Philippines Forum

pinaymentor
Joined 2009
Posts: 206

11 years ago

result of fiscal cliff delay fm offshore living letter

11 years ago

quoted from offshore living letter...

As it stands today, the 11th hour fiscal cliff deal approved earlier this week resulted in US$1 of spending cuts for every US$41 in tax increases, making it possibly the most one-sided victory since the Battle of Little Bighorn. By comparison, when President Ronald Regan increased taxes, he secured US$3 in spending cuts for every US$1 in tax hikes. When George H. Bush was at the helm, he negotiated US$2 in spending cuts for every US$1 in tax hikes.
Most of the casualties in this battle royale are individuals with incomes of more than US$400,000 a year and couples making more than US$450,000 annually, but there will be significant pain and suffering for those with incomes as low as US$250,000 annually.
I also note that any hope of a tax system that treats married couples and single persons with some level of equality was blown away. Two single persons could earn US$800,000 combined before being smashed by the tax hikes, compared with only US$450,000 for a married couple. I'll leave you all to interpret the strategies for addressing this on your own.
More specifically, here's how this deal breaks down:
Tax rates will increase from 35% to 39.6% for individuals with incomes of more than US$400,000 and couples earning more than US$450,000 per year.
Tax rates on dividends and capital gains would also rise, from 15% to 20% on incomes of more than US$400,000 per year for single people and of more than US$450,000 for couples.
Personal exemptions and deductions will be phased out, beginning with single people earning more than US$250,000 and couples earning more than US$300,000 per year.
The estate tax will increase but less than Democrats wanted. The tax for estates valued at more than US$5 million is increasing from 35% to 40%. Democrats wanted a 45% rate for inheritances of more than US$3.5 million.
Under the deal, these new tax rates on income, investment, and inheritances are permanent.
Here, however, is the very good news for the American abroad: The Foreign Earned Income Exclusion (FEIE) survived and even got a little bump up for the cost of living. If you are living and working abroad, you can exempt up to US$97,600 from taxes in 2013, up from US$95,100 in 2012.
Also, the self-employed expat can avoid unemployment, Social Security, and FICA tax increases (also called self-employment taxes) by incorporating offshore and qualifying for the FEIE. By operating your business through an offshore corporation, you might be able to eliminate these taxes completely, which would amount to a savings of about 15%.
Note, though, that the 2013 tax increases and phase-outs will apply to any ordinary income over US$97,600 and all passive/investment income.
Because the tax brackets ignore the FEIE and expats are taxed on their worldwide capital gains (now at 20% rather than 15%), many higher-earning Americans abroad could be shocked by their 2013 tax bill.
The self-employed overseas, though, have a number of planning opportunities. For example, you could retain earnings over the FEIE amount in your offshore corporation or use a Solo 401-K to shelter income in a retirement plan.
The overseas investor could make tax-advantaged investments through your IRA, thereby avoiding the 20% short-term capital gains tax. In fact, the sophisticated offshore IRA investor can avail of a number of tax advantages - just ask Mitt Romney.
Christian Reeves
---------

GeoBlue

Top-quality coverage for people who live, work, study and travel internationally.
Get Quote

GeoBlue

Top-quality coverage for people who live, work, study and travel internationally.
Get Quote

Living in Philippines Guide

The Philippines attracts the interest of expats from all over the world - truly has a lot to offer for a variety of different people. However, it's also important to understand the pitfalls that can be avoided with appropriate homework and preparation.

Philippines Forum
Join our Philippines forum to meet other expats and talk about living in Philippines.

Contribute
Help other expats and newcomers by answering questions about the challenges and adventures of living in Philippines.

Best Places to Live in Philippines

If you're thinking about living in Philippines, here are the 15 Best Places to Live in Philippines in 2023.

Healthcare in Philippines

Expats in the Philippines have a lot to say about the quality of medical care, hospitals, prescription medicine availability and health insurance in the Philippines.

Cost of Living in Philippines

Expats offer insight into the cost of living in Philippines.

Moving to Philippines Guide

Expats moving to the Philippines join others that have moved there for work or a lower cost of living during retirement. It's critical to understand what the realities of living there are, but those that successfully make the adjustment believe it is a good place to live.

Real Estate in Philippines

Real estate listings in popular cities and towns in Philippines.

Pros & Cons of Living in Philippines

Take off your rose-colored glasses and learn what expats have to say about the biggest challenges and the greatest rewards of living in Philippines.

Retiring in Philippines

Advice for people retiring in Philippines.

10 Tips for Living in Philippines

If you've recently arrived in Philippines, here are 10 tips for digital nomads living in Philippines.

Additional Information:

Visit our Philippines Index for a Full List

GeoBlue

Top-quality coverage for people who live, work, study and travel internationally.
Get Quote

GeoBlue

Top-quality coverage for people who live, work, study and travel internationally.
Get Quote

Contribute
Help others in Philippines by answering questions about the challenges and adventures of living in Philippines.