# Dual citizen earning over $97000 in Australia



## ellypage (Jan 2, 2014)

I could not find an answer so thought I would post.

I am an Australian/US dual citizen born in Australia but lived in the US for 3 years till January 2013....

I have just returned home and started looking into the crazy US worldwide tax obligations and I am not sure what I should I do...

I earn a really decent salary: $160,000 in Australia and get taxed the heck out of it already here - and now I find out I have to pay US tax on the $60, 000 or so over the threshold? Is this right?

I have no intention on moving back to the US - is it easier just to renounce my citizenship? I was in a residency training program in the US earning peanuts for those 3 years....

I have read the docs on the IRS and I am still overwhelmed!

Thanks in advance...


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## Bevdeforges (Nov 16, 2007)

ellypage said:


> I earn a really decent salary: $160,000 in Australia and get taxed the heck out of it already here - and now I find out I have to pay US tax on the $60, 000 or so over the threshold? Is this right?
> 
> I have no intention on moving back to the US - is it easier just to renounce my citizenship? I was in a residency training program in the US earning peanuts for those 3 years....


Not necessarily - you get to "exclude" the first $97K or so on form 2555, using the FEIE (foreign earned income exclusion). Over and above that, you use the Foreign Tax Credit to offset any taxes due the IRS using the tax you pay to the Australian government.

Best approach is to download one of the freebie tax preparation softwares (TaxAct is free to use online or to download, no matter what your income - there are two other tax prep softwares available in either online or download versions, but I'm not sure whether you can download for free or not - check TurboTax and H&R Block).

It takes a bit of futzing around to get used to how the software works, but it should be possible to get them to exclude your first $97K and then apply the foreign taxes you've paid against any remaining obligation.
Cheers,
Bev


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## Sheowahya (Jan 2, 2014)

Depending on your circumstances, you may also be entitled to housing exclusions which would further reduce your taxable income. Combined with the foreign tax offset, you should not have any tax liability to the US. It is just the annual filing headache. And don't forget to file your FBAR every year.


Cheers
Marilyn


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## maz57 (Apr 17, 2012)

@ellypage Please do extensive research about your situation before you do anything! Did you ever pay US tax while you were in the US? Did you ever file a US tax return while in the US? Did you ever get a US passport or did you travel as an Australian? Did you get a Social Security Number? Have you ever done anything else to "exercise" your US citizenship? How did you acquire US citizenship in the first place? Do you have US assets or US source income?

The answers to these sorts of questions will determine your ultimate way forward and only you can figure it all out. No professional can really be relied on totally; they are bound to strict legal standards which may not always be in your best interest. There is a "compliance industry" which has a vested interest in charging big fees for that so called compliance. It's guaranteed they would consider someone who makes $160k a year a desirable client! 

If you are presently living and working in Australia there is minimal risk that the IRS would come at you immediately if ever. Depending on your personal facts it's entirely possible the IRS doesn't even know about you unless you tell or have told them. Even if they do know about you they may think of you as a low income wage earner not worth bothering with. If you have no intention of ever returning to the US (even for a temporary visit) there is little chance of negative consequences. Remember you are an Australian living your birth country; you have the protection of your government! If you do travel to the US on your Australian passport US customs will have no idea you are dual because of your Australian birthplace. I'm not sure what the consequences of FATCA will be for Australia or for anywhere else for that matter. No one does. If you renounce you are telling the US about your existence and whereabouts. If you are trying to do the right thing in order to get "peace of mind" remember that that is a near impossibility when dealing with the US government.

For myself renunciation was the avenue I chose. Before I did that I attempted to become compliant with my US tax filings. What I discovered was that compliance is virtually impossible whether the intention is to remain a US taxpayer or exit the US system forever. The US tax code interacts so badly with the rules in some countries that your financial options are severely limited. That is why I ultimately decided to shed my US citizenship. If one is a homeless pauper the US government couldn't care less about you; if one has assets the US government is very interested in your financial affairs.

I wish you the best of luck in sorting all this out; it's a headache isn't it? Just remember there is absolutely no rush. Get it right the first time. Look before you leap.


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## BBCWatcher (Dec 28, 2012)

....Or you get to take the Foreign Tax Credit on all your Australian-taxed income.

Folks, could we please stop insisting that the FEIE is always the correct choice? That's a sometimes costly oversimplification. As the original poster alludes to, Australia is a comparatively high tax jurisdiction, so this is not an academic point. The original poster should try the FTC (only) path first. If U.S. tax liability is then zero, he/she is done. If not, try rerunning the tax calculation with the FEIE/FHE to see if that lowers or eliminates U.S. tax liability.

The original poster doesn't live in Dubai. Let's offer the right advice for the situation, OK?


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## Sheowahya (Jan 2, 2014)

BBCWatcher said:


> The original poster should try the FTC (only) path first. If U.S. tax liability is then zero, he/she is done. If not, try rerunning the tax calculation with the FEIE/FHE to see if that lowers or eliminates U.S. tax liability.


Which is part of the reason why it costs so much to have tax accountants prepare returns, every return for an expat should be prepared using at least three methods in order to determine the best result. It is not time efficient to do it this way, but failure to do so may mean paying tax when it isn't necessary.



Cheers
Marilyn


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## BBCWatcher (Dec 28, 2012)

Well, maybe, but that's a very separate issue. And it's actually easier/faster/simpler for an above FEIE earner to run his/her numbers without taking the FEIE, so I'm all in favor of saving work if possible.

Anyway, to net it out, Australia + high income = try the FTC-only calculation first. You're going to be taking a trip through the FTC anyway, so you might as well try that FTC-only calculation. If your U.S. tax liability is zero, you're done -- and congratulations because you'll probably have some excess FTCs to apply to other tax years if need be. If I'm wrong, no problem, take a spin through the (additional) FEIE/FHE paperwork.

Most of the work in figuring out taxes is not the math, it's learning various rules, forms, etc. So start with the form set that you'll always have to traverse, run the numbers, then add the FEIE paperwork only if necessary. If you never have to read all the rules and fill in forms about physical presence tests and all that stuff, congratulations, you've saved time and effort.


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## Bevdeforges (Nov 16, 2007)

Going the FTC only route is another option - but once again, it depends on the individual situation whether or not it's any "quicker or easier" than the FEIE route. I recently started skimming the instructions for form 1116 and having to file multiple 1116 forms (for multiple sources of income) would seem to get pretty complex pretty quickly.

To be perfectly honest, maz57 is right, too. Depending on how "exposed" you are, simply laying low and staying off the IRS radar altogether may also be possible. The trick is that you have to understand the likelihood and possible consequences of being "found out."
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

The original poster will take a trip through Form 1116 regardless. She/he has Australian-taxed income above the FEIE/FHE limits. So she/he might as well start by taking that trip (and only that trip) to see what happens.


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## Bevdeforges (Nov 16, 2007)

BBCWatcher said:


> The original poster will take a trip through Form 1116 regardless. She/he has Australian-taxed income above the FEIE/FHE limits. So she/he might as well start by taking that trip (and only that trip) to see what happens.


What I would suggest is to download the TaxAct (or any other freely available) software and simply play with the options a bit. I suggest the downloadable version simply to avoid any concerns about security of scenarios stored in The Cloud. (After all this Edward Snowden stuff, who knows who might have access to that information!  )

Setting up the software this year actually gave me a couple ideas for researching my own situation - and I found some really useful stuff. The other suggestion is to download and read (or skim) the relevant tax treaty plus protocols and technical explanations. 
Cheers,
Bev


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## maz57 (Apr 17, 2012)

Pretty much guaranteed the NSA has access to it if they want it!


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## Bevdeforges (Nov 16, 2007)

maz57 said:


> Pretty much guaranteed the NSA has access to it if they want it!


Yeah, but the big question is whether or not they "share" their information with the IRS. arty:
Cheers,
Bev


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## Sheowahya (Jan 2, 2014)

Of course they will share


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## Bevdeforges (Nov 16, 2007)

Sheowahya said:


> Of course they will share


Oddly enough, government agencies tend to be quite stingy with data they have collected for themselves. "Playing nicely with the other children" doesn't seem to be one of the criteria for advancement in government ranks (and that applies to all governments - not just the US).
Cheers,
Bev


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## Sheowahya (Jan 2, 2014)

We're talking about a BANKRUPT country. The tax collection department will demand and will get whatever it wants!!! Especially if it means the democrats won't have to raise taxes in their devotees.


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## maz57 (Apr 17, 2012)

Curiously, the Reed amendment, the law which permanently bans ex-citizens from entering the US if they are deemed to have shed their US citizenship for tax reasons, has never been enforced because of inter-agency data-sharing issues.

For the State Department to make such a determination they would have to access a person's tax records. The IRS is explicitly prohibited from sharing any information gathered for taxation purposes with any other government agency. There have been various proposals to change this but to date none have been implemented.


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