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knowbot posted a topic in FinanceHi, I'm looking for a tax advisor, a CPA, with expertise in US expat tax filings willing to work with me on a more flexible basis than usual, because I have some needs that don't fit into the normal business model of expat tax preparation services. I would like to finally catch up with filing US taxes, now that there are stimulus payments associated. My income is very low, my tax forms will be extremely complex (FATCA, form 5471, CFCs, etc...) and I will owe no tax at all, only a refund. I'm not just guessing here. This is for sure. I would like to fill out all, or nearly all the forms myself. However I require some assistance regarding a number of issues. For example, if I apply for the streamlined procedure how to handle the difference in filing deadlines between german corporate tax filing and united states personal income tax, because my 2019 German taxes aren't going to be due for quite some time, and the 2020 German taxes not until next year. Yes, I have a Steuerberater, Of course I could go to one of the many expat tax advisors advertising on this site or that one can easily find on google. So far I have not found any that can work with me in an acceptable way. Most of these tax advisors are not prepared to deal with CFCs and form 5471. Even if they do, they want to charge a very high fee, despite the fact that my CFC makes like almost no money. Furthermore, the business model appears to be based on charging a flat fee per form or for a package of services. Many of the forms are ridiculously easy to fill out, and the main work is to be performed by me anyway, collecting the information that goes into the form and translating german financial terms into english, which the tax advisor is of course not responsible for. I certainly cannot afford to spend five to ten thousand euros on tax preparation for my small money-losing business that doesn't even owe any taxes in the first place. This would be a significant portion of my annual earnings. One thousand euros would be a more realistic amount. Therefore I wonder if anyone on the site can refer me to an expat tax advisor, maybe one actually located in the United States somewhere, able to work on a flexible and cost-efficient basis, where the tax advisor just provides the advice, rather than the actual form filling, and does not charge flat fees.
I‘d like to share what I know about this and put the little conundrum out there of how this should be taxed in DE. If anyone has any constructive ideas or experience, I’m all ears. WHAT IS A GRANTOR TRUST ETF A person's shares in any US ETF aren't necessarily treated the same in terms of taxation or what the shareholder actually owns since not all US ETFs have the same legal structure. To know which ETF has which structure, you need to read the specific ETF prospectus. Physically-backed commodity ETFs are often formed as "grantor trusts" (as opposed to the common "open-ended funds" for securities). These are formed in the US on the legal basis of the Investment Company Act of 1933 and 1934. They give a direct interest in a fixed portfolio. Examples of this is SGOL or GLD, the world's largest gold ETF . The trusts holdings are separate from the finances of the company and thus "Sondervermögen", meaning that even if the company is bankrupt, the shareholder will be paid out the equivalent of the value of the shares. Some further juicy legal bits from the SGOL prospectus (here): SGOL is a „Grantor Trust“ formed and subject to New York law. Further, it is a "non-mortgage widely held fixed investment trust". The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust. The Trust holds only gold bullion and, accordingly, received no income during the year. HOW ARE THEY TAXED IN THE US A bit of a pain, but clearly defined. The US taxation of these ETFs on the federal level is lined out in tax documents provided by the ETF. The grantor trusts are pass-through entities, meaning that the IRS treats the shareholder as if they own the actual thing the ETF holds (i.e. gold) and the shareholder is directly taxed for any distributions, expenses and so on. This is done without the shareholder ever actually posessing the commodity. Simply owning these ETFs without selling any shares causes capital gain / loss calculations for a federal US tax return. This is because the ETF expenses (TER) are funded by selling some of the underlying gold, teeny tiny bits, each month. These sales are made automatically and the money is never received by the shareholder, it goes straight to the institutions involved in maintaining the ETF. But since the shareholder is treated as the owner of the fund's holdings, each sale is a taxable event. This math becomes pretty unwieldy without a spreadsheet, especially if you have multiple lots since the calculation is done on a per-lot basis. The shares of each individual lot will have originally been worth a different amount of gold which is adjusted downward over time. Also, each lot is held for a different period of time which is relevant to determine if the sale was long or short-term. When the ETF shares are sold, these micro TER sales are factored in to adjust the cost basis down. HOW ARE THEY TAXED IN GERMANY I doubt there is a definitive answer. The issues are several about why this isn't common knowledge / maddeningly niche... Germany doesn't have trusts and interprets them on a case-by-case basis. Grantor trusts in the US are also used for estate planning and most literature deals with that use case. MIFID II makes purchasing any US-domiciled funds as a European resident nearly impossible since mid-2018. Germany doesn't allow ETFs which only have a single holding seit 22. Juli 2013 / Inkrafttreten von Kapitalanlagegesetzbuches (KAGB). The rough German equivalent for people interested in exchange traded commodities is an ETC, which is an "Inhaberschuldverschreibung" / bearer bond. Some of these are physically backed by a single commodity. These ETCs are generally treated as "Wertpapiere" and not as owning the physical commodity yourself unless they meet very specific conditions outlined here. These conditions do not apply for most common US grantor trust ETFs. https://www.bundesfinanzhof.de/de/entscheidung/entscheidungen-online/detail/STRE202010206/ > the crux is whether Germany views the grantor trust commodity ETF shares as some sort of passive investment interest in the commodity market (and therefore as ownership of shares in a fund) or actual ownership of the physical commodity (like the US does). If commodity, then the US and DE methods line up fairly squarely in terms of calculations involved to compute capital gains and losses on the monthly micro sales and the final sales of the shares. It should be mentioned that the income tax would be quite different. Kapitalertragssteuer for gold is taxed according to EStG § 23, not EStG § 20. EStG § 23 is much more favorable for gains in Germany as it is tax free after a holding period of a year, though these tax savings could be largely moot for a US citizen in Germany since the US will tax the gold as a collectible (generally with your ordinary income rate) no matter what. If shares, then I do not know how Germany would tax the monthly micro sales within the trust with no sale of shares or how this would interact with the final sale of the shares themselves. The micro sales might simply be ignored as TER (like for open-ended funds) and the final sale is not adjusted. Or the micro sales math looks something like „return of capital“, previously dicussed for a „NY royalty trust“ here: https://www.toytowngermany.com/forum/topic/342543-wash-sales-in-german-tax-law/?do=findComment&comment=3582373 although I assume it would actually be something different, but the basis is adjusted downward over time by the micro sales, which themselves would be taxed in the present day (as a dividend?). I tried breaking down the structure of SGOL/GLD to figure out how DE might view it, but realized I do not know how such a thing would be determined by Germany… the definition of fund could be looked up, but the definition of owning something through something like an ETF grantor trust? I just don’t know where to start. > If someone has an idea how to view this through a German lens (the process or the end result, although less satisfyingly stimulating), holler. I'm ready to level up!
meatro posted a topic in FinanceTo the financial heroes out there and us everyday folk who appreciate your wisdom, I wanted to talk about the reach of the FIFO cost basis calculation method in DE. QUESTION My understanding is that DE law requires FIFO (First-In, First-Out) Specifically Einkommensteuergesetz (EStG) §23 Absatz 1 Nr. 2 Satz 3 EStG "dass die zuerst angeschafften Beträge zuerst veräußert wurden". But who or what exactly does it apply to? At the very least, for domestic brokerage accounts held by German tax residents. Thus the Finanzamt assumes FIFO for all brokerage capital gains reported. At the very most, for international brokerage accounts held by German tax residents. I assume this is the case since any DE tax resident is "unbeschränkt steuerpflichtig" and these are the laws that govern that ... but want to be dead-sure. REPERCUSSIONS If (1) and international, legal cost basis methods are allowed by the Finanzamt, there would be a considerable tax advantage for US brokerage account holders, since they offer a wide variety of spunky methods: https://en.wikipedia.org/wiki/Cost_basis LIFO (Last-in First-Out), HIFO, Specific share identification (Spec ID), and more. FIFO is often the standard default method, but can be easily configured in most accounts. LIFO is a decent tax advantage for buy-and-hold investors who may need to get at some of their invested money, since the most recently invested money normally has lower capital gains than older money. If (2), some US citizens may have been unknowingly stepping in it. i.e. a US citizen may have been using LIFO in their taxable accounts for years. It's tax smart after all. Then they move to DE and become DE tax residents... would the Finanzamt allow them to continue their bookkeeping (1) or does it immediately set up a "parallel world" of would-have-been-FIFO bookkeeping (2)? (I envision this like the wormhole from Sliders with a bunch of stage wind and flashing blue lights) If the wormhole is opened and you keep your non-FIFO US accounting method, any share you sell in the US would have a different cost basis than its DE counterpart. It would be hard to get Foreign Tax Credits to line up. Heck, if the wormhole is opened and you stop using LIFO just before moving to DE, would the shares ever be in sync? Or does the DE required FIFO apply only to shares sold after getting DE tax residency? ONE PRACTICAL WORKAROUND this is a tax tip from several German forums which I haven't see here and would like to share. I call it "manual LIFO". The FIFO rule only applies to an account, not to all of a person's shares that may be distributed amongst different accounts. Not even all shares at one broker, just a specific account. Source: https://www.haufe.de/finance/haufe-finance-office-premium/einkuenfte-aus-kapitalvermoegen-1026-fifo-methode_idesk_PI20354_HI9285880.html " Nach Auffassung der Finanzverwaltung ist die Fifo-Methode depotbezogen zu berechnen. Auch ein Unterdepot ist ausreichend. " So a good broker which offers sub-accounts makes manual LIFO pretty doable. You have two sub-accounts at the same brokerage, you can transfer the shares you want to sell from account A to B, then sell all in account A or B (whichever is now only consisting of the newest shares). Taadaa, manual LIFO! The great thing is that you can start making use of it any time, if you haven't in the past. You are still sticking to FIFO at all times. (Also, this manual LIFO is either some sort of weird German loophole which will one day be shored up... or hopefully something that encourages the law to be changed so that regular ole one-account LIFO is also possible)
AyamBerlin posted a topic in FinanceHello all, I am a US citizen and new to Germany. I moved here last year in 2019 (less than 180 days in Germany in 2019), and I just finished working with an EA to prepare for my US income tax return for 2019, which by the way is my first filing since moving to Germany. I have been reading up on pros and cons between Foreign Income Exclusion and Foreign Tax Credit, so we did 2 scenarios in our filing, and now I am deciding which one to go with. Because I lived less than 180 days in Germany in 2019 and earned income in Germany only from Oct 2019 - Dec 2019, in my German Einkommensteuererklärung I was considered a non-German tax resident, eventhough I have become resident of Germany. With that, long story short, I got all my German taxes back. Now because of this treatment, I could not claim foreign income tax credit on the US side, simply because I ended up not paying any tax in Germany. My EA then decided to do the other method - Foreign Income Exclusion - In either case, the Foreign Income Exclusion or Foreign Income Tax Credit, I ended up paying taxes to Uncle Sam, for various reason. Under the 'Exclusion' method, I would pay LESS to Uncle Sam than under the 'Credit' method. The difference in additional tax payment between the 2 methods is about $1,500. I wanted to invest in IRA but if one day the exclusion limit catches up with my German income, and one day I shows no taxable income, then for that tax year I would not be able to invest in IRA again... This is my contemplation now, so I am leaning towards the 'Credit' method, but then I would pay $1,500 more in taxes to Uncle Sam in 2019. Is it worth it to pay more tax (in my case, $1,500 more) to 'buy' that flexibility to invest in IRA? Then I also read up on some other article that it is not worth it investing in IRA if you live in Germany, which is new to me? I also know that as a rule of thumb, if one lives in a 'high income tax' country like Germany, the 'Credit' method is the better way to go, rather than the 'exclusion' method. I also know it is almost impossible to switch back from the 'Exclusion' method to the 'Credit' method, once one decided to use the 'Exclusion' method, so since this will be my very first filing, I would like to hear some learnings from all of you! Thank you.