Expat Taxes
It’s almost springtime. I can tell because I work on my tax returns every night now.
Tax time is the worst time of the year for me as an American Expat, since I have to file returns both with the IRS and with the German tax office (Finanzamt). Fortunately, the US tax returns I fill out are not too complicated. The Foreign Earned Income Exclusion excludes the first $80,000 earned outside of the US from any US income taxes and the Foreign Tax Credit can usually take care of any earnings beyond the exclusion limit, which for most people results in no taxes due. But still, the paperwork is a drag.
Preparing my German taxes is a real time killer. In the past, I had a professional do my German taxes, but in the end I was paying as much for the service as I was getting back in overpaid taxes. Once, a few years ago, I didn’t submit. My tax burden in Germany is already sky high, I thought to myself, how much worse could it get if I don’t submit a return? Well, the tax authority nailed me for another Euro 2000! That taught me a lesson.
I was amazed to see over at TaxGirl, that 50% of those taking her poll have already submitted their 2007 returns. Either I am doing something wrong (is there a magic wand for tax returns which I missed?) or no other expats read TaxGirl.
If you are looking for more info on Expat Taxes, just google on that phrase. There is a lot of help out there.
Image from cmwatson.co.uk
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POSTED IN: Customs and Culture
6 opinions for Expat Taxes
roy
Feb 22, 2008 at 4:57 pm
The dual tax game pains me much. I paid my German account 350 Euro last year….and luckily paid nothing extra to the Germans…unlike the past seven years. I was pretty accepting of this entire mess…until the exchange rate went down into the .66 range. There is no real break…by the time you consider the 20-odd taxes that the Germans stick to you….it becomes a joke.
Jean Mercedes
Feb 25, 2008 at 4:14 pm
Hi Roy, thanks for sharing your Ex-Pat tax woes! Quick re-cap: you are an American ex-pat, living in Germany but paid in US Dollars. You pay full US taxes but then must also file German taxes. I am guessing the German side doesn’t do a Foreign Exclusion (which applies to myself) but only gives you a credit for the US taxes you paid. Since German taxes are higher than the US taxes you paid, you probably usually owe the German government. Maybe your accountant found a nice new reduction for you this past year?
But taxes aside, living in Europe today and earning US Dollars is a bear. Period.
Jean
Henrietta Wurst
Mar 24, 2008 at 8:06 am
Dear Jean,
I just stumbled upon your website, while tearing my hair out over how to report investment income from German mutual funds to the IRS. Do you perhaps know if “Thesaurierungen” are taxed just like dividends (Ausschuettungen), and should therefore be included on Schedule B? And how are we supposed to report capital gains distributions if the Germans (not being taxed on them) don’t report them? I was unable to find a single expat website that dealt with this type of question…do you perhaps know of one?
Thanks very much, Henrietta
Chris
Mar 26, 2008 at 7:56 am
You might post or send your question to another b5 blog, http://www.taxgirl.com (who, in the interest of full disclosure, also happens to be my wife). Not sure she’ll know the answer, but she has dealt with international questions like this before.
Jean Mercedes
Mar 27, 2008 at 1:13 pm
Hi Henrietta - I must admit, when I saw that my German income would be covered by the Foreign Earned Income Exclusion plus the Foreign Tax Credit and didn’t dive into the details and go to pains to submit an air-tight return to the IRS. Start with free advice from Taxgirl or others, but if your earnings are higher than the Exclusion plus the Foreign Tax Credit, you should really consider getting a professional to do your taxes for you. There are a number of firms specialized in that. They are usually listed in local magazines for English native speakers. We have one in Munich called “Munich Found”. They also have a website.
Henrietta Wurst
Mar 29, 2008 at 5:17 pm
Dear Chris and Jean,
Thank you for your tips - I appreciate them very much, and have filed them away. I got some free advice from a real live American CPA in Munich - given that the amounts concerned are not at all large, this was a real stroke of luck. For what it’s worth: Thesaurierungen from German mutual funds should indeed be treated like Ausschuettungen, and both should be included in one’s 1040 (sigh). He suggested not bothering to research the German capital gains distributions if they won’t result in any tax anyway, which is true in my case (sadly!). My German earned income is fully covered by the exclusion, and my unearned income is small enough that I won’t even bother to take the foreign tax credit, since I won’t owe any tax even if I don’t take it…
The other question was where to put U.S. investment income on my German tax forms: based on two sources of free advice, I will try putting it on the back side of the KAP, under the Progressionsvorbehalt, and hope that the Steuerleute leave it there (rather than shifting it to the front side of the KAP!).
Good luck with your own taxes - this doubled filling out of forms is indeed a bear!
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