# You cann't always hide from the FTC



## FFMralph (Dec 22, 2012)

This forum often suggests that expats should use the FEIE whenever possible to ease the burden of complex foreign tax issues. I agree, but there are a lot of reasons why it isn't always advisable.

1-- The bennefit is reduced by your vaction in the US. 
2-- If you pay higher foreign tax than US tax you loose out on FTC carryovers.
3-- If you retire in a foreign country and have no further wages (No. Pensions and retirement earnings are not wages.) then you cannot deduct the FEIE you must take the FTC for your pensions and interests. If you didnt save up some carryovers, you may start having to pay US taxes.

Eventualy, we are all going to have to face the dreaded Form 1116.


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## BBCWatcher (Dec 28, 2012)

I totally agree. The FEIE/FHE are powerful tools but not always the best tools.

Sometimes it's really easy. Here in Singapore I don't even have to bother deciding which path is best. I already know the FEIE/FHE is best. Singapore's tax rate is comparatively lower. Dubai would be another no brainer.

Japan? Well, I'm _still_ bitter my tax accountant used the FEIE/FHE. 

On edit: If you're fortunate enough to earn above the FEIE/FHE or have non-excludable foreign taxed income then you're probably going to be taking a trip through Form 1116 anyway, so you might as well take that trip without Form 2555 first unless you live in some comparatively low tax "no brainer" jurisdiction.

Another reason you might want to skip the FEIE/FHE _even if it's slightly better_ is so you can make U.S. IRA contributions and also qualify for certain tax credits.


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## Bevdeforges (Nov 16, 2007)

Like all tax things, it depends entirely on your own circumstances. In some cases (like mine, fer instance), the FTC may not even be an option. You have to run the numbers and see how it works out.

1. Not if you're a bona fide resident of your country. You simply indicate your time in the US with 0 days spent on business. If it's true vacation, it won't affect your FEIE.

2. True, but you do have to file a separate 1116 for each category of income. The way some country's income taxes are set up, that may throw a monkey wrench into the works. (And remember that only income taxes are applicable to the 1116. France has whole bunches of other kinds of taxes that add up, but which cannot be taken for tax credit against US income taxes.)

3. Check the tax and social security treaties between the US and your country of residence. Some lay out quite specifically which country can tax which type of pension and/or retirement income. And if you're drawing down a US IRA (traditional type) you're going to have to pay taxes on that anyhow - that's the deal you got when you set up the IRA in the first place. 

There's a reason they say that nothing in life is completely avoidable except death and taxes.
Cheers,
Bev


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## maz57 (Apr 17, 2012)

Bevdeforges said:


> There's a reason they say that nothing in life is completely avoidable except death and taxes.
> Cheers,
> Bev


LOL! You obviously have been holding out on the rest of us, Bev. Come on, what's your secret?


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