Self-employment tax break (Chile)

2017’s US taxes got borked and the IRS sent me back a notice that I owed them A LOT OF MONEY™ the reason for which THEY WILL NOT TELL YOU™ so you simply have to figure it out yourself and redo everything, paying interest penalties on money you never owed in the first place because it took them 9 months to get back to you because they are slow and they suck.

Anyways, in dealing with the fallout, I found a neat thing called the US/Chile Social Security Totalization Agreement which pretty much absolves you of the need to pay self-employment tax if applicable. 

There is no official tax treaty (yet) between the USA and Chile, but fortunately this agreement, in combination with the FEIE, should help eliminate a good deal of your tax burden if you are a self-employed vagabond in Chile.

Whatever happened to ExpatBob?

Long time since I have posted anything.

So many people have written in or told me how much they enjoyed my writing and how much they miss it. For which I am humbled. Unfortunately, it only came out when I was angry. And I’m just not angry anymore. Nothing in Chile has filled me with the pure, seething, all-consuming anger that seeps from every pore in the same way that Uruguay did.

I deal with anger, awkwardness, and general malaise by trying to bury/hide it in wit and sarcasm; maybe it’s age, maybe it’s environment, maybe it’s the fact that I have stopped watching the news. I’m just not a fission pile of daily rage anymore.

So, what’s been going on with me? Things have coasted along more or less smoothly bouncing back and forth between the USA and Chile over the past few years. I’ve gotten to the point where I am applying for Chilean citizenship. Still waiting on the t’s to be crossed and the i’s to be dotted regarding my Chilean tax situation, which got botched, but it’s nothing that cannot be corrected, and as soon as it’s rectified I can submit all the requisite poop to become an official Chileno.

The tax stuff came down to the SII (Chilean IRS) not having any idea what to do with my situation as a digital vagabond with so many different flags in so many different places. It took them a year to get back to me regarding just how to file, but here’s the cool thing: Unlike the US IRS, who is content to jail you for even a minor breach of rules they do not even understand and cannot (proven time and again) even supply consistent results for, Chile’s IRS will write you an official signed, stamped resolution about exactly how to file, with which you can show them if any issues arise. They just take their good sweet time doing it.

End result is that because of a combination of me paying taxes to the Empire, and because of a neat new loophole I found, my tax burden in Chile is pretty well negligible. I will pay more in accountants’ fees than taxes. Which is fine by me.

What are my plans for the future?

I’ve got a thing in progress with Polish citizenship by ancestry which may or may not bear fruit; I’ve located the missing link, and I merely need to find a record of his birth in Poland. Therein lies the challenge, because Nazis. I have no plans to live in the EU but you can’t ever say no to an extra passport. Well, maybe summertime in Berlin would be nice…

Puerto Rico is the next destination of choice after my Chile chapter is done. For an American digital vagabond, the tax breaks simply can’t be beat, and you get so much more benefit to much less time put in. 6 months of exile per year, right next to home, without technically “having to leave home” in order to absolve you of your US tax burden, plus no more capital gains taxes— where do I sign and how much of my blood would you like? One mortal soul, coming right up.

 

Late on your taxes this year?

Not a problem. Doing my own taxes and looking for information on filing an extension from abroad, I learned that US citizens living abroad get an automatic 2-month extension on their tax return due date, making the official deadline June 15. One simply need attach a statement to their tax return explaining why they qualify. Check out this link for more details.

U.S. Citizens and Resident Aliens Abroad – Automatic 2 Month Extension of Time to File

You may be allowed an automatic 2-month extension of time to file your return and pay any federal income tax that is due. You will be allowed the extension if you are a U.S. citizen or resident alien and on the regular due date of your return:

• You are living outside of the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico, or
• You are in military or naval service on duty outside the United States and Puerto Rico

If you use a calendar year, the regular due date of your return is April 15, and the automatic extended due date would be June 15. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day.

Even if you are allowed an extension, you will have to pay interest on any tax not paid by the regular due date of your return.

This is a bit of a bonus (though the lesser of two evils is still evil) since the IRS also announced that it is closing all of its overseas offices, and expats will no longer have access to local assistance with their tax questions.

Proof that taxes are out of control

Holy crap, have a look at this–

Total trip price: $933.35
Airfare: $330
Taxes and fees: $603.35

IRS sinks its claws into Bitcoin

The IRS has now finally declared its official stance on Bitcoin: It is to be treated as a capital asset and not currency, yet will be saddled with currency regulations as well. The first and perhaps scariest bullet point is that any gain made on the value of Bitcoin now must be treated as a short-term capital gain (which could be taxed up to 35%!). So, for example, the early adopters who turned pennies into millions, upon cashing out, will owe millions in taxes. Lovely!

So, the onerous list of bullet points:

• Bitcoin profits treated as short-term capital gains.
• Mining of Bitcoins is treated as gross income.
• Any payment in excess of $600 value must be reported.
• Any payment of Bitcoins to a contractor must be reported and filed with a Form 1099-MISC.
• Bitcoin payments may be subject to backup withholding.

You can read all the legalese ugliness here.

 

Thanks to LaserBob for the info.

The Foreign Earned Income Exclusion and the Foreign Housing Exclusion/Deduction

I wrote this for part of my book but I figured it’s stuff that everyone ought to know so… enjoy!

The Foreign Earned Income Exclusion, or FEIE, is a benefit which excludes an amount from your taxable gross income. At the time of writing, for 2013, it gives you an exemption of $97,600.00 per person, provided that you meet certain requirements. And, in addition (yes, there is actually an “in addition”) you can also exclude or deduct certain amounts for the Foreign Housing Exclusion (FHE).

The FEIE is applied based on days abroad, so the total amount is divided by 365 and then multiplied by the number of days you were gone. So, for tax year 2013, $267.40 per person, per day, of your gross income can be tax-exempt by simply living in a foreign country.

According to the IRS website, you qualify for the FEIE if you are:

• A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
• A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
• A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

And, for that “in addition” part about housing, you may also deduct many of your housing expenses. Whether you may exclude or deduct depends on whether or not you are self-employed; the difference between exclusion (making a portion nontaxable) and deduction (removing from taxable income) is fuzzy at best, and it’s magical mystery voodoo best left to your accountant.

The basics, in the IRS’ own words: “Housing expenses include your reasonable expenses actually paid or incurred for housing in a foreign country for you and (if they lived with you) for your spouse and dependents. Housing expenses do not include expenses that are lavish or extravagant under the circumstances, the cost of buying property, purchased furniture or accessories, and improvements and other expenses that increase the value or appreciably prolong the life of your property.”

This means, in plain English, that you may deduct the following from your gross income:

• If housing is provided by your employer, its fair rental value.
• Rent.
• Utility bills, with exception to telephone.
• Cost of any repairs.
• Property or renter’s insurance.
• Any nonrefundable fees for securing leasehold.
• Any nondeductible occupancy taxes.
• Parking fees.
• Furniture and appliance rental.

And, in addition to that, if, for example, you are working overseas while your family remains back home, you may also apply the second household’s similar expenses to the FHE.

Real estate investment tax advantage:

If you are an employee of your own business, and that business purchases a property abroad and houses you in it, you may then use the FHE to deduct its fair market rental value and general upkeep from your personal gross income.

The business may also write off the purchase as a legitimate expense, and may also be able to write off its depreciation and other expenses that do not fall under the personal FHE. What a deal!

Corporate stipend tax advantage:

Your employer may issue a tax-deductible, per-diem stipend to you, the employee, to help with the pains of living abroad. This may or may not be tax-advantageous depending on the circumstances but may help to pad up your FEIE if you do not earn $97k by taking it from the business and putting it under your income.

Further information can be found on the IRS website (http://www.irs.gov) and the FEIE and FHE may be filed in your tax return using Form 2555.

Lessons from feudal Japan

As I am planning a trip to Japan later this year, I am diving into its history, language, and culture to prepare myself for the culture shock I will inevitably receive. As part of my historical bumblings, I came across some fascinating and ominous parallels. Namely, the rule of Tokugawa Iemitsu from 1632-1651. It’s such fascinating stuff that I am still picking through it and writing until 3:30am…

Iemitsu was the grandson of Tokugawa Ieyasu, the founder of the Tokugawa Shogunate, and the third shogun of the dynasty, the one that finally ran its feudal system into the ground. Ieyasu (grandpa) was famous for bringing peace to the warring fiefdoms of the Japanese empire and expanding trade with Europe. Unfortunately, as all sons of empire who inherit peace, Iemitsu could not appreciate that which he never had to fight for, and quickly began to destroy any and all things good. In 1620 he apparently had an argument with his lover at the time, and murdered him in a bathtub which they were sharing. Charming guy, for sure.

Once Iemitsu got into power, he began his reign by ordering his younger brother, Tadanaga, to commit suicide (for the “dishonorable misconduct” of being favored by his mother for the position of Shogun). Then he installed his friends to important posts, followed by all manner of onerous regulations which all citizens had to obey: from laws about fashion to laws about how farmer women had to wash their men’s feet at the end of the day (not just the act, but exactly how, and who and what must be involved in the process, and mandatory attendance of sisters/in-laws and other weirdness). There were taxes on windows and shelves, head taxes on newborn babies, and hole taxes for burying the dead. Rice, one of the currencies of the time, was also taxed.

Perhaps most disturbing about Iemitsu’s daily regulatory decrees is that he quickly learned how people would go to enormous effort to try and curry favor for special treatment under said regulations, in order to regain simple freedoms which they had previously taken for granted. A fact which he openly exploited as a tool to tamper with alliances among the rich and powerful as well as cement loyalties which kept or expanded his power.

Iemitsu established the sankin kōtai, which forced the Daimyo (regional overlords) to spend part of the year in the capital city of Edo and much of the remainder of their time wandering between Edo (now Tokyo) and their home turf, with all of their samurai and functionaries in tow, which effectively neutered them financially and politically, and often bankrupted them. In addition, the wives and children of the Daimyo were forced to live in Edo and could not leave. Overburden the regional leaders with too much regulation and hold their families hostage…

Iemitsu restricted travel. People needed passports just to go from region to region. Their belongings, clothing, and hair were inspected at various checkpoints. These checkpoints demanded that the female travelers be inspected by female agents, which unfortunately were uncommon. No inspection, no passage. Tough for you. Historical accounts from one such female traveler, Inoue Tsujo, who was a famous writer, recall tales of rough and uncomfortable screenings by haggard female inspectors with strange accents. Is all of this stuff starting to sound familiar yet?

How far we have come in 400 years!!!

Iemitsu enacted decrees which kept farmers from being able to consume their own produce– it all had to be cleared by a central authority and “properly redistributed.” Sound familiar? It should be no surprise that this sort of behavior brought about famine.

But it doesn’t end there. Farmers feeling the squeeze of too many taxes, too little food, and too much regulation eventually revolted and joined forces with persecuted Christians to form the Shimabara rebellion which burned brightly for a brief period but was then put down with deadly force in the last great battle within Japan. The rebels holed up in a castle and successfully held off the Shogun’s army, but in the end were starved out and then slaughtered.

After that, Iemitsu felt that the only way to keep things “going well” was to shut off all access to outside influences. Clearly it was outside influence that was causing rebellion, and had nothing to do with his asinine policies. He kicked out and/or slaughtered all the Christians, missionaries, and other foreigners, forbade Japanese from leaving the island, forbade any Japanese on foreign soil from returning to Japan, destroyed any seagoing ships that could be used to defect or travel outside of Japan, and closed the island to trade except for extremely regulated contact with the Dutch East India company. Japan’s doors would be slammed shut to the rest of the world for another 200 years.

It might sound like an awful lot to go through to get to this point but keep in mind that Iemitsu managed to do all of this– turning a prospering empire into a stagnant backwater– in just 3 years! After the quelling of the rebellion and the foreign purge he kept his way for another 16 years by ruling with an iron fist.

Uruguayan senators discuss taxing potato chips to curb consumption

You might think that a price of $120 (USD$6.00) for a 400-gram bag was enough to dissuade Uruguayans from eating potato chips, but clearly they love them too much and continue to buy them. So the genius board of miraculous experts is discussing a special “potato chip tax.”

According to Senator Ernesto Agazzi, “I recognize that this is a somewhat delicate issue because it affects freedom of supply and demand, but, unfortunately, often lower-income sectors consume this shit because they’re cheaper.”

Cheaper??? What? Jesus Christ on a cross, man, have you done your own shopping recently?

Anyhow, you can read the official absurdity here. Thanks to BeelzeBob for the link.

Last-minute drama and heart attacks

“Uruguay has a way of kicking you in the ass when it knows you are leaving,”

HardwareBob commiserates. I was in his store buying up all the heavy-duty trash bags I could find in order to clear out the vast accumulation of mold and deterioration that was in our old Montevideo apartment. We were there for a few days cleaning it out to put it on the market. He had asked me what I was doing with my truck after we left, because he wanted to buy it, and then the whole story came out about the accident last week, etc.

HardwareBob and I have a long history. I spent vast fortunes in his store, daily, for bits and bobs and various and sundry items with which to fix up and restore our old apartment around the corner. He’s a nice guy. So are his employees. When I told them we were moving to Chile, they were all excited yet bummed to see us go. So were MaidBob and other neighbors. Most of the people in that neighborhood are unaccustomed to transitory living and comings-and-goings. Most people who live there are born there and live there and die there. I will miss HardwareBob and his employees.

“I have a guy who already wants the truck but if he changes his mind, let’s talk,” I tell him. Fair enough.

WifeBob and I spent 2 days working around the clock, cleaning, organizing, and packing up the last of our “stuff” to ship out to Santiago. Most of it was clothes and books. Things that we wouldn’t miss if we lost them but wouldn’t want to have to re-buy either. Oh, we *did* give away a ton of stuff to MaidBob, who was delighted. Bonanza for her.

I had gone all the way through Hell’s half-acre and back for 25 40x40x40-cm cardboard boxes which cost me some $1400 pesos to get. I had a Uruguayan experience waiting 40 minutes to pay for them. This is at the ONLY place in Montevideo where you can get cardboard boxes. And they didn’t have half of what I was looking for.

“Do you have more of this one here?” No.

“How about this?” Out of stock.

“This one? Any?” Just the one you are holding in your hand.

“OK then, what do you have 25 of, which are remotely close to this size here?” the slow rusty cogs of parallel thought process begin to squeak free…

I got into a conversation with another frustrated guy in there, a businessman, who was astonished that the box monopoly had hiked his prices from 30 to 36 pesos per box.

“How long have you been here?” he asks me after the usual where-are-you-from stuff.

“5 years,” I reply.

“5 too many,” he grumbles. Yeah, man, I feel your pain.

While we were going through all of our stuff, it was like flashbacks from the past 5 years. Every item in there was the result of or involved in some sort of productive behavior of ours. Ticking through the inhuman efforts we endured, piece by piece. WifeBob became nostalgic; I had swallowed several barrels of “don’t-give-a-fuck-and-in-fact-while-you’re-asking…” which were still in my system.

It was also amazing the stuff which we would have just tossed in the trash or taken to GoodWill had we been in the USA, which we clung to with greedy fingers and refused to part with, because of all the effort that had gone into getting them into Uruguay. The added value attached to them, be it in taxes, smuggling them through Aduanas, or just the sheer amount of wasted, frustrated hours burned away in their acquisition.

Charity disappears quickly when it’s taxed at 60%+22%IVA.

We used our Gringo Rocket Science and powered through the whole place in record time, packed up the truck in geometric Gringo Rocket Science fashion so as to make just one trip out of it, and headed the F out of there, hopefully never to return.

Then I get a panicked call this afternoon from the neighbor downstairs who tells me that our balcony is falling off the front of the building. *&^#@$!! So I go into panic mode and call anyone I can to go and have a look since we are no longer in town. Precious minutes grind by as I chew my fingernails to the bone, wondering just what other disasters will befall us in our last few days in Uruguay. I am thinking (and according to the neighbor’s call, correctly) that the whole thing is dangling by a thread and about to fall completely off and kill an innocent bystander below. Wouldn’t that just take the F-ing cake!?

The day after you finish cleaning your property up from top to bottom to make it showroom condition for selling, and the balcony falls off the front of it into the street? That, my friends, would be the Uruguay experience in a nutshell. Oh, and some idiot crashed into your car and the insurance deems it your fault. Oh, and thieves tore the screen out of your window trying to break into your house. All in the same week.

Finally the call comes back in: our balcony is just fine, but a piece of cement fell from the balcony of the folks above us (The Retard Family), broke, and shattered little rubble bits around the ground below. The sky is falling!

Yeaaaaah, I’m so over it.

ExpatBob in 1840

This is from Two Years Before the Mast, written in 1840, regarding the Californians and the oddness experienced there by sailors, and why. It was Spanish territory then, with Spanish laws, Spanish taxes, etc. It speaks very much insight into why Uruguay is such a bizarre place, because Uruguay still carries these ways of doing things…

“The Californians are an idle, thriftless people, and can make nothing for themselves. The country abounds in grapes, yet they buy bad wines made in Boston and brought round by us, at an immense price, and retail it among themselves at a real (12½ cents) by the small wine-glass. Their hides, too, which they value at two dollars in money, they give for something which costs seventy-five cents in Boston; and buy shoes (like as not, made of their own hides, and which have been carried twice around Cape Horn) at three or four dollars, and “chicken-skin” boots at fifteen dollars apiece. Things sell, on an average, at an advance of nearly three hundred per cent upon the Boston prices. This is partly owing to the heavy duties which the government, in their wisdom, with the intent, no doubt, of keeping the silver in the country, has laid upon imports. These duties, and the enormous expenses of so long a voyage; keep all merchants, but those of heavy capital, from engaging in the trade.”

And his comments on the men of Juan Fernandez:

“The men appeared to be the laziest people upon the face of the earth; and indeed, as far as my observation goes, there are no people to whom the newly invented Yankee word of “loafer” is more applicable than to the Spanish Americans.”

“These men stood about doing nothing, with their cloaks, little better in texture than an Indian’s blanket, but of rich colors, thrown over their shoulders with an air which it is said that a Spanish beggar can always give to his rags; and with great politeness and courtesy in their address, though with holes in their shoes and without a sou in their pockets. The only interruption to the monotony of their day seemed to be when a gust of wind drew round between the mountains and blew off the boughs which they had placed for roofs to their houses, and gave them a few minutes’ occupation in running about after them. One of these gusts occurred while we were ashore, and afforded us no little amusement at seeing the men look round, and if they found that their roofs had stood, conclude that they might stand too, while those who saw theirs blown off, after uttering a few Spanish oaths, gathered their cloaks over their shoulders, and started off after them. However, they were not gone long, but soon returned to their habitual occupation of doing nothing.”