of your income you receive the German tax benefits for children in the form of reduced "tarifliche" taxes that fact is already "baked in" to the "festgesetzte Steuer".  If, on the other hand, you receive Kindergeld in cash, then reduce your share of the festgesetzte Steuer by the amount of Kindergeld received using the same allocation percentage you used to determine your share of family taxes.  Have no fear:  your "regular" German taxes will still be higher than your US taxes on the same income.   Congratulations! You're off to a good start.                                  
  4. Umsatzsteuererklärung

    If these are quarterly returns for the first 3 quarters of calendar 2019 use the "Voranmeldungen".   The Umsatzsteuererklärung is for the whole preceding calendar year (i.e. 2018). It is essentially a reconciliation return that encompasses the same calendar year covered by the Voranmeldungen for that year.  You will file it for 2019 sometime in calendar 2020.      
  5. Where to get basic information on Taxes

    Super news!   If only you had done it years earlier. . . .   I might have stayed in the business if I had a Steuerberaterin as knowledgeable, English proficient and most important:  intellectually curious - as you.   You may rest assured that I will be sending referrals your way.   Congratulations!
  6. Taxation of German rental income

      The treaty will provide no help with German taxes.   It says Germany has the primary right to tax the rental income.  You will be able to claim a credit on your US tax return (Form 1116 - "passive") for German taxes paid on the income from your German rental property that you compute and report on Schedule E of your US return.   NB:  Depreciation in the US on property used "predominantly outside the US" must be straight line (40year ADS property).
  7. Obituary thread of notable and obscure folk: Bob Willis

    A spectacular voice coupled with intellectual and emotional sensibility.    Unlike anything I have ever heard.   She will be sorely missed.
  8. Inheritance Tax for US citizens - 10 year domicile law

      IRA distributions fall into the "General limitation" bucket for FTC purposes. The contributions are based on income from employment and so they retain that "employment income" character for purposes of determining their FTC bucket.  This is true even though Germany taxes it as if it was "investment income" under § 20 Abs. 1 Nr. 6 of the EStG.    (In contrast, a garden variety annuity that is purchased outside of an IRA or other employer pension benefit plan, however, would fall into the "passive" bucket.)   For FTC purposes the geographical "source" of an IRA is the country where the wages were earned upon which the contributions were based.  In your example that would be the USA.  Since the US rules for a FTC require that the income be "foreign sourced", you would have to turn to the "resourcing rules" of Art. 23 of the treaty to get around this problem. Because under the treaty Germany has the "exclusive" right to tax the IRA distributions, Art. 23 will allow you to resource 100% of the US-sourced IRA distributions and thereby make them "foreign sourced" and thus qualify the German taxes on them for the FTC.      
  9. Inheritance Tax for US citizens - 10 year domicile law

      Indeed it is.
  10. Inheritance Tax for US citizens - 10 year domicile law

    @StephenGermany   The general principle that previously taxed funds used to purchase an investment whether it be a house, shares of stock or an IRA account will not be taxed again when that investment is sold or, in the case of an IRA, withdrawn is as good in Germany as it is in the USA.   The corollary that pre-tax funds will be taxed when distributed is also chiseled in stone in both countries.   But in the Köln case I referred to the FA is arguing that because an IRA contribution "coulda, woulda, shoulda" been tax advantaged in Germany if the taxpayer were resident in Germany and otherwise making a treaty-qualified contribution to an IRA, then Germany should treat the distributions from that IRA as if  they were derived exclusively from German tax-advantaged contributions. In other words as if the contributions were made from German earnings to a US plan that he had established before coming to Germany and he had actually claimed and received the benefit of tax deferral under § 3 Nr. 63 of the EStG.   The FG Köln told the FA they were flat wrong and that their position had zero support in the plain language of § 22 EStG. Moreover the FB wasn't persuaded by the FA's contorted interpretation of Art 18A of the DBA-USA which they - correctly - observed was utterly inapplicable to the situation.   Here is the fact situation before the FG Köln (and now before the BFH):   Note:  the case is an example of how the treaty can sometimes (albeit rarely) result in double non-taxation.   German citizen gets sent to work in the US in 2005.  Abandons his German tax residency for the period he is in the USA and in May 2011 returns to Germany and resumes German tax residency.   From 2006 to 2011 he is enrolled in and contributes to his employer's 401(k).  US tax law allows US income tax deferral on the contributions made by himself and employer. In 2011, after abandoning US tax residence and resuming German residence he closes his 401(k) and takes a full distribution.    He computes his German tax as I described in my earlier Email with the result that he actually had a loss, i.e. his distributions less the contributions was negative. (Obviously the employer's 401(k) was not that hot and/or got severely hammered in the financial crisis.)   Because of his German residence at the time of the distribution in 2011, the US permanently loses the right under the DBA-USA to tax the contributions that were used to reduce his taxable income while he was working and tax-resident in the USA.  And now, relying on the plain language of § 22 Nr. 5 Satz 1, the taxpayer argues - correctly and successfully - that Germany may not tax those contributions either.   Result:  double non-taxation.   (By the way, the US has been making noises for years about this rather common state of affairs and has threatened to amend the treaty to allow them to impose a minimum withholding tax on 401(k), IRA distributions in these circumstances.  They still haven't done anything though.)   Anyway, the FA is arguing that because the new Art. 18A of the treaty was in effect as of 1 Jan 2008 all his US pre-tax contributions made after that date should be deemed tax-advantaged under German law - even though he was not a tax resident of Germany at the time and - obviously - could not have claimed any German tax benefits of the kind described in §22 Nr. 5 Satz 1 of the EStG.   As noted, the FG told the FA to take a hike but has allowed an appeal to the BFH.   So watch this space for further developments.  
  11. Inheritance Tax for US citizens - 10 year domicile law

    @Metall   Other than perhaps timing, the manner in which real property is transferred to a beneficiary is irrelevant for German inheritance taxes (same for US Federal estate taxes). It doesn't matter if it descended immediately on death (the rule in most states), is distributed as a probate asset or trust asset, or by a transfer on death deed (similar to a ladybird deed and now available in many states).   The change in EU law you refer to had nothing to do with taxes - at least not directly.  Rather, it relates to the law applicable to succession to decedents' estates. In other words it dealt with the determination of which country's law determines who gets what rather than who pays how much taxes to whom and why (although, obviously, who gets what will ultimately be significant in determining who pays how much).   US real estate remains covered by US state inheritance law regardless of any change in EU choice of law rules.   If a US citizen dies domiciled in Germany his worldwide estate will be subject to German inheritance tax regardless of the 10-year rule contained in the US-German estate tax treaty.  However, under the treaty any real estate located in the US will not be taxable by Germany - unless it goes to a German resident - if the US citizen decedent has not been domiciled in Germany at least 10 years.  A Germany resident beneficiary of a gift of US real estate can claim a credit on their German inheritance/gift tax for whatever Federal and state death taxes were paid on the US real estate.      
  12. Inheritance Tax for US citizens - 10 year domicile law

      You appear to understand the basics but I'm afraid I don't understand your formula. "Gain" is a misleading term and plays no role in the formula. Nor is the formula's validity limited to a "first distribution". The formula is designed to compute the total amount of basis recovered in any given distribution. Some of that basis may be a) tax-free because it is allocable to contributions made from after-(German)tax income or b ) taxable because it is allocable to contributions that received favorable German income tax treatment when made.   The example I provided assumes that none of 15,000 in total contributions were German tax-advantaged when made.   According to the OFD KA, when an IRA distribution is received that represents (previously deferred) deferred income from both after tax and pretax (deferred) income there has to be an allocation so that the tax-advantaged contributions do not permanenty escape taxation when the distribution is taken. The OFD KA refers to BMF Schreiben v. 11.11.2004 - IV C 3 - S 2257 b - 47/04 BStBl 2004 I S. 1061 for the formula for making such allocation.   The BMF formula, in turn, uses a brutally simple ratio of the tax-free contributions / total contributions In other words, it makes no effort to weight the contributions according to the time they were made and thus allow for their varying degree of income producing productivity within the IRA account.  The BMF Schreiben also acknowledges that this lack of sophistication might produce untoward results - in one direction or the other - that it might be willing to correct if the occasion warrants.   Returning to the example I gave in my earlier post:   If 5,000 of the total of 15,000 in contributions to the IRA were made German "tax-deferred" then 1/3 of the total contributions recovered (2,800/3 = 933.33) in this distribution would be taxable income upon distribution.   The taxpayer would report a taxable IRA distribution of 8,133 (10,000 - (2/3 of 2,800))   Immediately after this distribution the IRA in the example would have been worth € 40,000.  Assume that over the next time period before the next distribution - this time only € 8,000 - a combination of exchange rate changes and income added € 2,000 to that value.  The formula would result in the following:   8,000 (distribution) x (15,000 total contributions - 2,800 contributions previously recovered) 42,000 (FMV/Zeitwert immediately before distribution)   The result would be a recovery of  2,323.89 of total contributions, of which 774.60 would be taxable (5000/15000 = 1/3) and 1,549.28 would represent a non-taxable distribution of previously taxed income.  The taxpayer would report taxable (Abgeltungssteuer) income of 6,450.72 on his € 8,000 IRA distribution.   This exercise would then be repeated every year until all contributions had been recovered after which point all distributions would be 100% taxable.  The rate at which the contributions are recovered will be determined in large part by the performance of the assets remaining in the IRA.                 According
  13. Inheritance Tax for US citizens - 10 year domicile law

    @Calendar21 @StephenGermany   StephenGermany's summary is accurate.   The US tax consequences - both estate or income - are likely to be minimal.  (US State estate/inheritance/income taxes will be a factor only to the extent the German resident beneficiary has failed to effectively abandon the relevant US state domicile.)   German domestic tax law provides for double taxation of the value of inherited assets first under the inheritance tax (ErbStG) and again under the income tax (EStG) for so-called "latent income" whose value might have been included in the value previously subjected to inheritance tax.  Examples:   Unrealized (at death) capital gain contained in the fair market value of securities purchased by the decedent after 31.12.2008. ErbSt is computed on the market value of the securities (including their unrealized gain) at death and income tax is computed on the basis of the sales proceeds less the decedent's "carry over" cost basis. (No basis "step up" to FMV at death as is allowed under US law.) Accrued interest on debt instruments.  Accrued but unpaid interest is included in the FMV of bonds at death for ErbSt purposes and is then taxed as investment income when ultimately paid to the beneficiary.   In both instances, § 35b of the EStG allows a (rather stingy) bit of income tax relief for inheritance taxes paid on such "latent income" within 4 years prior to the income tax year.   So, what about an inherited IRA/401(k)?   First of all you will be subject to inheritance tax on the total fair market value of the inherited IRA.  Pretty simple:  date of death value x EUR/USD exchange rate:  € tax value less Freibetrag, etc.   The next step is figuring out the income taxation of distributions. This will require you to figure out how IRA distributions would be income taxed from your own IRA as opposed to an inherited IRA.   According to the most recent  (9 Aug 2018) court decision (FG Köln 11 K 2738/14) which is currently pending on appeal to the German Supreme Financial Court (BFH Bundesfinanzhof, X R 29/18), the general rule will be that a ratable portion of contributions made to the IRA that did not enjoy GERMAN (as opposed to US) tax relief in the year made will be treated as tax-free when distributed in a form other than as a "Leibrente".  (§ 22 Nr. 5 Satz 2 c read in conjunction with § 20 Abs. 1 Nr. 6)      The formula for computing the tax-free portion (i.e. the allocable portion of total contributions made) of each distribution is set forth in BMF Schreiben BMF v. 22.12.2005 - IV C 1 - S 2252 - 343/05 Rz. 61.   My translation and paraphrase:   Distribution amount times (the total of IRA/Roth/401(k) contributions made less: contributions previously recovered) divided by the FMV of the IRA at time of distribution   Example (assumes no contributions enjoyed German tax-free treatment when made and the decision of the FG Köln referenced above survives appeal to the BFH):   Distribution in 2019:    € 10,000 Total contributions:  € 15,000  (Euro values computed at rate applicable when contribution made (!!!) Contributions recovered in prior year(s): €1,000 FMV of IRA immediately prior to distribution:   €50,000   10,000 x (15,000 - 1,000)/50,000 = €2,800 tax free portion of this distribution  €7,200 will be subject to Abgeltungssteuer 26.375%   (NB:  there might be some minor relief based on § 35b of the EStG if any inheritance taxes were paid on the IRA within 4 years of the income tax year in question.)   The apparent alternative to this is to "annuitize" the IRA. This means entering into a contract that provides for you to use the IRA value to purchase a life-long annuity. Assuming this is recognized as a "Leibrente" the income portion will be computed and taxed as provided under § 22 EStG. Although this could create US tax planning problems - not to mention financial disadvantages - it does make the computation of German income pretty easy; you don't need to know the amount of contributions.   So, what about the tax treatment if you INHERITED the IRA instead of paying into it yourself?   My (educated) guess based on application of the fundamental principle of German inheritance law is that the IRA will be treated as a capital asset other than an insurance policy.  In other words, the decedent's contributions will "carry over" and be treated as the beneficiary's contributions; just like the purchase of shares of stock.   And, like shares of stock, the total FMV of the IRA will be subject to German inheritance tax when received and then each subsequent distribution will be income taxed according to the formula set forth above. The nasty part, of course, will be substantiating the US decedent's contributions and converting them to their Euro value when made.  If the IRA was a rollover from a 401(k) the employer's contributions will need to be substantiated and/or if the IRA was a rollover from a spousal IRA the predeceased's spouse's contributions will have to be substantiated as well - and that predeceased's spouse's employer's contributions if it was originally a 401(k).   Again, the option of annuitization will likely be available here, too.  But that is fraught with problems of its own.   So . . . if you think you're going to be an IRA beneficiary in Germany you may want to communicate with your benefactor-to-be and tell him or her the problem you will face.   Please do not take the above as anything more than an educated guess.   As noted, the issue of recoverability of contributions that were not German tax-advantaged when made is being appealed (by the FA) to the BFH and the answer above assumes that the appeal will fail.   And don't for a moment think that your local neighborhood Steuerberater or Finanzbeamter is going to understand a word of this.   You're gonna have to rub their noses in the cited cases, OFD KA Merkblatt and BMF Schreiben and then you will have to persuade them to read it.   Good luck with that.            
  14. US Citizen foreign investment income

      Don't feel bad for Germany.   Every country with a bilateral tax treaty with the US must agree to the same "savings clause" or there will be no treaty.   Since the US is the only country with citizenship based taxation (pace Eritrea), it is the only country whose tax treaties contain this language.   Enduring the (relatively small) hit to its national economy by the fact that a few of its US expat residents have the extra economic burden of placating the demands of their native country, is a relatively small price to pay for easing access to the US domestic market.   Same reason they endure humiliations like FATCA . . .   or Donald Trump  
  15. US Citizen foreign investment income

    @PandaMunich   Panda,   The provision you quote restricts the US right to tax German residents on their US-source dividends. (It would be 30% were it not for the treaty.)   In its so-called "savings clause" the treaty specifically reserves to the US the right to tax its citizens - including those resident in Germany - as if the treaty did not exist; hence:  15% or 20% or any other rate as provided by US domestic law.   Article 1, para. 4:   a) Except to the extent provided in paragraph 5, this Convention shall not affect the taxation by the United States of its residents (as determined under Article 4 (Residence)) and its citizens.   Hence, no treaty override.   US citizens may claim the benefits of only certain specifically enumerated parts of the treaty (Art. 4 para. 5). One of these, of course, is Article 23:     5. The provisions of paragraph 4 shall not affect the benefits conferred by the United States: a) under paragraph 2 of Article 9 (Associated Enterprises), paragraph 6 of Article 13 (Gains), paragraphs 3, 4 and 5 of Article 18 (Pensions, Annuities, Alimony, Child Support, and Social Security), paragraph 1 and 5 of Article 18A (Pension Plans), paragraph 3 of Article 19 (Government Service), and under Articles 23 (Relief from Double Taxation), 24 (Non-discrimination), and 25 (Mutual Agreement Procedure);