# US taxes obligations



## nachmuse (25 d ago)

Hello,

1- I am a US dual citizen (Spanish) residing outside the U.S. Would I have to pay taxes on large monetary gifts from father to son (my father is not a US citizen)?

2- I know that bank accounts over $10,000 have to be reported. Is there anything else I should be aware of before depositing a large amount of money into a foreign account?

3- I would like to invest a certain amount of money from that donation. Is there anything important I should consider before investing the money (I have read for example that for an American residing abroad it is complicated to invest in mutual funds deposited outside the USA).

I would appreciate any advice.


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## Harry Moles (11 mo ago)

1. You'd want to confirm that you have no obligation, but US gift taxes are generally paid by the donor, not the recipient. You may have a reporting obligation, however.

2. If it's a sufficiently large amount, there is also a FATCA form that you (rather than your bank) needs to complete. I forget the number of this form or the reporting threshold but it's findable online.

3. Foreign mutual funds are considered PFICs and can create serious reporting burdens. You may be able to get around this problem by investing directly in the US, either with a US address or with one of the small number of firms that will serve US citizens living abroad. This is a complex issue and you may want some professional advice.

Is there any particular reason why you are attempting US tax compliance? If you don't have strong ties or plans of moving to the US it's generally best to stay out of the US tax system. If you don't have a US birthplace on your ID you can easily conceal your identity from banks to avoid FATCA reporting, and will be allowed to invest however you desire.


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## Bevdeforges (Nov 16, 2007)

Others will be along shortly who are more in the know on these things, but for quick answers for your questions:
1. Not sure that you would have to pay US taxes, but I believe you may have to report the gift from a foreign entity (as part of your regular US tax filing). Let's see what those with experience in that regard can tell us.

2. The obligations is not to report individual accounts that have more that $10,000, but to report all foreign accounts if the total of all your foreign accounts exceeds $10,000 at any point during the year. And the requirement is to report the maximum balance during the year for each account. (They don't make Life easy.)

3. Chances are that any foreign investment will then become reportable in its own right - and not necessarily just on the FBAR filing.


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## nachmuse (25 d ago)

Harry Moles said:


> 1. You'd want to confirm that you have no obligation, but US gift taxes are generally paid by the donor, not the recipient. You may have a reporting obligation, however.
> 
> 2. If it's a sufficiently large amount, there is also a FATCA form that you (rather than your bank) needs to complete. I forget the number of this form or the reporting threshold but it's findable online.
> 
> ...


I might go back to the US, that's why. Thanks for your advice!


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## nachmuse (25 d ago)

Bevdeforges said:


> Others will be along shortly who are more in the know on these things, but for quick answers for your questions:
> 1. Not sure that you would have to pay US taxes, but I believe you may have to report the gift from a foreign entity (as part of your regular US tax filing). Let's see what those with experience in that regard can tell us.
> 
> 2. The obligations is not to report individual accounts that have more that $10,000, but to report all foreign accounts if the total of all your foreign accounts exceeds $10,000 at any point during the year. And the requirement is to report the maximum balance during the year for each account. (They don't make Life easy.)
> ...


I just want to plan in advance so I don't have any trouble in the future. I would appreciate any additional advice in order to do things right. Thanks for your valuable answers!


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## 255 (Sep 8, 2018)

@nachmuse -- Your question 1; yes on Part IV of IRS form 3520 (if over $100K.) Your question 2; no, not really. The FBAR is only an information return -- there are no taxes posed. Your question 3; as @Harry Moles stated PFICs are an issue, reporting wise. Common advice is to invest in a portfolio of individual stocks and avoid ETFs, mutual funds and the like. If investing in overseas stocks, IRS form 8938 will join your annual reporting obligation. If investing in real estate, in your own name, currently there is no reporting obligation. Cheers, 255


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## nachmuse (25 d ago)

255 said:


> @nachmuse -- Your question 1; yes on Part IV of IRS form 3520 (if over $100K.) Your question 2; no, not really. The FBAR is only an information return -- there are no taxes posed. Your question 3; as @Harry Moles stated PFICs are an issue, reporting wise. Common advice is to invest in a portfolio of individual stocks and avoid ETFs, mutual funds and the like. If investing in overseas stocks, IRS form 8938 will join your annual reporting obligation. If investing in real estate, in your own name, currently there is no reporting obligation. Cheers, 255


Thanks so much for your answers!


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## nachmuse (25 d ago)

255 said:


> @nachmuse -- Your question 1; yes on Part IV of IRS form 3520 (if over $100K.) Your question 2; no, not really. The FBAR is only an information return -- there are no taxes posed. Your question 3; as @Harry Moles stated PFICs are an issue, reporting wise. Common advice is to invest in a portfolio of individual stocks and avoid ETFs, mutual funds and the like. If investing in overseas stocks, IRS form 8938 will join your annual reporting obligation. If investing in real estate, in your own name, currently there is no reporting obligation. Cheers, 255


Hi again 255,
One quick question: if I receive the money gift in 2023, do I have to send form 3520 this year or in 2024? Thanks in advance!


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## 255 (Sep 8, 2018)

@nachmuse -- If you received the "gift" in 2023, the 3520 would be submited with your 2023 tax return -- due 15 APR 2024. Cheers, 255


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## nachmuse (25 d ago)

255 said:


> @nachmuse -- If you received the "gift" in 2023, the 3520 would be submited with your 2023 tax return -- due 15 APR 2024. Cheers, 255


Thank you!


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## nachmuse (25 d ago)

255 said:


> @nachmuse -- If you received the "gift" in 2023, the 3520 would be submited with your 2023 tax return -- due 15 APR 2024. Cheers, 255


Hi 255,

I am still not sure about what you can invest in and what not to invest in to avoid tax issues while living outside the US. Please could you please confirm me if the following list is correct? (I'm sorry, I'm new on all this kind of stuff...)

Another thing, I understand that the problem exists because I live outside the US. Citizens living inside the US have no limitations when it comes to investing?

DO NOT INVEST IN:

Investment funds deposited outside the U.S.
PFICs (Passive Foreign Investment Companies) (not sure if this is the same as previous line)
ETFs (Exchange Traded Funds)
REIT’s (Real Estate Investment Trust)

INVEST IN:

Portfolio of individual stocks (in this case, I understand that you can invest in stocks of foreign companies, right?)
Investment funds deposited inside the U.S. (is this the same as US DOMICILED ETF’S?)

- What about government bonds? (US or foreign)

Thanks so much again!


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## Bevdeforges (Nov 16, 2007)

The issue isn't that you "can't" invest in certain types of investments, but rather that the reporting and record keeping for certain types of foreign (i.e. non-US investment accounts and instruments) may be more than what you're willing to have to deal with. In general terms, any investment based in the US is fine for purposes of your US income tax forms. Anything foreign based runs the risk of additional reporting requirements (again, for your US tax returns).

You should also consider what reporting and tax requirements there are for the tax authority in your country of residence (Spain, I guess, in your case). 

From the US side of things, just figure that any US based accounts or investments you hold will report to the IRS (and to you) at the end of each year. Foreign investment accounts and financial institutions don't have the same obligation. (The FATCA reporting for foreign financial institutions doesn't include income information, only a year-end account balance.)


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## 255 (Sep 8, 2018)

@nachmuse -- @Bevdeforges is exactly right. There are few restrictions in what you invest in; only increased tax reporting requirements if you invest in "collective " investments, like ETFs, mutual funds and the like (PFICs for U.S. tax purposes.) You can invest in PFICs, you just have to report your investments.

Individual stocks (not ETFs, that trade as securities) are fine, whether U.S. or foreign based -- they have relatively minimal reporting requirements, but you will pay U.S. taxes on any gains.

If you are trading stocks through a U.S. brokerage (assuming you have a U.S. address) -- you'll still need to report all your "closing" transactions when you file your annual tax return.

Bonds are another type of security -- but in this case, being a "debt" security -- they are essentially "contracts" where the reporting requirements will vary depending on the specifics of the bonds. They are not collective investments, but they can be quite complicated and they have been somewhat out of favor with recent historical low interest rates. Recently, with inflation, bond yields have been increasing and they re starting to come into favor with retail investors. There are also many types of bonds: commercial paper, junk bonds and of course government bonds. A lot of "brokers" don't sell bonds (but many do.) If you want to buy USG bonds consider setting up an account at Home — TreasuryDirect . Foreign bonds often pay higher yields, but you should definitely consider risk and exchange rates.

As @Bevdeforges mentioned, you need to also know how your investments will be taxed in your country of residence. Investment gains, for U.S. tax purposes are considered "capital gains" and can't be mitigated by the F.E.I.E., although you could mitigate gains using the foreign tax credit instead.

Additionally -- I'd suggest studying and learning about investing and only invest in something, once you "understand" it. I'd advise not throwing money at an investment you don't understand for the sake of diversification. God luck! Cheers, 255


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## nachmuse (25 d ago)

Bevdeforges said:


> The issue isn't that you "can't" invest in certain types of investments, but rather that the reporting and record keeping for certain types of foreign (i.e. non-US investment accounts and instruments) may be more than what you're willing to have to deal with. In general terms, any investment based in the US is fine for purposes of your US income tax forms. Anything foreign based runs the risk of additional reporting requirements (again, for your US tax returns).
> 
> You should also consider what reporting and tax requirements there are for the tax authority in your country of residence (Spain, I guess, in your case).
> 
> From the US side of things, just figure that any US based accounts or investments you hold will report to the IRS (and to you) at the end of each year. Foreign investment accounts and financial institutions don't have the same obligation. (The FATCA reporting for foreign financial institutions doesn't include income information, only a year-end account balance.)


Bevdeforges, thanks again for your great piece of advice!


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## nachmuse (25 d ago)

255 said:


> @nachmuse -- @Bevdeforges is exactly right. There are few restrictions in what you invest in; only increased tax reporting requirements if you invest in "collective " investments, like ETFs, mutual funds and the like (PFICs for U.S. tax purposes.) You can invest in PFICs, you just have to report your investments.
> 
> Individual stocks (not ETFs, that trade as securities) are fine, whether U.S. or foreign based -- they have relatively minimal reporting requirements, but you will pay U.S. taxes on any gains.
> 
> ...


Thanks so much again! I will follow your advice!


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## nachmuse (25 d ago)

255 said:


> @nachmuse -- @Bevdeforges is exactly right. There are few restrictions in what you invest in; only increased tax reporting requirements if you invest in "collective " investments, like ETFs, mutual funds and the like (PFICs for U.S. tax purposes.) You can invest in PFICs, you just have to report your investments.
> 
> Individual stocks (not ETFs, that trade as securities) are fine, whether U.S. or foreign based -- they have relatively minimal reporting requirements, but you will pay U.S. taxes on any gains.
> 
> ...


I don't have a US address, how can I deal with this if I finally invest through a US brokerage?


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## 255 (Sep 8, 2018)

@nachmuse -- if I were you, I'd probably open an account with Home | Interactive Brokers LLC . Although I don't personally have an account with them (my wife does have a self-directed retirement account with them,) they are often recommended by other forum members. They provide world-wide access to markets and also have very reasonable commission rates. Since you're in Europe, you'll probably have to join one of their European branches, since the EU is forcing all firms dealing in Europe, to set up shop in the EU. I'm sure the extra EU regulations may cause their fees to be a bit higher, but you should be able to transfer your account to their main Stateside office when you move back to the U.S. IB also supports most asset classes, so you should have plenty of investments to choose from. Cheers, 255

P.S. I don't know what kind of investing you're considering, but there is a lot of "free" YouTube videos that cover basic investing strategies. My wife utilizes a dividend investing strategy augmented by selling calls on her portfolio (1 call per 100 shares.)You might investigate a free membership here: Infinity Investing Workshops . Additional, I'd advise "hedging" your portfolio by buying puts on indexes.


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## JustLurking (Mar 25, 2015)

255 said:


> @nachmuse -- if I were you, I'd probably open an account with Home | Interactive Brokers LLC . Although I don't personally have an account with them (my wife does have a self-directed retirement account with them,) they are often recommended by other forum members. They provide world-wide access to markets and also have very reasonable commission rates. Since you're in Europe, you'll probably have to join one of their European branches, ...


The likely problem here is that Interactive Brokers is reported to be following EU PRIIPs regulations. That means that they will not allow EU residents to buy US domiciled ETFs. They will let EU residents use UCITS ETFs, but these would (of course) be PFICs, and so US tax-toxic in the hands of a US citizen living in the EU.

Unfortunately, the combination of the US's outrageous PFIC tax rule and EU PRIIPs regulations puts US citizens living in the EU in a bind. They cannot readily use US domiciled ETFs, and the US tax cost of using non-US domiciled ETFs is savage.


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## 255 (Sep 8, 2018)

@JustLurking -- Unfortunately, you are absolutely right! That's why I recommended investing in a portfolio of individual stocks. I don't know how much money the OP is looking to invest, but it is possible to mirror the holdings of a certain ETF, if that's his desires. IB is one of the many brokers that have jumped on the "fractional share" bandwagon -- so it's possible to create your own ETF clone with a lessor amount of coin than ever before. Cheers, 255


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## Bevdeforges (Nov 16, 2007)

You may want to take a look at the website for AARO (Association of Americans Resident Overseas) - with a possible thought to joining the organization while you are living abroad. They do publish online quite a bit of information on US taxation for expats, including running an annual tax seminar which explains changes in the US tax law and they have information about investment decisions for US citizens living overseas. (Quite a few of the long-time members are tax attorneys so the answers they offer are all strictly "by the book" - but they may have some ideas about how to "simplify" filings when there are investments involved.)

There is quite a bit of information freely available on their site, and that may be all you need, but I believe they also have quite a bit of content in the "members only" section. Website is here: AARO - Association of Americans Resident Overseas


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