Tax Problems for Americans Overseas: Expats Seeking a Simple Life Finding Complicated Mess in New Tax Laws – FATCA and FBAR

It’s beyond the scope of this blog to go into all the intricate details of the new tax legislation passed by Congress that is reeking havoc around the world for Americans living abroad.  Besides, the idea of going into all the tax law details just gives me a headache, how about you Dear Reader?

However, for those of us that are living overseas already or who ponder and daydream about living in a foreign land with beautiful vistas, fresh fruit to be picked off the trees, and a cheaper cost of living (especially medical and dental care) … and I suppose for every fan of House Hunters International, there’s big stuff happening now that’s hurting American expats.

It began as an attempt to collect unpaid taxes by the federal government, where officials were concerned with fighting tax evasion.  Laws were passed.  Yes, they are already on the books.  Now, the IRS is implementing those laws through IRS regulations and there’s the rub.

What’s going on with FATCA, FBAR, and the American Expatriate?

Okay first there are two laws involved here: the Foreign Accounts Tax Compliance Act  (FATCA) and the Bank Secrecy Act.  The Bank Secrecy Act requires American citizens living overseas to report their overseas bank account details each year to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). 

FATCA requires foreign banks to report account information to the U.S. government on all their American customers and if the banks don’t do this, then the federal government imposes huge fees upon these foreign banks for failing to comply.  Nevermind that they aren’t American institutions and have their own set of privacy laws, financial regulations, etc. 

The banks are reacting by doing things like ditching their American customers rather than mess with the whole FATCA deal.  Some countries are insulted and are ignoring FATCA (like China). 

Meanwhile, FBAR requirements are causing nightmare situations for expats all over the place.   One good article with lots of real life stories appeared this week in The Atlantic.  Entitled, “The FATCA Chronicles: Tales from China, Canada and Estonia,” this is the third in a series of articles by James Fallows discussing the expat situation and the new laws trying to thwart perceived tax evasion by the feds. 

Problems include American expats who are signatories on foreign business accounts that have no American income following through them; same thing with foreign accounts held by foreign-citizen spouses; and those with dual citizenship. 

For details on what this means to expats, check out GlobalTaxHelp’s FATCA and FBAR summary and follow the blog posts at US Expatriate, written by a CPA whose practice focuses on expatriate tax issues. 

Expatriating to Mexico: Is It Safe to Go?

Combine a scary U.S. economy with a cheaper one in Mexico, which has the largest American expatriate population in the world, and it's no surprise that many are considering picking up and moving south of the border in the near future - for a least part of the time.  The health care is so much cheaper; it doesn't snow there; it's got all those beautiful beaches and tasty tropical drinks. 

However, the news these days is filled with beheadings, kidnappings, and Mexican police being gunned down on what seems like a daily basis.  Names of Mexican drug cartels are known to us now:  the Gulf Cartel, the Sinaloa Cartel, the Zetas.

Is Mexico safe for Americans now?

The State of Texas' Department of Public Safety has just issued a warning that no one should plan on taking their Spring Break in Mexico this year - it's just too dangerous, the state officials warn, what with all those drug cartels running amuk. 

Over at the U.S. Department of State, there is a long list of instructions and advice for students considering a vacation in Mexico, even giving information on various sites (Cancun, etc.).

Earlier this year, a similar release was issued by Texas against "Winter Texans" going to Mexico in 2011.  (Read the full release here.)  This warning was issued shortly after drug cartel gunfire killed a 59 year old Texas missionary, Nancy Davis, as she and her husband attempted to circumvent the cartel's road block on a Northern Mexico roadway not far from the Texas border. 

Review the U.S. Department of State website, and you will discover that there are "travel alerts" and "travel warnings."  Warnings are more serious:

• Travel alerts "... disseminate information about short-term conditions, either transnational or within a particular country, that pose significant risks to the security of U.S. citizens. Natural disasters, terrorist attacks, coups, anniversaries of terrorist events, election-related demonstrations or violence, and high-profile events such as international conferences or regional sports events are examples of conditions that might generate a Travel Alert."
• Travel warnings advise of "... long-term, protracted conditions that make a country dangerous or unstable lead the State Department to recommend that Americans avoid or consider the risk of travel to that country. A Travel Warning is also issued when the U.S. Government's ability to assist American citizens is constrained due to the closure of an embassy or consulate or because of a drawdown of its staff." 

Mexico got a State Department travel warning back in September 2010. 

So, both federal and state officials are warning Americans that traveling is Mexico is dangerous - so dangerous, in fact, that it's not worth the risk.  However, this isn't the same information that you will find if you investigate the forums and blogs that deal with Mexico expatriating.

What the Mexico Expats Are Reporting About Being an American Traveling in Mexico

The Ajijic Real Estate News covers the region surrounding Mexico's Lake Chapala, where the largest American expatriate community in Mexico resides.  According to Daniel Steele in his post dated January 26, 2011, "Safety in Lake Chapala and Ajijic Mexico," everything is fine - Mexico has its "pockets" that you need to avoid, just like other countries do.  Of course, most of his post is suspect: he's trying to sell you Mexican real estate. 

There is a website dedicated to tracking criminal activity in this area:  the Lake Chapala Crime Watch.  Read it today, and you'll find that burglary and to some extent, robbery (where you're there when the criminal wants to take your stuff - burglary means he waits till you've gone), seems pretty high in the area.  Homes, cars.  The most serious thing I found there: a recent report of a man shooting a rifle with a silencer from a rooftop - not at any living thing, apparently. 

Barbie, who is responsible for RetireInLuxury.com, has a fact sheet for her fellow expats in Mexico, filled with tips and references.  She discusses the difference between tourist spots and other locations, as well as the US-Mexico border as a hotspot for cartel activity.  Barbie advises lots of common sense things, like don't throw money around so everyone knows you've got some; don't wear lots of bling; and don't drive on roads that aren't tourist-friendly - and don't drive at night.  You can follow Barbie's blog and contact her directly at MoneySavingMexico.com. 

So, bottom line: is Mexico safe? Not entirely.  It's not the same as living in San Antonio, that's for sure. We don't have men shooting rifles from (yet).  I'm not worried about running up to the grocery store late in the evening here -  but I do notice there are signs on the lampposts warning me not to leave my valuables in my car. 

Crime is everywhere.  You have to evaluate the risk for yourself.  However, if my teenager were pondering where to spend Spring Break 2011, I'd be pushing for the Texas Gulf Coast, anywhere from Corpus to Galveston and steering clear of South Padre Island and its temptation to cross the border into Mexico.

Expatriate: Resources for Americans Considering Living Overseas

In honor of Overseas Americans Week, April 19 - 23, here's a list of online resources for those of you who are pondering living at least part of the year in another country besides the U.S.A.:

Association of Americans Resident Overseas

American Citizens Abroad

Association of American Clubs

(U.S.) Department of State

Escape Artist

Expat Finder

Going Global

Overseas Digest

Tales from a Small Planet

And, some expat / relocation overseas resource books to read (listed by oldest to newest publication dates):

New American Expat: Thriving and Surviving Overseas in the Post 9/11 World by William Russell Melton (April 2005)

The Expert Expat - Revised Edition: Your Guide to Successful Relocation Abroad by Melissa Brayer Hess (October 2007)

Leaving America: The New Expat Generation by John R. Wennersten (November 2007)

The Grown-Up's Guide to Running Away from Home: Making a New Life Abroad by Rosanne Knorr (March 2008)

Retirement Without Borders: How to Retire Abroad -- in Mexico, France, Italy, Spain, Costa Rica, Panama, and Other Sunny Foreign Places (and The Secret to Making It Happen Without Stress) by Barry Golson (December 2008)

Easy Belize: How to Live, Retire, Work, & Buy Property in Belize, the English Speaking Frost Free Paradise on the Caribbean Coast by Lan Sluder (February 2010)

The Truth About Moving Abroad and Whether It's Right for You: Should I Stay or Should I Go? by Paul Allen (March 2010)

Considering Expatriating? Watch HouseHunters International on HGTV

Want to be an American Expatriate?  Whether or not you are thinking about becoming a "snowbird" and buying a vacation home on a foreign beach somewhere, or if you're considering moving to another country permanently, you should include watching one TV show in all your research and planning. 

I know, it sounds a little silly but you'll learn things from HGTV's House Hunters International that are valuable, like:

1. dishwashers - many countries just don't have them;
2. refrigerators - the American monsters are not found elsewhere, lots of places have fridges the size of a dorm fridge here in the States
3. carpeting - lotsa places have tile.  Lots and lots of tile. No hardwood flooring.  No carpeting.
4. closets - some countries (particularly the quaint older homes in Europe) don't have closets.  You buy wardrobes for your stuff.  Looks like a lot more folding than hanging in these places.
5. bedrooms - smaller.  Lots smaller.  Apparently, in lots of countries, you don't loiter in the bedroom, you just sleep there.  It's not the sanctuary that Americans enjoy.
6. kids share a bedroom.  In lots of cultures, the children have a bedroom they share.  Boys and girls.  Don't know if there's an age cutoff here or not. 
7. furnished sales -- especially in island countries and Central and South America, the homes are sold furnished.  You buy the land, you buy the dwelling, you buy the sofas.  All tied together. 
8. ovens -- Some parts of the world (particularly Asia), they don't use ovens.  You don't get one.
9. bathroom en suite -- Lots of places share a bathroom, there's no bathroom off the master bedroom.  Lots of places have bidets though.  Bidet, yes and dishwasher, no?  That's right.
10. bomb shelters -- Buy in Israel, expect a bomb shelter as part of your standard features in the more modern offerings. 

Each episode of HouseHunters International has a buyer in a foreign country - sometimes American, sometimes not - looking at three options and then choosing one.  With the Americans, it's a 50-50 chance you'll see one or more Americanized condo-type developments, catering to the Americanized lifestyle.  These places won't look that much different than buying a condo in Houston or Coco Beach.  

Even these episodes give you a nice look at the local community though - and if you listen carefully, you get tips like the places where these types of resorts have alarms and burglar bars, hints of the crime rate, and where others have all sorts of hurricane-proof features, hints that those living there expect to ride out some hairy storms.

Want to watch some?  They've got episodes at the ready, online, at their website. 

Image:  Public domain, View of Little Beach, looking south over Mount Gardiner, with the granite headland massif in the background at the Two Peoples Bay Nature Reserve in Albany, Western Australia. Photo taken June 2nd 2007 by Darren Hughes. Wikimedia Commons.

The Low Down on Living as an American Expatriate - Talk with Americans Living Overseas

If you're pondering living overseas for an extended time period, if not permanently, then you've probably been surfing the web looking at sites like International Living and Escape Artist.  That's good, they have lots of information.

However, ExpatFinder has created a list of 100+ Twitter accounts of real, live people living in all parts of the world as expatriates.  Connect with folks like these, and get the inside scoop on your dream destination:

dougiegyro http://twitter.com/dougiegyro 
Location: Prague, Czech Republic

Consultant, tech activist, expat American, translator, DJ

 

Kory Kessel http://twitter.com/kory

Location Paris, mostly

Chicago-born Cubs fan with roots in Texas and New York; it’s all about family, friends, music, food, art, and travel

Joel Smith http://twitter.com/MejicoJo

Location Lake Chapala, Mexico

Retired @ 46, Moved 2 Mexico. ♥ Suzy, Dance, Good Food, Travel, Sunsets, Sandy Beaches, Mexican People + Shih Tzus! Link tells U more

 

Julia Evans http://twitter.com/jooliagoolia

Location Buenos Aires, Argentina

american expat, content developer, soon-to-be librarian, fabulous person

 

I haven't contacted anyone on the list of 100 expats that the ExpatForum has collected, but I've selected the few samples above to demonstrate that ExpatForum has quite the crew there -- expats living all over the world, doing all sorts of things.  And with Twitter, it's so easy to start up a conversation, you should have lots of fun making friends with these folk!

Becoming an Expatriate: Health Care in Other Countries

For some, traveling to other countries for medical care is their sole purpose in visiting the country, and medical tourism is becoming more and more popular here in the United States.  That's a different issue for a different day (other than what I've already written about it, if you're interested in that subject).

Medical Care for Expatriates - Not Medical Tourism

When you're pondering living for an extended time in another country - e.g., a retired snowbird following the sun, a young adventurer wanting to see the world, a family following a corporate job - one of the big issues will be the kind of health care that you'll get, how much it will cost, and how best to plan ahead to insure that you're covered from the minute that you hit your new shores.  Each country is different, and different expatriates may qualify for different levels of care in their new homeland. 

Here are some good resources to start your studies on expatriate medical care:

1. TransitionsAbroad.com has tons of information about this topic in a series of articles covering Health, Safety, and Insurance for Expatriates.
2. For those who like lists, ShelterOvershore offers a short, smart overview in  Expatriate Healthcare Checklist with five articles providing more details on the topic (like whether or not you need insurance coverage before you go overseas) in the site's right sidebar. 
   
3. A huge list of insurers provided international medical coverage has been collected at expatriates.com.
4. An expatriate in Spain gives first hand information about medical care in Spain with lots of details in a great blog, SpainExpat.
   
5. A great discussion of a British expat's life in Greece can be found at Living in Greece.  Pauline describes the ease with which she gets her high blood pressure medication and how efficiently her husband's athlete's foot was treated.

Expatriates: Are You Considering Moving Overseas Because of the Economy?

There's more and more talk about Americans relocating to other countries as the American economy continues its downslide -- there's a lower cost of living, there's less stress, there are already established expatriate communities to consider.

If you're one of those Americans considering a move to another country, there's lots to ponder. First, there is a lot of information about cost of living, jobs, and culture for a variety of destinations over at the ExpatForum -- here you can read about living in Australia or Malaysia or elsewhere, and there are lots of forums set up so you can communicate directly with expatriates who are already living in your target location. Other informative sites are Expat Exchange and Expat Essentials.

It's fun and exciting to surf through these sites, and ponder your new, simple life in a beautiful, tranquil, and inexpensive location. However, there's a lot of investigation to be done.

You're considering a new daily life, not an extended vacation. For instance:

1. Consider Taxation - How Much Will You Have to Pay Now and in the Near Future?

There's some reporting that expats will be facing increasing taxation in the future. The National reports (12/29/08):

The United States is not most countries, however. Citizens living abroad must continue to file returns and pay tax on their worldwide income, although the first US$82,400 (Dh302,655) in foreign employment or business earnings is excluded, plus a bit more, sometimes, for housing expenses.

With one hand in their wallet already, are Americans more at risk of a tax hike than other expats? Could they be asked to pay more?

“It would be a fairly easy to thing to do,” said Patrick Stevens, a tax partner in London for Ernst & Young. “All they would have to do is reduce or wipe out the excluded amount.”

He is not betting on it, but something that produced the same result occurred just two years ago. While the earned-income exclusion was raised from $80,000, tinkering in the formula for the housing allowance led to sharp increases in tax liability for some overseas Americans.

J.D. Foster, a researcher in tax and entitlement policy at the Heritage Foundation, a Washington think tank, does not expect any similar move – yet. His somewhat paradoxical reasoning is that the US treasury needs too much revenue.

“I don’t think it’s all that probable simply because deficits will be so large for the next couple of years and the amounts raised would be so small that it’s not worth it,” he explained. He warned, though, that it may become worth it later.

“There’s a legitimate concern for two or three years from now,” Mr. Foster said, “as Obama will have to demonstrate to the markets that after these unprecedented deficits he’s concerned about fiscal discipline.”

2. Consider Crime - Kidnapping of Americans Is a Risk in Some Areas
Kidnapping Americans for ransom is considered a business enterprise in some parts of the world, and while this may be more of a risk for the overseas American businessman and his family, it's a risk to be considered by retirees and other "rich Americans" in many regions.

Site to See: NYT's Frugal Traveler Blog

Living simply means living well -- living abundantly -- and a jewel of an example lies within the pages (or screens) of the New York Times, with its Frugal Traveler blog.

First, it's much simpler to read the New York Times online than it is to purchase the print version. Cheaper, easier on the trees.

Second, Matt Gross, the Frugal Traveler, really knows his stuff. Check out his current Grand Tour of Europe on a Budget -- he's covering Europe over 12 weeks this summer, and on a budget of less than 100 euros a day (or 156 dollars). His average daily total thus far has been $143.53 -- not the cheapest vacation for some simplifiers, but heck. It's EUROPE.

On June 18th, Matt Gross was in Rome. He's staying at a beautiful convent (found at MonasteryStays.com); he's drinking 70 cent macchiato (yes, that is 70 cents, take that Starbucks); and having fresh, delicious Northern Italian meals (roast veal, zucchini, beer) for 14 euros.

It's nice to read and daydream about ... travel can be done, and done well, on a budget. Even Europe. Even Rome.

CouchSurfing for a Cheap Vacation

The service at CouchSurfing.Com may not be for everyone, but it's a great find for those who are looking for a cheap and fun vacation where they meet lots of new people and get outside the usual tourist box. And, yes, it's free.

What is it?

The Couch Surfing Project is an international, non-profit organization with the following mission:

"CouchSurfing seeks to internationally network people and places, create educational exchanges, raise collective consciousness, spread tolerance and facilitate cultural understanding. ... We make the world a better place by opening our homes, our hearts, and our lives. ...CouchSurfing wants to change not only the way we travel, but how we relate to the world!"

How does it work?

At the website, you create a profile for yourself (similar to MySpace or Facebook), get to know fellow members through the forums and discussion boards, and when you're ready to travel, you plan your trip around your new CouchSurfing pals - who open their homes up to you for free. Of course, it's a mannerly exchange (you have to request an invite, and they have to say yes) and there are safeguards (members are "vouched for" or "verified" and there are a number of privacy settings).

And, there's a range of hospitality here. Maybe one host feels fine offering you a "couch" at their house; another may be willing to meet you for coffee or drinks, or give you a ride to/from the airport. You set the hospitality boundaries both as a host and as a guest.

It's a worldwide membership and all sorts of people are listed as members. All ages, all sexes, singles, couples, families, from all over the world are establishing online friendships via the site before traveling - or before inviting guests into their homes. This service may not be for everyone, but it sure seems like a great find for the adventuresome ....

Retiring in Mexico

More and more news reports are covering the rise in Americans retiring in Mexico. This is due in part to the lower cost of living, as well as the lower costs of medical and dental care and nursing home expense. It's also due in part to the Mexican people themselves: their loving attitudes toward family, and friendly acceptance and assistance to expatriates, makes Mexico a welcoming place for many Seniors.

For more information on retiring in Mexico, check out these sources:

Mexperience
The People's Guide to Mexico
Gadling
ExpatForum - Mexico
MexConnect
Transitions Abroad - Mexico

Do Expatriates Pay Less in Taxes?

There is a free report from International Living that provides details on the tax implications of living in various countries as an American citizen.

So, does living abroad mean a tax savings to the American expatriate? Not necessarily. There are some countries with low tax rates which may mean savings, such as Panama. There are other countries that have double-taxation treaties with the USA, including France and Mexico.

For a detailed answer to the question, there's a book you can order, The Expatriate's Tax Bible. Or, you can check with a tax professional who works with expatriates - either in the US, or in the foreign country you're investigating. Search Google for "expatriate accountant" and you'll find a list of pros to answer your questions.

Becoming an Expatriate

There are those who daydream not only about simplifying their lives, but about changing their locations while doing so. The American Expatriate is commonplace in several areas of the world. It's not just Rick Blaine living in Casablanca anymore.

Explains ShelterOffshore,

"The very first step towards successfully downsizing is sitting down with your partner and together making a list of all your dreams for a simple life. After all, if you don’t ultimately know where you’re going in life how on earth do you expect to get there! This list should be unrestricted by thoughts of money, time or practicality and should be your ideal downsized or simplified life. This is the life that you need to actively think about every day and see in your mind in vivid colour. The more you focus on the finer details of your perfect life through visualisation the quicker this ‘dream’ will become your reality. Make sure both you and your partner are in agreement about the fundamentals of your new life and that you both actively think about this every day.

"You now need to begin putting the practical steps in place to achieve your ideal - I don’t know how visualisation works but it does work and if you keep focusing on what you want you will find the practical aspects of achieving your simple life easier! Work out where in the world you want to live, examine property prices in your ideal location and find out what you can afford. Think about the money you have in the bank and how much you will need to live on. Be realistic about all the financial areas of your new life - downsizing is of course all about living on less - but you will still need money to afford to live! Will this money come from savings, the sale of your house, a part time job, a new business? Be hard on yourself and very realistic when it comes to every financial aspect of your new life because it is always, always money that lets people down. And I don’t mean it’s a case of not having enough, it can be a case of imagining you will not encounter high costs of living in your ideal country and then moving there and discovering your assumptions were wrong and the cost of living is higher than anticipated and will require a readjustment of your new life plan."

EscapeArtist.com provides a lot of jumps as well as ebooks to educate those interested in this process. So does TransitionsAbroad.com.

For personal perspectives, check out Expats in Britian, an Expat in Chile, an Expat in France since 2000, and an Expat in Germany-- and don't expect everyone to like you: some may share Bill Grimm's opinion of the "ugly American expat."

[For More Info, check out my April 2010 post regarding expatriating - lots more links and books, too.]