# Below filing threshold - but I want to file anyway. Tax table shows I'll have to pay?



## Friedemann

I am a US citizen living in Germany and recently became aware I have to file FBARs and US taxes (in addition to my German tax filing obligations) which I had never done before.

To establish a record with the IRS I want to late-file my taxes for 2014 even though in 2014 (as well as 2013 and 2012) I was below the threshold of $10,150 being single and under 65.

While filling out the 1040NR (can´t do the 1040NR-EZ because I received interest in 2014). I figured my taxable income for 2014 to be $6734. I noticed the tax table in the 1040NR instructions shows I have to pay $673 in taxes.

_So does this mean I can either not file at all and not pay anything - or file and I'll have to pay $673 in taxes? And do I have to include that payment with my 1040NR?_

I am thoroughly confused: If there is a filing threshold of 10,150, how come the tax table starts at 5 dollars (income) when you don't even have to file taxes at all (ergo won't have to pay any either) if single and below 10,150 taxable income?

Does anyone have an answer or a pointer to a post clarifying this (I searched using several combinations of "threshold, income, low-income, tax-table etc. but couldn't find an answer)?

*Background:*
I have researched multiple expat tax specialists in Germany but cannot afford to hire one at the regular rate. I paid for a 30 min. skype call with a specialist from greenback expat taxes who was very kind and helpful but never got back to me as promised. I am therefore trying to file everything by myself (including up to 6 years of FBARs) doing a quiet disclosure.

For the last three years I´ve had very low income, was receiving payments from my health insurance, (German) welfare and am now receiving a disability pension topped off by welfare. All kinds of welfare payments are non-taxable because of a tax treaty between the US and Germany, afaik. I am trying to get back into the job market, just to clarify you're not wasting your time on someone happily leeching off the system. I haven't found much info on expats in similar situations and will gladly share any information I find out.


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## JustLurking

Friedemann said:


> I am a US citizen living in Germany and recently became aware I have to file FBARs and US taxes ... While filling out the 1040NR (can´t do the 1040NR-EZ because I received interest in 2014).


This is what is causing your problem. As a US citizen you file plain old form 1040, not 1040NR (and yes it seems like nonsense on the surface because to you, me, and everyone else except the IRS you are of course 'non-resident' in the US).

Once into that you should find that assorted allowances and exemptions not available to real non-resident aliens, and if necessary things like the foreign tax credit (form 1116) and foreign earned income exclusion (form 2555), will very likely eliminate any US tax liability. You can find the IRS tome on filing for US citizens not in the US here.


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## iota2014

Hi Friedemann,

I also only discovered US-style citizen-based taxation quite recently. I opted to go through the Streamlined Procedures (https://www.irs.gov/Individuals/Int...-Taxpayers-Residing-Outside-the-United-States). I've done the 6 back years of FBARs and am in the process of doing the back years of 1040s (not 1040NR, for a US citizen)

I was as confused as you about whether I had to file the returns, because I like you have very little income that isn't covered by the Double Taxation Treaty. However, those who know much more than I about these matters kindly explained to me that in order to get the benefit of the DTT exemptions, you have to file a return explaining which paragraph you're relying on.

Hope this helps.


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## Bevdeforges

As folks have already explained, as a US citizen, you should file a regular 1040 and NOT a 1040-NR.

But, if you have no tax filing liability for the years in question, there is no need to bother filing, whether "streamlined" or not. iota2014 mentions "benefit of the DTT exemptions" though I'm not sure what is meant by this. I suppose you could theoretically calculate your Foreign Tax Credit on German income taxes you paid (income taxes only - none of the other taxes you pay there count) and carry that forward until you need it. But it seems an awful lot of effort for what is probably very little return.

But for future reference, you want to take a look at IRS Publication 54, which explains things for overseas taxpayers like yourself. If you had less that the threshold amount of gross income, then your "taxable income" done correctly will be 0. Just remember that is supposed to include your worldwide income.
Cheers,
Bev


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## iota2014

Bevdeforges said:


> ...if you have no tax filing liability for the years in question, there is no need to bother filing, whether "streamlined" or not. iota2014 mentions "benefit of the DTT exemptions" though I'm not sure what is meant by this.


The OP stated he has been receiving disability/welfare payments which he understands are not taxable because of the US/Germany Double Taxation Treaty. Similar situation to mine, except in my case the income is from pensions, not disability. According to my understanding, such income does have to be included in gross income, and then entered on the form as non-taxable income. Thus it can put one over the threshold.

Of course, the IRS might be none the wiser (or for that matter might not care) if the OP decides not to file, or opts not to mention the disability/welfare income.


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## Bevdeforges

It really does come down to a matter of interpretation, though. If you check the IRS publication 525, you'll find this:


> Do not include in your income governmental benefit payments from a public welfare fund based upon need,


Pensions are separate. But if they say not to include them in income, I'm assuming that means not to include in "gross income" too.
Cheers,
Bev


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## Friedemann

Wow, thank you all very much for your fast and helpful replies! I will get started on the 1040 and familiarize myself with publication 54.


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## expatwien

In addition to what other people have said, get free tax software to compute your taxes. I used the downloadable software from TaxAct (free for 2014, but $12 per year for previous years) to do my taxes for the last several years. TaxAct, H&R Block, and TurboTax also have free online services. Doing things by hand is a big source of error and misunderstanding (for example, TaxAct would have selected a 1040 form automatically for you).


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## Bevdeforges

Just be careful when choosing the free online tax software. H&R Block and TurboTax have caused "problems" of one variety or another for overseas taxpayers in the past. Sometimes the programs can't deal with foreign addresses, and other times there are specific problems related to types of income coming from foreign sources.

The Paris Consulate IRS office used to publish a listing of which free tax preparers were suitable for overseas taxpayers, but they don't appear to have updated the list for 2014, as they're in the process of shipping out and going back to the US.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> Just be careful when choosing the free online tax software. H&R Block and TurboTax have caused "problems" of one variety or another for overseas taxpayers in the past.


Humans cause more problems, it's safe to say. 



> Sometimes the programs can't deal with foreign addresses....


For e-filing, sometimes, and that's more on the IRS. But that's not a problem since the tax preparation software lets you print out tax returns and mail them into the IRS. That still works.



> ....and other times there are specific problems related to types of income coming from foreign sources.


I can't think of what those would be. You may have to convert foreign currency figures to U.S. dollars. Some people think they should be putting foreign income onto a "W-2" (no, almost never). You still have to read and follow the tax preparation software's instructions, and they're really rather good.

No piece of software is _perfect_ in every detail every time, but this is a very good recommendation indeed. Yes, of course, you still check your work -- stipulated -- but nobody should be scared off from at least trying tax preparation software. It's very good stuff nowadays and very helpful.


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## BBCWatcher

Friedemann said:


> To establish a record with the IRS I want to late-file my taxes for 2014 even though in 2014 (as well as 2013 and 2012) I was below the threshold of $10,150 being single and under 65....


I'm curious why you want to do this. There are four reasons I can think of:

1. You are preparing to sponsor somebody from immigration to the United States.

2. You are preparing to renounce U.S. citizenship and cleanly tidy up affairs with the IRS.

3. You qualify for a refundable tax credit (free money) from the IRS and want to collect that free money.

4. You are applying for a benefit of some kind -- U.S. student aid as a notable example (scholarship, student loan, etc.) -- and need to submit tax returns to apply for that benefit.

Do any of those four reasons apply? If not, I'm not sure why you would file if you're below the filing threshold.


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## Bevdeforges

BBCWatcher said:


> For e-filing, sometimes, and that's more on the IRS. But that's not a problem since the tax preparation software lets you print out tax returns and mail them into the IRS. That still works.


Actually, not always. One of the tax prep programs I tried a couple years ago allowed you to complete the forms just fine - but would only allow you to e-file them. If for any reason you couldn't or didn't want to e-file, you could only print off the forms if you paid for the privilege. It's just a caveat to make sure a given program will meet your needs. (And yes, problems from prior years may have been fixed - however new problems tend to crop up. It's why the Paris IRS office used to issue their list of software suitable for overseas filers. Each year one or two were added, and one or two dropped off.)



> I can't think of what those would be. You may have to convert foreign currency figures to U.S. dollars. Some people think they should be putting foreign income onto a "W-2" (no, almost never). You still have to read and follow the tax preparation software's instructions, and they're really rather good.


Generally, the software's instructions are simply the various IRS publications incorporated into the software. For someone who has never done US returns before, you still need a basic knowledge of IRS terms and how the tax system in the US works.



> No piece of software is _perfect_ in every detail every time, but this is a very good recommendation indeed. Yes, of course, you still check your work -- stipulated -- but nobody should be scared off from at least trying tax preparation software. It's very good stuff nowadays and very helpful.


No one is saying it's not a good recommendation. (And actually, I think I have recommended tax software pretty regularly.) Just make sure you're using a program that can deal with overseas taxpayers (i.e. has all the forms, and can deal with different format addresses, etc.). Also, some of the "free file" programs are only free for the federal filing and may require you to pay for a state filing in order to get the free federal one. Just read the fine print before you get too far in.
Cheers,
Bev


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## iota2014

Bevdeforges said:


> Generally, the software's instructions are simply the various IRS publications incorporated into the software. For someone who has never done US returns before, you still need a basic knowledge of IRS terms and how the tax system in the US work.


Indeed. And you have to spend time ploughing through whole areas of the tax code which you're never going to need, and could have died happily without ever hearing about. Also you have to figure out at every stage whether the programme may be misinterpreting the "foreign" situation it's having to try to cram into the U.S. framework it was originally designed to embody. 

A purpose-built software programme would be very useful indeed for inexperienced overseas victims of the U.S. tax code. Not feasible, though, as the numbers of potential users in each country (apart maybe from Canada) wouldn't make it worthwhile.


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## BBCWatcher

Bevdeforges said:


> One of the tax prep programs I tried a couple years ago allowed you to complete the forms just fine - but would only allow you to e-file them. If for any reason you couldn't or didn't want to e-file, you could only print off the forms if you paid for the privilege.


That would be nasty! (Or was.) Fortunately even the free editions of the products frequently mentioned in this forum (TaxAct, TaxSlayer) and TurboTax don't seem to have that restriction. Their Web sites also provide a list of all the IRS forms they support and any variations between editions (free and fee) in form coverage.


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## Bevdeforges

iota2014 said:


> Indeed. And you have to spend time ploughing through whole areas of the tax code which you're never going to need, and could have died happily without ever hearing about. Also you have to figure out at every stage whether the programme may be misinterpreting the "foreign" situation it's having to try to cram into the U.S. framework it was originally designed to embody.
> 
> A purpose-built software programme would be very useful indeed for inexperienced overseas victims of the U.S. tax code. Not feasible, though, as the numbers of potential users in each country (apart maybe from Canada) wouldn't make it worthwhile.


Actually, what's needed is a "beginner's guide to US taxation." With a good section on overseas issues. Haven't had occasion to check the Dummies Guide on US taxes, but that's the sort of thing that would be useful.
Cheers,
Bev


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## BBCWatcher

IRS Publication 54 is a little dense perhaps but "not bad" as a summary of most of the issues that U.S. persons deal with in U.S. tax and financial reporting when living overseas.

American Citizens Abroad publishes a decent single Web page summary of U.S. tax and financial reporting obligations for U.S. persons living overseas.

KPMG publishes a guide, last updated in 2011. It doesn't include the Affordable Care Act information that ACA mentions, but otherwise it's pretty much up-to-date.


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## JustLurking

BBCWatcher said:


> KPMG publishes a guide, last updated in 2011. It doesn't include the Affordable Care Act information that ACA mentions, but otherwise it's pretty much up-to-date.


2015 version here.


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## iota2014

Thanks Bev and BBC and JustLurking, those suggestions look useful and I will check them out. But what would be most useful is a country-specific guide or programme which could explain for instance the interactions of the US Tax Guide and the particular country's tax treaty with the US.

An example - one I've mentioned before - is the question of whether the UK State Pension, when received by a UK resident, is to be put down as taxable or not taxable by the US. The Treaty says "taxable", the Technical Explanation says "not taxable". Does the IRS know, or care? Probably not, but it's the sort of annoying mystification that causes (some) UK novices a good deal of useless searching, which could be saved if there was a reliable UK-specific guide. It's the sort of significant question which (one suspects) would have been corrected long ago if it affected the US-resident population and therefore had an impact on tax receipts.

Ah well, I mustn't grumble - being fortunately on my way out of the US tax system!


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## BBCWatcher

It's _really_ hard, though to offer ~200 such guides -- or even ~50 for the "major" countries (whatever that means) -- that are then out of date minutes after they go to press because one or more of those countries introduced a new type of account, changed a law, etc. that then has a U.S. tax consequence....

....And it's worse than that because you can very easily be, say, a tax resident of Portugal trying to understand the Portuguese tax implications of a financial account (and/or a change in the law) in South Africa.

This is what the pros get paid for, really, if you've got a complicated situation. For better or worse.


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## Bevdeforges

iota2014 said:


> Thanks Bev and BBC and JustLurking, those suggestions look useful and I will check them out. But what would be most useful is a country-specific guide or programme which could explain for instance the interactions of the US Tax Guide and the particular country's tax treaty with the US.


The simple fact of the matter is that such guides simply do not exist. There is enough ambiguity in the treatment of specific "foreign" incomes and instruments that it comes down to "what you can get away with" (or perhaps, "what you could potentially justify with a straight face should you be audited"). Even among tax professionals, there is a range of treatments for some of these things, based on the individual's interpretation of the instructions and the laws and regs.

And to be honest, the IRS isn't that strict about the treatment of many foreign sources of income, especially in small amounts. (Small, that is, to the IRS - could seem to you like a significant sum.) That's where I keep coming back to a "good faith" approach to filing the forms. 
Cheers,
Bev


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## iota2014

Yes, I agree such a guide is not a practical possibility, for the same reasons tailor-made software isn't feasible - too few potential users for each variant. But I would also argue that the impracticality of providing clear, reliable advice, is just an inevitable manifestation of the impracticality of CBT. The IRS probably isn't strict about how foreign income is treated because it would be just as time-consuming for IRS agents to keep up with the numerous fluctuating variations as it would be for the writers of guides or software. And that's irrational and unfair, to demand that citizens do something which can't even be clearly and correctly defined.

Still, it's all in flux at the moment, what with the advent of FATCA and the Common Reporting Standard and so on. Maybe this will turn out to be the beginning of the end for CBT. 

Thanks for your thoughts, Bev and BBC. I admit I find this situation interesting, though deeply objectionable.


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## BBCWatcher

iota2014 said:


> ....the impracticality of providing clear, reliable advice, is just an inevitable manifestation of the impracticality of CBT.


No, it's not at all unique to citizenship-based taxation (CBT). The same issues frequently arise in "RBT" systems. The only prerequisite for this sort of complexity is foreign/offshore income or assets, and that's common the world over and increasingly common.

A strict source-based taxation (SBT?) regime in every country might (triple underscore might) eliminate these particular complexities, meaning that income and assets are only ever taxed in the country where that income is accumulated or that wealth is held. But that's not the world we live in, and strict SBT would almost certainly introduce other complexities.

A universal, global tax regime would also theoretically eliminate these particular complexities -- one world tax agency and tax system. I'm skeptical that'll happen in my lifetime, though a multi-country "tax union" we might see.


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## iota2014

BBCWatcher said:


> No, it's not at all unique to citizenship-based taxation (CBT). The same issues frequently arise in "RBT" systems. The only prerequisite for this sort of complexity is foreign/offshore income or assets, and that's common the world over and increasingly common.


Hmmm. It's not a problem for me, where UK RBT is concerned, because (a) I don't have any non-UK income or assets, and (b) the UK, very sensibly in my opinion, collects my taxes entirely through withholding, and doesn't waste its time and mine by forcing me to self-assess. 

It _is_ a problem for me under UK CBT, because the US insists on regarding my UK income /assets as "off-shore". Thus creating unnecessary complexity for both me and the IRS, as I am not the intended target.

My theory is that CBT has been resurrected by the US (after decades in which no real effort was made to enforce it or even inform emigrants that they should be filing) in an effort to meet the growing foreign/offshore complexity challenges. But it's a blunt tool for that purpose, dragging irrelevant individuals like me into its net instead of narrowing the catch to those with genuinely foreign (i.e. outside both the US and the country of residence) income/assets. 



> A strict source-based taxation (SBT?) regime in every country might (triple underscore might) eliminate these particular complexities, meaning that income and assets are only ever taxed in the country where that income is accumulated or that wealth is held. But that's not the world we live in, and strict SBT would almost certainly introduce other complexities.


I agree it's not simple. I read an interesting article (The intersection of US tax treaty policy, tax reform and BEPS - Lexology) which discusses (among other aspects) SBT and the US attitude to import/export of capital. I'm out of my depth, really, but I found it food for thought.



> A universal, global tax regime would also theoretically eliminate these particular complexities -- one world tax agency and tax system. I'm skeptical that'll happen in my lifetime, though a multi-country "tax union" we might see.


It will be interesting to see to what degree the "reciprocity" supposedly baked into the Model 1 FATCA IGAs is implemented by the US. If they're willing (and able!) genuinely to reciprocate under the IGA provisions, that might help bring about a more universal approach to taxation.


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## BBCWatcher

iota2014 said:


> It's not a problem for me, where UK RBT is concerned, because (a) I don't have any non-UK income or assets....


So you're agreeing with me.


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## iota2014

No, I'm disagreeing with you  Never mind, I was really just thinking aloud.

Apologies to the OP - sorry to have wandered off-topic in your thread.


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## BBCWatcher

By coincidence, the European Commission just decided that Starbucks and Fiat Chrysler must pay more tax. One could certainly argue that the European Union is moving toward a closer, more harmonized tax union, as this news indicates.

The basic facts are that Starbucks (with the Netherlands) and Fiat Chrysler (with Luxembourg) took advantage of those particular countries' offers of low corporate tax regimes and contrived tax arrangements in which the companies figure out ways to place as much of their accounting profits in those countries as possible. The European Commission decided those arrangements won't fly, that they are a form of illegal state aid. And when you're the recipient of illegal state aid, you're ordered to repay that illegal aid. Amazon and Apple are among other companies being investigated for similar practices.


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## Bevdeforges

And on that note, I'm going to close out this thread.

The corporate tax issue is a whole different ball of wax, involving "transfer pricing" - a subject with which I have much more familiarity with than I would like to have. 

If you want to discuss corporate taxes on an international scale, you're welcome to start up a new thread on that subject.
Cheers,
Bev


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