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BBCWatcher 19-11-2019 09:25 PM

Quote:

Originally Posted by celtosaxon (Post 123787988)
I am aware of the FTC carry over. It can only be used as a credit against foreign earned income, it can’t be used against future earned income in the US, right?

No, that's not correct. This should be "General Category" income, but whether it's foreign or domestic income doesn't matter for these purposes.

Quote:

Let me think though, the way it works... all foreign tax paid is averaged across all foreign earned income (essentially the effective tax rate) and then you only take credit for the portion of foreign income that was not otherwise excluded. That means, the additional tax paid to break the SRS kitty would not get credited dollar for dollar, it will be added to the pool, and so it would have to be substantial enough to move my effective rate upwards where it would help “close the gap” between my effective rate and my top US rate.

Am I thinking about that correctly?
Yes, that's essentially correct. If all of your income is excluded (IRS Form 2555), then there's no FTC and no benefit. If you have some income above the Foreign Earned Income Exclusion/Foreign Housing Exclusion then you should get some Foreign Tax Credit, banked perhaps.

celtosaxon 20-11-2019 09:03 AM

Quote:

Originally Posted by BBCWatcher (Post 123788648)
No, that's not correct. This should be "General Category" income, but whether it's foreign or domestic income doesn't matter.

Ok, that is interesting. Let’s say I move back to the US and have an effective tax rate of 20%, if I withdraw SRS and pay the 15+5%, then it could be a dollar for dollar credit?

Does it matter that the “income” on which the tax was paid was only considered income (deferred) in Singapore but not the US in the year the tax was paid?

Zink00 20-11-2019 12:55 PM

I donít know where to ask this but I need some advice regarding a cheque.

Its a motor accident insurance payout to me, in my name and it includes 3 portions; workshop fees, lawyer fees, my compensation.

The cheque is sent to the lawyer and they want me to fork out cash for their portion + workshop portion, before they will release the cheque to me.

So I find it uncomfortable to do that. Is this normal practice?

BBCWatcher 20-11-2019 05:50 PM

Quote:

Originally Posted by celtosaxon (Post 123793276)
Ok, that is interesting. Let’s say I move back to the US and have an effective tax rate of 20%, if I withdraw SRS and pay the 15+5%, then it could be a dollar for dollar credit?

Backing up here, there's no Foreign Tax Credit if all your foreign income is excluded via IRS Form 2555. The foreign income tax rate could hypothetically be 90% on, say, US$100K (leaving you with US$10K take home). But if you're excluding all that US$100K via Form 2555, the FTC is zero. (Thus it'd be unwise to take the FEIE in that case. The FTC would be much more valuable.)

OK, let's suppose you have unexcluded, foreign taxed income. There is a FTC in that case, with an adjustment for the FEIE. But there's no unspent FTC if you cannot use it to offset U.S. income tax -- if you have no U.S. income tax left to pay in that year on income in the same FTC category. You then get to "bank" the FTC in that income category for spending in other tax years (up to 1 year backwards, up to 10 years forward). Let's further suppose you have S$300K of total income of which S$150K is excluded and the other S$150K (miraculously, because you're just so clever) is U.S. taxed at zero. The 20% Singapore tax on S$15K would effectively be diluted by half, so you get to bank a S$1,500 FTC. (I'm oversimplifying only slightly, but I think that's how it works.) The S$1,500 FTC (banked as U.S. dollars according to the official IRS exchange rate for the tax year when it was banked) you can then spend to offset U.S. income tax in the future as long as the U.S. income tax is on the same category of income, which in this case should be "General Category."

Quote:

Does it matter that the “income” on which the tax was paid was only considered income (deferred) in Singapore but not the US in the year the tax was paid?
I think you're asking whether it matters when you exclude income (IRS Form 2555). Yes, it does matter. This is all moot if you're at or below the FEIE/FHE. The Foreign Tax Credit and the Foreign Earned Income Exclusion are mutually exclusive across the same income. All income at or under the FEIE (and the FEIE taken) = zero FTC.

If you have variable income, unfortunately the IRS doesn't let you pop in and out of taking (and not taking) the Foreign Earned Income Exclusion. So the basic strategy is to skip (and keep skipping) the FEIE when you live in a comparatively high income tax rate country and to take the FEIE when you live in a comparatively low income tax rate country. Singapore is in the latter category, or at least one would think so.

Since you can control the timing of premature SRS withdrawals, conceivably you could "batch up" such withdrawals when you expect to have a surge of taxable income above the FEIE. For example, if you have highly variable income year to year but suddenly close a big deal and have a million dollar pay day -- wouldn't that be nice? -- then that'd be a great year to make your premature SRS withdrawal for Foreign Tax Credit purposes.

Quote:

Originally Posted by Zink00 (Post 123796637)
I don’t know where to ask this but I need some advice regarding a cheque.

Its a motor accident insurance payout to me, in my name and it includes 3 portions; workshop fees, lawyer fees, my compensation.

The cheque is sent to the lawyer and they want me to fork out cash for their portion + workshop portion, before they will release the cheque to me.

So I find it uncomfortable to do that. Is this normal practice?

I suppose it's normal if the law firm doesn't think it'll get paid. But the law firm may not have much leverage because presumably you could just say, "That's nice, now come back when you're more reasonable. Two separate checks from the insurance company would be more reasonable." And then neither of you get paid unless and until they do that.

If you want to get fancy there's something called a third party/independent "escrow service" that's designed to handle this sort of thing. However, what you might call "pseudo escrow" ("poor man's escrow") is possible if you and a representative from the law firm agree to go to your bank branch together. You fill out both a deposit form and a transfer form (with the transform form for the payment amount to the law firm and their account), and you review both of them with the law firm's representative to make sure they're accurate. Then you ask the bank if you can sit at one of their desks, together with the representative, to arrange the deposit and transfer. You hand the deposit and transfer slips to the bank employee and ask him/her to review them to make sure they're filled out correctly. The law firm's representative then hands the teller the check, and the teller has you sign it. The law firm's representative then hands you a receipt marked "Paid in Full." I'm assuming here that the insurance company's check is actually a bank check, so it's immediately negotiable.

Zink00 20-11-2019 06:13 PM

I was told by my lawyer only this insurance company only issue one cheque, and all their clients follow that practice. So we are in a stalemate.

Iíll try suggesting what you mentioned. Thanks!

celtosaxon 20-11-2019 10:12 PM

I would not front any cash for a check that may or may not clear. Period.

If a lawyer can’t figure out how to protect themselves from someone defaulting on a payment, what hope do the rest of us have?

Quote:

Originally Posted by Zink00 (Post 123801225)
I was told by my lawyer only this insurance company only issue one cheque, and all their clients follow that practice. So we are in a stalemate.

I’ll try suggesting what you mentioned. Thanks!


celtosaxon 20-11-2019 10:29 PM

BBC... that was a lot to unpack!

Sounds like FTC requires 2555 which requires FEI, so indirectly FTC requires FEI in the year the FTC is earned, right? However, to the extent the FTC can be earned and banked for a particular year, it can be used to offset future taxes on domestically earned income. I think I’m getting the picture, hopefully!

One thing I found while scanning through the instructions for the FTC form today, at the end of the section on what can’t be claimed as an FTC it does mention penalties cannot be claimed. Maybe it is talking about penalties in the sense of fines for not filing accurate taxes in the foreign jurisdiction, but not totally sure.

BBCWatcher 21-11-2019 12:49 AM

Quote:

Originally Posted by celtosaxon (Post 123804762)
Sounds like FTC requires 2555 which requires FEI, so indirectly FTC requires FEI in the year the FTC is earned, right?

I don't follow you.

If you take the Foreign Earned Income Exclusion -- and one would think you should if living in Singapore -- then you can still take the Foreign Tax Credit (if otherwise qualified) but only for foreign tax that can be allocated to non-excluded income. You're not required to take either, but if you take the FEIE/FHE you cannot take the FTC on excluded income. And if you don't take the FEIE/FHE when eligible to take it, there are restrictions on attempting to taking it later.

Quote:

However, to the extent the FTC can be earned and banked for a particular year, it can be used to offset future taxes on domestically earned income. I think Iím getting the picture, hopefully!
Yes, that part is correct. "Banked" FTC can be used to offset future U.S. income tax on income in the same FTC category of income. You're not allowed to take FTC accumulated from one category of income and apply that FTC to offset U.S. income tax owed on a different category of income. But foreign versus domestic are not FTC income categories. That particular distinction doesn't matter.

Of course, the U.S. income tax owed on foreign earned excluded income (and foreign income excluded via the foreign housing exclusion) is zero, so there's no way to spend down banked FTC on that.

Quote:

One thing I found while scanning through the instructions for the FTC form today, at the end of the section on what canít be claimed as an FTC it does mention penalties cannot be claimed. Maybe it is talking about penalties in the sense of fines for not filing accurate taxes in the foreign jurisdiction, but not totally sure.
Right, I'm not totally sure either, but that's something you ought to check carefully, probably in the tax code itself and/or with references to any IRS private letter rulings, for example. IRAS uses the term "penalty," and so do the IRS Form 1116 instructions and IRS Publication 514. So the 5% portion of the tax on premature SRS distributions is probably not something that can count toward the FTC (to the extent it's associated with non-excluded income). But the ordinary income tax would be, one would think -- 15% in your example.

iceblendedchoc 21-11-2019 06:13 AM

Quote:

Originally Posted by Zink00 (Post 123796637)
I donít know where to ask this but I need some advice regarding a cheque.

Its a motor accident insurance payout to me, in my name and it includes 3 portions; workshop fees, lawyer fees, my compensation.

The cheque is sent to the lawyer and they want me to fork out cash for their portion + workshop portion, before they will release the cheque to me.

So I find it uncomfortable to do that. Is this normal practice?

Whose lawyer? Yours?

celtosaxon 21-11-2019 08:49 AM

Quote:

Originally Posted by BBCWatcher (Post 123806219)
I don't follow you.

Sorry, let me paint a scenario. Let’s say 5 years from now I’ve moved to the US and haven’t withdrawn the SRS yet. I get a job in the US which generates US income tax liabilities. At that stage, can I still opt to make a premature withdrawal from SRS which gets hit at the full 15% nonresident rate and receive an FTC for it? Since there is no foreign earned income (FEI) in that year from a US tax perspective, I would assume no.

Zink00 21-11-2019 11:54 AM

Quote:

Originally Posted by celtosaxon (Post 123804558)
I would not front any cash for a check that may or may not clear. Period.

If a lawyer canít figure out how to protect themselves from someone defaulting on a payment, what hope do the rest of us have?

Exacly! and I was starting to think maybe im being stuck up.

Quote:

Originally Posted by iceblendedchoc (Post 123806915)
Whose lawyer? Yours?

Yes mine.

BBCWatcher 23-11-2019 10:17 PM

Quote:

Originally Posted by celtosaxon (Post 123807935)
Letís say 5 years from now Iíve moved to the US and havenít withdrawn the SRS yet. I get a job in the US which generates US income tax liabilities. At that stage, can I still opt to make a premature withdrawal from SRS which gets hit at the full 15% nonresident rate and receive an FTC for it? Since there is no foreign earned income (FEI) in that year from a US tax perspective, I would assume no.

I don't see why you couldn't take a Foreign Tax Credit. I'm just not sure about the amount. The 5% penalty, probably not. Is there an additional subtraction because of the deferral? I don't know. And would there be two FTC income categories? Maybe.

ChinoGirl 24-11-2019 03:11 PM

My Husband and I have finally purchased our DI- one item struck off our to-do list!
Deferral period 180 days and max cover of 75%.
Thanks to this forum and BBCWatcher for sharing on DI.^_^
The GE agent shared with us this annuity plan called Great Eastern Prestige Life rewards. Minimum amount to put into the annuity is SGD100,000 and payout happens only from the 5th year.

Does an annuity complement a person’s financial portfolio? What are your views on it? Or would it better to stick with our DIY portfolio of Low cost index funds?
Thank you!

BBCWatcher 24-11-2019 04:51 PM

Quote:

Originally Posted by ChinoGirl (Post 123856636)
The GE agent shared with us this annuity plan called Great Eastern Prestige Life rewards. Minimum amount to put into the annuity is SGD100,000 and payout happens only from the 5th year.

Does an annuity complement a personís financial portfolio? What are your views on it? Or would it better to stick with our DIY portfolio of Low cost index funds?

If you are a CPF member then you already have the best value annuity: CPF LIFE. You wouldn't buy a Singapore dollar annuity unless you feel that Enhanced Retirement Sum (ERS) level CPF LIFE is too little life annuity.

celtosaxon 25-11-2019 08:34 AM

Quote:

Originally Posted by BBCWatcher (Post 123847655)
I don't see why you couldn't take a Foreign Tax Credit. I'm just not sure about the amount. The 5% penalty, probably not. Is there an additional subtraction because of the deferral? I don't know. And would there be two FTC income categories? Maybe.

Thanks for the careful advice here, at least I can make some high level assumptions. I know this is getting deeper into the bowels of the tax code. I’ve spent hundreds hours digging through various topics over the years. Some areas are so complex, even after reading it a dozen times I’ve still got to re-read it again. Sometimes there is no clear cut answer, which is even more frustrating!


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