IRS Taxation and U.S. Expats

1. IRS Taxation and U.S. Expats CPT Robert W. Duffie, Esq.

2. If you are a citizen of the United States, your worldwide income is subject to taxation by the Internal Revenue Service. • Common Income Includes: • Salary • Capital Gains • Pension • Social Security Benefits • Traditional IRA Distributions • Rental Income • Tips • Alimony • Gambling Winnings

4. Foreign Spouses and Taxes • If you are married to a Foreign Spouse and file “Married Filing Jointly”, then his/her income counts as gross income, subject to taxation by the Internal Revenue Service. • In order to file jointly, the foreign spouse must have a Social Security Number or Individual Taxpayer Identification Number (ITIN) • Prevent double taxation by taking either the Foreign Tax Credit or the Foreign Earned Income Exclusion.

5. Foreign Earned Income Exclusion • Doesn’t apply to NATO/SOFA status individuals working directly or Indirectly (contractors) for U.S. government • You can’t avoid taxation by US or Germany. We all have to get taxed by someone…unless you are lucky enough to hold Monacan citizenship, and live there! • If you take Exclusion, can’t change it in subsequent years without properly revoking, and then are barred from using Exclusion for next 5 years after revocation.

6. Foreign Tax Credit • Not all German taxes are deductible • Income Tax • Solidarity Tax • NO “Church Tax” • May decrease overall tax burden if German tax withheld greater than the U.S. equivalent

7. Who Taxes What? • Taxation on some things depends on where it is located, i.e. income deriving from real property is taxed by the country in which the real property is located, not where the owner resides. • Taxation on other forms of income largely have to do with “Residency.”

8. Residency • If a “resident” of Germany then much of your income is potentially taxable by Germany “For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile , residence . . . ” -U.S./German Tax Treaty, Art. 4.

9. Resident Tie-Breaker Rules • In descending order: • permanent home available to him; or if no permanent home, then center of vital interests(which states his personal and economic relations are closer to); • thenhabitual abode; • then State of which he is a national; • Lastly settled by mutual agreement between US/Germany. -U.S./German Tax Treaty, Art. 4.

10. Social Security Income • Under the US/German Tax Treaty, Art. 19(2), the State in which you “reside” is the State to which taxes on Social Security are owed. • If Social Security Income taxed by GTA, then on 1040, include all Social Security Income as Gross Income and then add $0.00 for the taxable amount, write “taking a treaty position” on the bottom • File Form 8833, select “taking a treaty position” • Attach Form 8833 and mail it in with the rest of your return

11. **** **** Taking a Treaty Position on Social Security Benefits, see attached IRS Form 8833

14. Concluding Thought • “[I]n this world nothing can be said to be certain, except death and taxes.” • Benjamin Franklin • You will be taxed by someone! Whether it be the United States, Germany, etc., don’t get caught with hundreds of thousands in unpaid taxes and penalties!