Working overseas as a U.S. citizen means the tax conversation can be tricky! How much do you pay as taxes to each country? Do you need a tax agent in the U.S.? And what entitlements do you have as someone working abroad?

With over a decade of expertise in US expat taxes, Olivier Wagner shares with me what U.S. citizens living abroad need to know, especially if they are digital nomads. From leveraging the Foreign Earned Income Exclusion to the complications of Social Security contributions, Olivier shares with me the insights you need to live in Ireland and pay taxes in the U.S.

Whether you're considering renouncing your US citizenship or curious about the tax implications of your global lifestyle, this episode is packed with essential advice to help you stay compliant and make informed decisions.

Main Topics Discussed:

• Introduction to Olivier Wagner and his expertise in US expat taxation.
• Overview of tax obligations for US expats and digital nomads.
• Utilizing the Foreign Earned Income Exclusion for digital nomads.
• The implications of Social Security contributions for US expats.
• Strategic considerations for US citizens contemplating renouncing their citizenship.
• Financial planning tips for US expats living in higher tax jurisdictions.
• The importance of seeking professional tax advice before moving abroad.

If this conversation resonates with you and you'd like to seek out Olivier's services, head to https://1040abroad.com/ to organise a free consultation. Alternatively, you can purchase Olivier's book on Amazon.

LinkedIn: https://www.linkedin.com/in/owagnerea/

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If you loved this episode or have a similar story, we'd love to hear from you! You can get in touch with us directly at info@expattaxes.ie or leave a rating and review on Apple Podcasts or Spotify.

Taxbytes for Expats is brought to you by ExpatTaxes.ie. If you're considering moving to or from Ireland and would like support with your taxes, book a consultation today: https://expattaxes.ie/services-and-pricing/.

Welcome to tax bytes for expats. The top tax tips you

want to know as an expat, the podcast is here to help answer

the common queries and concerns expats have when moving to

or from Ireland. Complex taxes explained

simply, we'll focus on the irish and international

tax issues to be aware of to ensure you save time,

money and stress. Hi everyone,

welcome to this episode of tax bites for Expats. Today we're

going to talk with Olivia Wagner, who's the founder of 1040

abroad. Olivia is a leading expert in us expat

taxation and he's also a best selling author on the subject. He has

over twelve years of experience in helping us expats

navigate what we all know is the complex world of us

taxation. He has in depth knowledge and experience and is a

respected authority in the field. So we thought it would be good to have him

on because he he is dedicated to helping us expats understand

their tax obligations while also taking advantage of all the benefits and

deductions available to them. So we've got lots to talk about. Olivier, thank

you very much for joining us today. Thank you for having me. It's our

pleasure. Thank you. So I think when we were trying to decide

on what we might talk about today, I mean, really there is so much. But

what I'd love to do before we kick off and talk about the intricacies

of us expat taxation generally is for our listeners to

get some kind of an overview as to your background. You know, why

tax? The name, as some may have gathered, it doesn't

sound to be from the US. Initially, I

suspect I hear a french lilt to your accent, but yeah, tell us about your

background. Right. I'm originally from France. I moved to the

US in 2004. I worked at Mundi's credit rating

agency in New York. In 2009, I became a

us citizen, and in 2011 I

moved to Canada and only very recently became a canadian

citizen. And I had this idea of being

locational, independent of working for myself, which is something that is

a lot more widespread since COVID-19 but back then,

you essentially had to work for yourself, to work remotely.

And as I moved to Canada, I was looking into

fields in which I could do that, and taxation was close enough

to finance, close enough to my skillset that it sounded

like a good match. I immediately became an annual

agent. I founded 1040 abroad, and I became a

CPA three years later. You were busy.

A busy few years. So

tell us then, why us expat taxation? What

appealed to you about that specific niche? Well, I'm good at playing with

numbers, so that that was a good fit for me. And

also Americans overseas are, you know,

spread out all over the world, and they won't

necessarily have a us tax professional in their town

to meet them in person and prepare their tax return. So

again, back then, in this pre COVID-19 where we were talking about ten years

before, that seemed like a good niche where

people would be more inclined to work remotely. Yeah, yeah.

And it's. That's definitely something that's become more common since

COVID-19 so maybe when we're on that topic, I know one of the things we

said we might talk about today was how the US wants to tax

digital nomads. Tell us a little bit about what you see in your client

space and what anybody listening today who considers themselves to be

perhaps a us citizen and also a digital nomad. What do they need to know

about or be aware of when it comes to taxes? Well, the main thing is

that the US taxes its citizens wherever they live. The only

way to get out of the system completely is to give up us

citizenship. As such, digital nomads will still report

their worldwide income, but they would use

the foreign income exclusion, which allows them to

exclude their earned income up to

$126,000. And to do that, they

need to meet one of two tests. Either be a bona fide

resident of a foreign country, which normally wouldn't be the case

of nomad, or the physical presence test, which requires

them to spend 330 days in a transbound period in a foreign

country or countries. So that's the test that digital

nomads would heavily rely on, but that would

be income tax. They will avoid being income tax by using the

foreign income exclusion. When it comes to Social Security,

if they're still working for a us company, it will keep on being

redeemed. If they're self employed, they will pay what

is called self employment tax with their tax return. The way around

that is to be an employee of a foreign

corporation. They can create a foreign corporation and

then they won't have to pay US Social Security.

Different people have different views on that, because unlike income tax,

you're actually meant to receive benefits at what time on back paying

Social Security. But that's the big picture. That's a

really good overview, just maybe on that point there about social insurance.

And for digital nomads, you hit on something that I think is quite important,

is that when somebody pays into a social insurance system,

they are paying into, for example, from a US perspective, the right

to a us social insurance pension in future. What's your

recommendation for your clients when they have the option to pay

that, or perhaps structure their affairs such that they don't have to? Well,

if someone is nearing retirement, they need a few more quarters

of contributions to get their full benefit. Then it

makes complete sense to pay Social Security and be able to

collect the full benefits when they retire. Someone

who's younger, in their twenties or thirties, I usually

refer to them, it's their decision.

At the end of the day, if they were to move back to the US

and have to pay Social Security later, then they would get full

benefits and it might not be the best choice.

But if they keep on staying outside of the

US and all of their Social Security

contributions will be voluntary in a way, then it might

make sense to not contribute and save a similar

amount invested on the stock market, and then they would have

more at retirement. Obviously it's their

personal lives and they incorporate their views as to

where Social Security will be, and I cannot force them to save

either. But if you're going to save on your Social Security taxes, you

should put it in a securities account and invest it as opposed to

spending it. Yeah, I agree, and I think that's a really important

point, is that now when people are digital

nomads, it's brilliant. It opens up so many possibilities. Places you can

travel and work, see the world, and potentially have a low

tax rate legitimately. But of course, I think you hit the nail on the

head. Depending on how far away they are from retirement, it's always worth

keeping one eye on. Well, what will this look like in 20 years time?

I mean, from an irish US perspective, thankfully, there's a reciprocal

agreement which broadly ensures you only pay social

insurance in one country at a time. And in addition to that, there's an

aggregation of benefits paid in both jurisdictions and certain

circumstances. But of course, these digital nomads are generally moving

so frequently that they may not have the obligation to pay into the

system in Ireland for the required amount of time. That's really interesting.

Okay, so tell us then a little bit, the majority of your clients then, do

they tend to be in that digital nomad space, or do you work

predominantly with people who have relocated to places outside of the US

permanently? Yeah, actually, normally they have deeper woods

in the country they're in either in Canada or

Western Europe, and then there's a lot more opportunities not

to pay tax. As you mentioned, on the Social Security

side, they would be able to use the totalization agreement, which means that

regardless of the structure used, they would not be liable for

Social Security. They would pay Social Security into the local

system. And when it comes to income tax, in addition to the foreign

income exclusion that I mentioned, where, by the way, they will be

able to claim the bona fide residence test at that point, because

they will be actual residents of a foreign country, they can also

use the foreign tax credit, which turns out to be more

advantageous for those who live in countries with an higher tax

rate. Ah, okay. Okay. So they need to review their own

situation. Do you see it common that digital nomads

fail to get the foreign earned income exclusion and end up paying taxes in the

US because of the fact that their movements are transient? I mean,

that's. I haven't seen as many

audiences you would expect, even though I advise them

to keep a copy of their boarding pass and Lisa Grimaud

and passport times take a photo with their phone because

they can lose these things. It's much better to have a digital copy.

But, but yes, they need to spend

330 days in a twelve month period in a foreign

country. So that's something that they need to be mindful

of before the fact. Because after the fact, they cannot

change the past. And they are probably not in a

situation where they can use the bonafide results test or the

foreign tax credit. Okay. No, it's

interesting, I wasn't aware of that previously. In terms of the clients

that you deal with, obviously they're all us citizens. I know

we spoke briefly before we started to record about the implications of

renouncing citizenship. And I suppose one thing that goes through my mind when, and we

talk about, for example, this cohort of digital nomads who are struggling

to leave the US tax net, irrespective of the fact that they're not in the

US. And then the second group of people who, you know, leave the US, go

and live somewhere permanently. You know, in our case, that's Ireland in many

cases. When and why and how?

That's three questions. In one, would somebody hand back or consider renouncing

their us citizenship, talk us through why they might do it, what it looks like

and how they go about it? Well, it's typically more of the second group

that you mentioned, that would be people who have fed

their lives in a foreign country, have lived there for decades, have

a second citizenship, don't really see them moving back

to the US, tend to be older. The main benefit of us

citizenship is the ability to live and work in the US. And

when someone's in their twenties, they don't know where their career and

their personal lives will take them. Whereas as people get

older, not only are they more settled in their country

of residence, but they also tend to have more complicated

financial lags, they tend to have more investment income, et

cetera, things that are more complicated from a us tax

perspective. So then it makes more sense for them to

announce. Dextranomads, for starters, won't

naturally get another stanchion because they don't

create enough ties with a foreign country. Every now and then

you see someone who would buy a citizenship by

investment and then give up your citizenship without being

settled anywhere in particular. That's definitely possible,

but, and I have a few clients like that, but by and

large expectuates who regularly live in a foreign country

outnumber them. One of the things that comes to my mind

is I rarely see my clients renounce

us citizenship, is that in the irish US situation,

irish tax rates tend to be higher most of the time at an individual level.

Right? And therefore the way the double tax agreement works is

save for the fact that the savings clause in the treaty says this treaty

doesn't apply to us citizens. It does, as I understand it, allow

a credit mechanism that you alluded to earlier, whereby there will be credit in either

Ireland or the US for tax. So they're not doubly taxed

mechanism for that application. Depends. But I suppose when you're coming to

a higher tax jurisdiction like Ireland, I often explain to

my clients, well, you're going to walk away from the transaction. In most

cases, having paid the irish rate, the US may have taken some of

it, Ireland will take the rest. But what hits your pocket is the irish

rate. So what I'm trying to say in a long winded way is being a

us citizen isn't costing them any more money in this scenario. In other words,

they have to pay irish taxes if they want to live here. The US taxes

are lower. It's a bit mute. I would imagine you're more likely to see

people renouncing their us citizenship if they're moving to a low tax

jurisdiction. In other words, as a lower tax jurisdiction than the US,

is that what you would see practically?

Definitely. People who pay less tax elsewhere

earn more than the free downcome exclusion, would have more of

an incentive to give a QS citizenship. But

actually, it's not really the taxowing that leads

them to speaking about people in Canada and western

Europe, it's not the taxowing per se that leads them

to renounce citizenship. It's the cost of filing tax

returns, the amount they pay their accountant. It's

the restrictions it creates on their financial

lives. Foreign mutual funds can be considered pifique

and be subject to a punitive tax regime. They have

to avoid mutual funds. In many places, the sale of a

principal residence is tax free, whereas in the US, only the

first $250,000 of capital gain is tax free. If

you held real estate in Toronto, for instance, for

a decade, your capital gains would be a lot more than $250,000.

And if you have a foreign corporation, Canada has a regime

that makes it advantageous to leave the earnings inside the corporation

was in the US to avoid subparav gilt income,

which essentially will tax you personally for all income that you live

inside the corporation. So to have a reasonable treatment on the

US side, you need to distribute it to yourself in the form of wages

or dividends, which goes against the canadian tax

rules, the canadian tax incentives. It's not

necessarily the amount of tax owing, it's the restrictions that it

creates on their financial lives. They have to

organize their financial affairs in such a way as to

not be subject to punitive us tax

regimes whereby they would actually have us tax

sowing. I mean, to take that last example, for instance, you leave the money

inside the corporation, you have taxable income in the US.

You don't have taxable income in Canada or Ireland. So you

didn't pay tax personally on that income because Canada or

Ireland would not consider you to have a personal income. And

since you don't pay tax debt, foreign country, you would not have a

foreign tax credit. So it's all these restrictions it

creates on their lives that lead them to renounce

more than the amount of tax saving per se. And

these must be people who are confident

they have no desire to live and work in the US again, right?

Yes. Okay. Yeah. Because at that point, they would

need to actually. Interesting question, and it's probably an

immigration one. I'm assuming once you've renounced your citizenship, you then

enter as a tourist. You join the tourist

queue at the airport. Yeah. You really are walking away

from that, right? To live and work there wouldn't be done lightly in any event.

What pitfalls are there? Tell us what the tax pitfalls are when you're announcing

citizenship. What do people need to be aware of before they run

to a decision? What do you step them through when you're guiding a client?

Well, they need to determine whether, whether they are so

called covered expectuates or not their sweetest. They need to

be compliant with their five years of tax returns, which is

the most straightforward. They need to have an income

tax, an average income tax liability over the prior five years of

less than $170,000, which usually is

not the issue, because people in that category would also have a

net worth of more than $2 million, which is

the test that would cause them to be a covered expatriate. And

if they are covered expatriates, then they would be subject to the exit

tax, a deemed disposition of all of their assets on the day they

renounce. Also, if they make gifts to us

citizen, us citizens, recipients will have to pay the

gift tax of 30% of that. And there are other

negatives to that. So, yeah. So in the planning phase, they

need to determine whether they are covered expat rates or not.

And if so, if it's based on the asset test,

which it usually is, they might want to give assets to a

spouse, and when asked the year after, once they're under

the $2 million threshold to avoid that covered expatriate

status. Okay. Yeah, that's interesting. There's a lot of consideration.

So how do you normally guide someone through this? Your business

is an online business. Do you engage with people online via

consultation and advise them in this way to help them through

this planning phase? Yes, absolutely. We will typically start

with a call similar to this and then

exchange information on my secured partner to

either prepare a tax return or advise on this situation.

When it comes to announcing us citizenship, I would refer them to the

balance sheet that is found on page two of form

8854 that will allow them to

determine whether they have a net wealth of $2 million

or not. And oftentimes people forget some of the assets they

have and tend to underestimate d twelve, not

by malice, but they might not think about the true value of their

pension, for instance. So just to kind of refer to

8854, that's the form that needs to be completed to

renounce citizenship. Correct. From a tax perspective. Right? Right.

So they would fill out various immigration forms with the

consulate for the actual renunciation. And the next year, they

would file their final tax return, a dual status return,

along with form 8854. And the IR's will

look at that form 8854 to determine whether they are

covered expatriates or not. And my understanding is that it's a mark to

market exercise. So therefore, the valuation of the assets at the point

of expatriation is what is taken into account. So upswings

in the value of your assets because, for example, the stock market has performed well,

could, in theory, trip you over a threshold and cause a

problem. If I've understood correctly, based on my previous experience with

clients. Yes, yes, yes, exactly. And if you

have a client who's close to $2 million mark and

have volatile assets, I mean, stocks are one thing,

cryptocurrencies are something else altogether. It might be a

good idea to move them into cash for the day of the

renunciation to ensure that they wouldn't get tripped over.

Yeah, of course. So, planning in advance

to ensure there's no exit tax

surprises. Okay, that's really interesting. What other tips do

you have for us expats who might be listening to this today?

If you're speaking with somebody, let's say, who is planning a move to

Ireland? They are a us citizen and they

have a portfolio, for example, of 401K

accounts. They have maybe an IRA, mutual funds,

ETF's property in the US, and are about

to take a job in our. You know, just hypothetically, what

are some of the things or tips or piece of advice you would give someone

if you were. You were trying to get them to take something away from this

episode? Well, that situation is quite straightforward, actually. They can keep

all of these assets. Obviously, they would be taxed on the

withdrawals from the IRA when that

takes place. Aside from that, I mean, the financial

institutions might close their accounts while when they're

overseas, there's nothing illegal about them

having an account in the US when they're in Ireland. But some

institutions are more conservative on the

KYC front. That's something to be mindful of.

And actually, sorry, just to interject Jack there, because that's a common thing that we

come across. So the KYC acronym is know your client, which is

for anti money laundering purposes. So, international standards around verifying

who financial institutions are dealing with. And we experience that

frequently where our clients will say either they're no longer allowed to

invest, or their financial manager

or broker says, we can't deal with you anymore because now you don't have an

address in the US. So you're right, and it tends to vary.

Some of the finance houses will work with our clients if they're no longer in

the US and others won't. So it's interesting that you make that very point,

because that's exactly our experience. And I think that's a real takeaway

for clients who are planning the move, is don't take for

granted that your portfolio can continue to

operate as if you had not left the US. It will depend on what

your investment manager is willing to allow you to do while you're outside of the

country. Yes, yes, yes. Exactly. It's not a tax rule, it's an

automoney lendering rule. And the bank does not have

to close their clients account or freeze it. But

when they see something they're not familiar with, they tend to err on the

side of caution because they don't want to have to explain it to their regulator.

Right. The credit union that originally

served the Department of State Employees, so government employees

work at us consulate is accepting

outside clients. You need to buy an ACA membership which costs

dollar 50 a year. But that's the one us institution

that has sent people to when they cannot find another

one. They're designed to deal with us citizens who live

overseas. That's really interesting. So, okay,

so it sounds like, and that's where probably the majority of people fall, is in

that example that I gave with outliers, of course, people who have

different business interests or structures in place for

you. What are the main piece of advice you give your clients

if they are planning to leave the US? Because obviously your clients are all

outside the US. What do you want them to

know? Well, as you mentioned, ultimately they will be

paying irish tax. So when it comes to planning

retirement, investing in retirement products, they should look into irish

products as opposed to 401 ks and iras.

The deduction that was useful when they were in the US

is no longer useful because install made on the premise

that their tax rate will be less at retirement than it is

now. And after using the foreign tax credit, their tax rate is

essentially zero in the US. And be mindful, if you're going to

create a foreign corporation, be mindful of the

Saparaf and guilty income rules I mentioned earlier.

Someone who moves to Ireland as an employee, you know, would be

a straightforward situation between the totalization agreement

and the foreign tax credits, they weren't

otax, but someone who creates an irish

corporation would have a lot more opportunities

to mess up, if you will. Okay, so there

needs to be advice on both sides, irish and

us. Yeah, I think really from an irish perspective,

some of the points you've made are valid in the context of

irish taxes. We say it time and time again on this podcast, but the

value of taking advice before somebody moves can never be underestimated

because of the differences in the rules between the US and Ireland.

And I think you alluded to it there, but it's very true. A product

that's designed to achieve tax efficiency in the

eyes of the IR's doesn't necessarily hold weight as being a

tax efficient product from the Irish Revenue Commissioner's perspective. So it's that

disconnect between something created and invested in while you were resident

and living in one state may not give you the outcome you anticipated

when you bring it to another country. So to circumvent that

possible pain, take advice beforehand, because

with planning in time, we can often unwind or

suggest alternative ways to continue to invest.

And you've hit the nail on the head. How do people contact you,

Olivier, if they want to work with you and your team? Oh,

they would go to 1040. That's

1040 abroad,

and there's a contact form on the homepage and we'll get back

to you within 24 hours after you complete that. Brilliant.

So you guys obviously prepare tax returns. Do you provide written advice

and obviously online consultations as well? Yes, absolutely. Okay. Similar

to ourselves, it's been brilliant to talk with you. Thank you so much. I think

there's quite a lot there in terms of what our listeners can take

away, particularly if they're planning to renounce their citizenship or setting

off for bluer skies elsewhere. As a digital nomad, we've really enjoyed

talking with you and I'm sure our listeners will enjoy the episode as well. Thank

you. Wait. Thank you very much.

Thanks for listening to tax bites for expats. Please do leave a

rating or review wherever you listen to your podcast. And as always,

remember to take professional tax advice specific to your

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in connection with the matters dealt with in this series. The material

in this podcast is intended to give general guidance only.