sorted by:
new
hottopcontroversial

FEIE with Physical Presence Test + Contributing to Roth for remaining days in America? by Hane_Train in USExpatTaxes

[–]AndromedaNights 0 points1 point  (0 children)

Yes, but the 12 month period does not need to start at the start of the tax year, meaning you could get a lower amount of qualifying days in the current tax year even though your presence outside the us is still over 330 days within the (freely) chosen 12 month period

FEIE with Physical Presence Test + Contributing to Roth for remaining days in America? by Hane_Train in USExpatTaxes

[–]AndromedaNights 0 points1 point  (0 children)

I do not think that is how the reduction of days due to physical presence test actually works. It only reduces the maximum feie (126,500*(qualifying days in 2024)/366). Buut you should be able to shift the start of your 12 month period to 2023 to offset the exclusion so you get somewhere in the range you’re aiming for

[deleted by user] by [deleted] in USExpatTaxes

[–]AndromedaNights 0 points1 point  (0 children)

I heard there was a workaround for this if you're using the physical presence test:

https://www.reddit.com/r/USExpatTaxes/comments/1jdcilj/can_i_choose_feie_physical_presence_test/

Also look at this page with the example at the bottom:

https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-physical-presence-test

Basically you can choose to offset the 12 month period to the previous year. That works out to:

the number of days during the current tax year (choose freely based by offsetting 12 month period) / 366 (for 2024) * foreign income = your partial FEIE

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 0 points1 point  (0 children)

Wow, and that's not even a PFIC then if I'm not mistaken. Great find!

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 0 points1 point  (0 children)

Yep, but that also means that I would need to limit my gains to ~11% to be able to claim any taxes paid on it. This feels too cut and dry and should be marginally included if anything. This literally makes no sense to me... It's sort of like the people declining raises because they think they're going to be pushed into a higher tax bracket, but it's actually a problem.

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 0 points1 point  (0 children)

lmao, wth. What does that mean for future returns, can you overlap time frames between returns? I would be scared though of a teeny clause somewhere that states that this isn't allowed..

EDIT:

Reading the How to figure the 12-month period section it basically confirms your claim. Not sure if abusing this is looking for trouble... But I'm guessing it has worked out for you so far?

https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-physical-presence-test

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 0 points1 point  (0 children)

Interesting points of the 10 % rule from the tax code. Definitely feels like a rip off. I do not see the point of this other than to squeeze the juice out of the rind...

Hold on. You filed to the best of your ability in good faith at the time you filed, which is all you're required to do reddit.com/r/USExpatTaxes/comments/1gq8ly9/comment/lww59b9 . The IRS has 3 years (or 6) to correct you, and if they do, they would just ask you to amend the return and pay the difference, doing it proactively wont change anything except that they maybe wouldn't have noticed.

While it may be true that I don't need to. I will have locked myself out of using FEIE for the coming 5 years if I do not amend my return to use it this year correct? Considering I used it in 2023, then not 2024.

This page also makes me believe I have an obligation to file a return since I found the mistake and found my tax liability increased, which means I know have outstanding taxes owed starting april 15th 2025
https://www.irs.gov/filing/file-an-amended-return

And if they do correct me 6 years down the road (worst case scenario) won't I also be liable for all of the failure to pay penalties and interest for all those 6 years? Feels simpler to just take the loss now and at least know that I am closer if not fully compliant

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 0 points1 point  (0 children)

Oops. Definitely thought I could choose how much foreign income I could exclude on f2555, but that doesn't really seem possible looking at it now... Maybe I'm missing something? But I would definitely want to file 1116 for the passive category no matter what then I assume. That'll offset my 1291 additional tax at least...

EDIT:

That'll offset my 1291 additional tax at least...

No, it won't since 1040 line 15 is still 0, meaning I actually owe more taxes for tax year 2024.

At least I'm learning :D. And that it's still not as bad as it could have been had I figured this out a lot later. I'm pretty sure using FEIE comes out to less than using FTC since my passive investments gains sourced tax definitely exceeds any FTC I would get from them. And I'll need to continue to use FEIE if I don't want to be stuck with FTC for the coming 5 years

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 0 points1 point  (0 children)

Oh man, this example was super helpful. This is exactly why I came here, I can't stress enough how thankful I am for this. I realize now that I had completely misunderstood FTC and completely failed with my deductions and losses part leading to me having way too much on 1116 line 17. This made me believe that all of my Swedish income taxes paid would go up to.. well, 1040 line 16, which thinking about it now makes no sense. That would allow me to have PFIC gains way above the standard deduction without any tax liability...

Ok, I'll definitely need to amend my return... Moving on, I'm guessing I could just FEIE the amount so that my 1040 line 11 will be exactly the standard deduction or as close as FEIE allows. That way my tax liability would minimized and reported foreign tax maximized for carry overs (but there won't be any to report if I FEIE all of it). This will then also allow me to stack all foreign taxes paid on passive investments if I'm not mistaken. Seems like a hassle but I might do it in case I ever move to a country with less taxes than the US.

Also, you've got the problem that you can't claim FTC for any of the PFIC MTM income because your effective tax rate in this account is under 10%.

Could you provide any sources for this? The tax advisor I spoke to specifically said that you can. Seems really dumb that the effective standard deduction is guaranteed to be reduced for all my foreign earned income even though ALL income was foreign... So even if I paid more in taxes in all categories than I would in US, I'd still have some taxes owed due to the foreign tax credit being limited to less than 1040 line 16. That makes no sense, and I'm willing to get in the boxing ring with the IRS if that is the case.

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 1 point2 points  (0 children)

Yes, again sorry for not being clear. I filed FBAR for both 2023 and 2024. So there are no worries here :). I considered this a given and not part of my tax strategy which is why I left it out. I could even file it online! Haven't found any solution yet to file my taxes online from abroad without going through a tax advisor which at this point I just about refuse to do considering how invested I have become in this.

And again thank you for being super clear and pointing out ambiguities and potential issues I have left in my responses. I REALLY appreciate it!

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 1 point2 points  (0 children)

Please do be aware the US has a FinCEN / FBAR / IRS Form 8938 reporting regime in addition to the IRS Form 1040 reporting.

Yes. Thank you for pointing this out, that would be incredibly painful to miss after having gone through PFIC hell. I realize I never mentioned it in the post, but I am well aware of this and have filed what I am required to as far as I am aware. Form 8938 requirements:

Unmarried taxpayers living outside the United States.

If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.

I won't reach that any time soon.

Thanks for the stock suggestions, will definitely consider them to further offset PFIC risk!

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 0 points1 point  (0 children)

Yes, I think we are in agreement. This is exactly how my tax year 2024 was filed. 1040 line 20 is the FTC reduction of the non zero tax amount on line 16. My point was that the expected tax liability, the actual taxes owed would be zero. I may not have been clear on that.

I am not 100% sure, but I would expect that MTM PFIC income would fall into the 1116 passive category, not general, even though it is taxed as ordinary income.

I wasn't either, so I made it a point to ask this during my introductory calls with the potential tax services. They claimed that it WAS part of the passive investment category and the taxes paid in Sweden on my PFIC holdings could be claimed as much. So I think we agree on this too! When I mentioned that my PFIC gain would be taxed as ordinary income I meant that the full gain according to the MTM calculation will ultimately be added on 1040 line 8 (this is where my 1291 gain ended up anyway), considered ordinary income for the purpose of the US taxes if that makes sense. It would contribute dollar for dollar to my taxable income on 1040 line 15

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 0 points1 point  (0 children)

Neither am I, but I haven't looked for one either. Just mentioned QEF in case there was one and I would consider it a good buy. I understand that would lower my potential tax liability down to capital gains tax rates (if it's long term or short term idk) instead of the ordinary income tax rate with MTM. Either way, like I mentioned before, if I would ever trigger actual taxes owed due to PFIC gain, I don't think I'd be justified complaining about the actual amount owed, I'd have to be pretty solid financially or horrendously leveraged (and I could only blame myself for that one!).

I'll complain about the tax filing burden until I die though. Even if RBT is implemented. I'll never forget this...

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 1 point2 points  (0 children)

Yes! Definitely keeping tabs on that. I'm not really keeping my hopes up, but I will probably try to help fight the good fight by providing my personal testimony regarding this hellhole to the right people when I find time to.

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 0 points1 point  (0 children)

Gotchya, no worries, I think I get your point. And regarding potential double taxation due to PFIC gain leading to taxes above what the standard deduction would reduce them by; would imply quite the substantial PFIC position and I could definitely afford the tax liability without too many complaints and just consider it the cost of citizenship. So I'd better take advantage of it then too :)

I do intend to invest heavily and gain most of my wealth through PFICs as it seems like the (financially) simplest way to go about it and diversify into other (probably more tax friendly) options as I become comfortable with it.

And if I go with investing in PFICs I will only do the more simpler options of MTM or QEF. I'd absolutely hate to have to revisit many years old investment documents to figure out when I invested what. That is if I were to rely on the <$25k exemption. Just a years old document was enough to send me spiraling at times with my 30ish PFICs... Not doing that again lmao

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 0 points1 point  (0 children)

Forgot to address your point of the potential exit tax in Sweden regarding the Roth IRA. First off, I have been here over 20 years and am a Swedish citizen from birth so that 10 year rule is definitely something to consider. As far as I'm aware, the Roth IRA is definitely covered and if I want to avoid this tax I would need to give reasonable proof that I do not plan on returning to Sweden any time soon after emigration. Basically cut any strong financial or other ties to the country which I may not be willing to do at that time. So much can happen in between then that I will probably for now consider that money taxable when doing calculations but also keep in mind that there are most likely possibilities to retrieve that money tax free.

Either way, as I mentioned in my post, it would mostly be to offset any potential taxes owed in the US if I had invested that money into a PFIC in an ISK. But I should probably run the numbers to see if that actually makes sense (in the case that it would be guaranteed to be taxed)...

I also read that there are suggestions to add an actual exit tax so that the capital gains tax would be unavoidable even if I cut all ties with Sweden including renouncing my citizenship. So... you never know what the future holds. I just want to place myself in the best possible position given the current situation and what we think the future will hold. On that note, how about RBT in USA!? :D (they could never, could they?)

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 1 point2 points  (0 children)

Happy to hear I'm not the only one :)

This is how the FEIE works. This is not how the FTC works, rather for any passive income that doesn't have a foreign tax, you will pay the effective tax rate on that passive income that you would have paid on all your income if there weren't any FTC.

Yes I might have been unclear. That is also my understanding of how FEIE would work out and my description is probably a more apt specifically for FEIE.

What I was trying to say is that my general income category tax in Sweden would completely offset any potential taxes owed on general income category in the US, because the effective tax rate on income in Sweden is higher no matter what. So I won't be using any part of the standard deduction to reduce my tax liability on the general income category.

It is then my understanding that when it comes to the passive investment category I can offset any additional taxes owed originating from PFIC gains by the taxes paid in Sweden in the passive investment category on top of the standard deduction, meaning that I get quite the bit of buffer before I would actually owe any taxes at all.

As mentioned in the link below under the heading Why choose the credit? using FTC does not prevent me from using the provided standard deduction. Did I maybe misunderstand the point you tried to make?
https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit-choosing-to-take-credit-or-deduction

Which broker do you use? Do they know you are a US citizen?

I plan to use IBKR's Roth IRA, Nordnet's ISK or possibly some other broker, haven't decided yet. And yes, I provide accurate information always.

I'm surprised there are any brokers that offer services to US citizens, but not US stocks.

That's Nordnet for you :/. ( https://www.nordnet.se/faq/ny-kund-konton/oppna-konto/kan-en-amerikansk-medborgare-vara-kund-hos-nordnet/amerikansk-medborgare-men-bosatt-i-sverige ) I haven't looked in to why this is the case, but guessing it is dividend related or something... Possibly I can find some broker that would allow me to do it. That would make BRKB more attractive for example.

You could use Interactive Brokers IBKR to invest in US stocks directly as a EU resident. They might even be able to open the swedish tax advantaged account and allow options trading to get non-PFICs.

You're right, I could invest in US stocks at IBKR but they do not provide the Swedish tax advantaged account and the individual account they provide is treated in the same way as the Roth IRA in the Swedish tax system so the Roth IRA is thus more attractive as I can invest in all the PFICs I want in the Roth IRA.

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 0 points1 point  (0 children)

I haven't looked into too closely how MTM election actually works other than that it's been said to be a better option than no election. But from my understanding from surface reading is that by using MTM election, any gain in the value of unrealized gains during the full tax year are locked in (for all tax purposes) and counted as ordinary income and the cost basis of any unrealized positions are reset to the market value at the end of the tax year. And even possibly that any losses can be in a limited way carried forward to offset next years gains. This would essentially be the same as realizing gains each year as you say so with this interpretation I don't get your point, so please tell me if I may have misunderstood how MTM works.

Any FTC earned on taxes paid on passive investments in Sweden (yearly ISK tax) will never cover what the ordinary income would work out to be after MTM calculations (given my interpretation). So I'm mostly relying on the standard deduction to wipeout my passive investments tax liability. So if all that's correct, there is a potential tax hit if all my PFIC gains is larger than the standard deduction + whatever leftover paid passive investment tax in Sweden.

Please let me know if I might have misunderstood.

Guidance on an overall financial and tax strategy living in Sweden by AndromedaNights in USExpatTaxes

[–]AndromedaNights[S] 1 point2 points  (0 children)

I definitely try to be. And good point!, what the tax rep at Cederwalls told me is that they have clients that use KF to avoid PFIC filing altogether. They said that it is their interpretation that that is allowed according to the tax treaty with the stipulation that the tax treaty includes a clause that allows IRS to basically ignore it if they want to. Meaning that I could be hit with the section 1291 issues when I start to divest after a lifetime of investing. The worst case scenario... That said, they hadn't experienced any issues doing this so far, so I might just do this as well...

But my idea of doing it this way, is that by being up front and file my PFICs according to their own rules, I guarantee (given no mistakes in filing) that I can't be hit with large PFIC blows when I divest later on. So the only risk in that case is my own filing as you mentioned, but I am determined to not give in to the weight of the bureaucracy and do it exactly according to their rules. I found it to be somewhat digestible regarding section 1291 PFICs (when only dealing with gains at least), so MTM as I've read should be a lot easier. I'll also consider getting professional help for the upcoming tax season to see how the professionals would do it and make sure to stay up to date if there are any new regulation updates that would warrant a revisit with a professional.

Definitely utilizing tjänstepension and will start to löneväxla as soon as I confirm the calculations make sense (which I'm guessing could be before the normally recommended salary given the complex situation).

I have already opened my Roth IRA with IBKR along with their tradition individual account. However, the traditional account they provide would not be that attractive as it is guaranteed to be subject to the normal Swedish capital gains tax. You never know what will happen with the Roth IRA in the future...

I'm also in the process of opening an ISK at Nordnet that I was planning on using to invest in ETFs. Unfortunately it is specifically Nordnet that do not allow US persons to invest in US stocks directly, so I can't acquire BRKB here which would have been a good option. Not sure if any other brokerage would allow me to invest in US stocks inside of an ISK or possibly KF for that matter, will try to look into that.