
Originally Posted by
KiwiME
I haven't visited here in a while but am still amazed at how complex and stressful an expat's finances can become when moving abroad, especially for US citizens.
The problem with tax consultants (as good as they apparently are) is that the costs are the same whether you have 10 dollars or 100 million to your name. One I spoke to told me that his normal clients "have a much higher net worth than (myself)".
I have still yet to attempt a conventional IRA distribution on my own but am determined to try and figure it out, however it's not as urgent now that Trump has f'ed up the stock market for now.
1. It seems clear that I withdraw an amount of my choice and have no US tax withheld. It doesn't matter in what country that money is banked. If NZ, it will go via a forex company.
2. On receipt I immediately pay NZ tax on the full amount at the normal income tax rate to avoid having a deficit of over $2k at filing time.
3. On my US tax return I fill out a 1116 Foreign Income Credit for that gross withdrawal and NZ tax paid, ticked as "certain income resourced by treaty". Effectively the treaty makes it NZ income with NZ having sole taxation rights.
4. That seems fine but there are two little issues.
a) Publication 514 indicates that NZ and AU are different from the other countries with treaties (see link below). There's no explanation other than to write to the IRS.
b) It's not 100% clear if I have to accompany the claim on 1116 with an 8833 "Treaty-Based Return Position Disclosure". Getting that wrong is a US$1000 fine. Nice, thanks IRS. One tax website says yes, another no because it's not an exceptional case.
Anyone else have experience with these forms?
Publication 514, see page 23, Tax treaties.
https://www.irs.gov/pub/irs-pdf/p514.pdf
Upon leaving the US, did the IRS or your brokerage firm notified you about 'deemed disposition"? It happens when you change your account status as non-resident. Any gains up to the day you leave the US on your portfolio gains becomes taxable.
As far as disbursements from the portfolio, the broker gives you a slip at the end of the year showing how much you've withdrawn and what income you received (ie capital gains from sale of shares). Your 1st liability is the IRS then in NZ you would elect a Foreign tax credit on the IRD tax return. From what I recall the IRS has an $80K income tax exemption for non-residents.
Agree about tax consultant fees that are basically fixed and out of the reach for the typical migrant. FYI, when Trump was elected in 2016 (well during the fall of 2016), the DOW index was around 17K. now we're around 26K so by that measure, US equities have benefited tremendously by Trump).
Also you will have a liability on the NZ end for your IRA account if they exceed more than $50K NZD value. FIF would apply and any paper gains on account will be taxable by one of the FIF tax methods ; most common is the maximum FDR 5% rate that you multiply on the WHOLE account value year on year April 1st of each year.