JimGant

23 minutes ago, TallGuyJohninBKK said:

Depending on the total taxable income amounts involved, the differences in tax rates between the U.S. and Thailand seem like those could result in many thousands of extra dollars of taxation occurring here if driven by large amount IRA to Roth conversions under the proposed new Thai taxation rules on foreign income.

Indeed. That's why I gave the "heads up" warning for those contemplating a Roth conversion -- 'cause if you wait until the worldwide tax scheme happens, you're in for a potentially big hit with a substantial conversion.

4 hours ago, TallGuyJohninBKK said:

will the latest plan make it sensible for an American to do a single or maybe two very large amount Roth conversions, and how would doing so wash out between the U.S. and proposed Thai taxation schemes.

If you convert before the Thai implementation of worldwide taxation, there's no Thai taxation, since there' s no remittance involved with a conversion. But once Thai worldwide taxation comes into effect, if you convert at that point, the conversion is taxable by Thailand, since remittance is no longer a requirement. And the DTA says Thailand has exclusionary taxation rights on IRA taxable income events. US taxation on the conversion would be affected by any Thai taxation to the extent the US would have to absorb a Thai tax credit against its taxation on the IRA conversion.

3 hours ago, TallGuyJohninBKK said:

I think the notion above of the PROPOSED Thai tax changes being something that ought to trigger folks now to suddenly do LARGE dollar value Roth conversions is a problematic one..

My point was, if you've been thinking about doing a Roth, maybe sooner is better than later. But you'll probably have enough warning on whether or not you need to do it by the end of this year, if it looks like the new worldwide taxation will kick in in 2026.

All the other caveats and guidance on doing a Roth have been around for some time. The article I referenced does a good job of delineating these. The only real kicker -- other than the Thai worldwide income aspect -- is if Trump's tax cuts get eliminated, which I would guess, is doubtful. But, again, hey, if you've considered doing a Roth, some new ammunition to assist your decision. [I've never done one, and don't plan to do one. If my RMD gets taxed by the Thais, no big deal, as it will be a minimum amount, as it barely pokes into the taxable income level. Plus, the Thai taxation will then be a tax credit against the US tax on this same RMD. Ho hum.]

There are two events going on, neither of which have come into effect, and maybe never will. One is the Thai proposed taxing of worldwide income, regardless of remittance. The second is the possible disappearance of the Trump tax act, at the end of 2025. Both would have a tax hit, should you not convert your traditional IRA to a Roth.

For the worldwide tax event to come into effect -- which I believe it couldn't until, the earliest, Tax Year (TY) 2025 -- if you waited until 2025 (or whenever it came into effect), you'd pay Thai taxes on the total amount of the conversion (as they have exclusive taxation rights, per DTA) -- a total which could be a significant six-figure amount. And this conversion would be treated the same as taking a distribution from your traditional IRA, which, of course, it is -- only in total amount, instead of, say, a required minimum distribution (RMD). [see footnote]. Thus, if you converted this year, there would be no taxable event, at least to Thailand, since there's no remittance aspect to a conversion -- only an income aspect -- yet to come into play. Wait a few years to convert -- then you may be facing a Thai tax significantly greater than what you'd pay to the US -- meaning, your US tax would be completely wiped out by the Thai tax credit, so your overall taxation would be that huge hit by Thailand. Hmmmm.

The second event in play here is the possible canceling of the 2017 Trump tax cut, which could take affect in TY2026. The following article explains it nicely; and even 'tho aimed at Fed employees, it's mostly applicable to all.

Quote

As a refresher, a Roth conversion is when you take a distribution from your Traditional IRA, pay taxes on the total amount of the distribution, and then immediately convert the distribution into a Roth IRA, so that it can grow tax-free in the Roth IRA ever after.

https://www.fedsmith.com/2024/04/09/case-for-roth-conversions-through-2025/

So, convert before the Trump tax act is cancelled -- and pay less US tax on this early conversion. Plus, since you'll now have no RMD requirement, as you would have with a traditional IRA, then no taxes on an RMD, which would be at the new, higher rate. AND, no taxes to Thailand on any now non-existent RMD (which you would have, per DTA). Thus: Saving on the conversion; saving on no RMD to US at higher rate; and saving to Thailand, by having no RMD for Thailand to tax. Good stuff.

So, if you've considered doing a Roth conversion -- step on it. If you haven't considered it -- best do so!

[Note: The US-Thai DTA is explicit on: Thailand has exclusive taxation authority on US IRAs, 401ks, and the like -- spelled out in the technical explanation of this treaty. However, because the US has its 'savings clause', that allows them to tax everything, regardless of treaty language -- then, in effect, Thailand only has primary taxation rights, and the US secondary taxation rights. This doesn't affect Thailand any -- they still get to collect and keep all taxes. And the US has to absorb a tax credit from Thailand, which, should Thai taxes be low, means the US would keep some of their taxes against the IRA distribution. But, for a Roth conversion -- I would think any Thai tax credit would blow out any taxes to the US.

Second point here: It's totally weird that the US would allow in their tax treaties (all, not just with Thailand) that the resident country gets to keep all those taxes on IRAs -- that have sat tax deferred for years, with the US waiting to collect those taxes via avenues like RMDs -- but never does, because of some treaty language written by a dope. Oh well. Right now, if Thailand goes into worldwide taxation mode, my RMD will have to be declared on a Thai tax return. As it's around $15000/yr it will barely reach the taxable income mark -- so the big hit will still be my US taxes, with a slight dent from a Thai tax credit.]

1 hour ago, MeePeeMai said:

"If the deceased person did not file individual income tax returns for the years before their death, their surviving spouse or representative may have to file prior year returns."

 

 

Surely you don't want this burden to fall on your wife's shoulders after you die

What are you talking about? The wife and I will have filed a joint return right up to, and into, the year of my death. What "burden to fall on wife's shoulders" are you talking about?

OOPs, sorry. Double response.

1 hour ago, MeePeeMai said:

will be inheriting your IRA's and other assets in the USA and will be required to file a final year return for you (joint return?) especially if she takes distributions from your IRA's that year.

Both our IRA Required Minimum Distributions have 22% withheld, per agreement with Schwab, which completely covers any tax due on this, as we're not yet in the 24% tax category. I always take our RMDs in the first week of Jan, thus, should I die, that's out of the way for the wife -- as she needs my RMD out of the way to inherit my IRA. In any event, as previously discussed, this 22% withholding - which matches dollar for dollar the taxes due on the IRA distribution - means we've over withheld by about $400. And the wife can completely blow off having to file a tax return.

18 minutes ago, MeePeeMai said:

If the deceased person did not file individual income tax returns for the years before their death, their surviving spouse or representative may have to file prior year returns."

 

 

Surely you don't want this burden to fall on your wife's shoulders after you die.  Not without some solid help anyway... and yes, she will need someone in the US to help her

Huh? The wife and I will file a joint return right into the year I die. What possible "prior year returns" are you alluding to?

Hey, give it a rest. I've got this thing covered.

1 hour ago, MeePeeMai said:

THEN you are required to file a tax return (even if you overpaid your estimated taxes or withheld too much from your salary).  Poster Presnock believes that you are not required to file a tax return (at any income level) as long as you don't owe any ADDTIONAL tax to the IRS.  That is false. 

Presnock is pretty smart. And, certainly, he knows that there are minor exceptions for filing requirements, like, have self-employment income exceeding $400.

2 hours ago, Presnock said:

US taxes can be efiled

Not be a wife who can't even do email.

2 hours ago, MeePeeMai said:

There are many things to consider if leaving it all to your wife and further research on "Thai or Foreign Nationals inheriting IRAs etc." and what's involved in the process.

Save your breath. Again, the wife is a US citizen, thus, none of the things you mention apply to her.

2 hours ago, MeePeeMai said:

Have a look at this link (for example)

Irrelevant. Wife is US citizen.

2 hours ago, MeePeeMai said:

I could be wrong about this one but I don't believe that your wife can inherent your IRA (as a beneficiary) or any other probate free assets in the USA until your Federal taxes are complete for your final year (and she'll need your death certificate).  It must be shown that there will be no final taxes due on your estate - "probate free" or not.

Again, wife is US citizen.

2 minutes ago, MeePeeMai said:

If any US citizen thinks that they over withheld or paid too much in estimated quarterly taxes, it is not up to that taxpayer to decide that.

Are you familiar with spreadsheets? I certainly have the data to project this year's taxes on my projected income; and how much withholding I need -- plus some extra withholding to cover non-1099 income, like my interest on Bangkok Bank savings account. When I set up my wife's W4, this will automatically increase with inflation, just as with new tax rates. Thus, that $400 buffer I've built in - using the the "extra withhold" on the W4-- will be self-adjusting.

The IRS will actually send you a IRS prepared tax return -- if their data from 1099s exceeds what they show from your withholding/estimated tax data. So, yeah, the the final authority on whether or not your withholding exceeded your tax bill -- is the IRS, as you say. I say: Most of us will have all the info needed to compare our future tax bill to our annual withholdings. And, thus, make sure the withholdings exceed that projected tax bill. And don't file, if you have a good reason not to.

2 minutes ago, MeePeeMai said:

Is this statement that you made True or FALSE?

True

12 minutes ago, MeePeeMai said:

But if you have any assets in the USA, your final tax return MUST be filed in order to finish the probate process there in the USA.

 

Plenty of assets in US -- all exempt from probate, as they're financial, and have designated beneficiaries (IRAs, insurance), or are Pay on Death (POD) -- Totten Trust.

Wife will already have a problem with my demise, as she's completely computer illiterate. Having her being able to avoid the tax problem -- should ameliorate  the situation somewhat.

17 minutes ago, MeePeeMai said:

You are still required to file your taxes even if you overpaid or will owe nothing after filing (unless you are in the under the IRS' poverty income threshold or some other exception i.e. a wounded VET on disability income etc.).

Or, you have over $400 in income from self employment; $108.28 of church wages, from a church that doesn't pay social security taxes. Yes, a few exceptions I ignored, as the target audience are US expats. Also, this position on no need to file, if no taxes owed, is fully vetted by the CPA organization I belong to.

2 hours ago, MeePeeMai said:

3 hours ago, Presnock said:

Not filing a tax return does not mean you're committing Tax Evasion,

 

In the USA it does.

Certainly it doesn't in the USA. If you've overwithheld, or paid estimated taxes over your final tax bill -- and thus owe no taxes -- you don't have to file a tax return. Period.

The wife's checklist when I croak is -- don't worry about filing a US tax return. Why? Because I've got it setup that she'll overwithhold by about $400 of what her tax bill would be, if she ever filed. Which she won't, 'cause she wouldn't have a clue how to do it; no CPAs here in Chiang Mai; just gathering 1099s online to give to the tax preparer would be impossible; and going to Bangkok, or even by mail, would cost in the neighborhood of $300-400. What a hassle. Just donate $400 to Uncle Sam, save yourself any hassle, and consider it a wash with any tax preparer fee.

So, unlike Thailand, where, even if you don't owe taxes you're supposed to file if assessable income is 120000 -- and there's a 2000 baht fine if you don't -- the US has no penalty, nor legal requirement, for you to file, if no taxes owed.

59 minutes ago, Sheryl said:

So if Thailand were to tax the foreign income of non-residents (i.e. people with non immigrant visas, which is most of us), this would be pretty unusual.

Don't confuse non immigrants with non residents, at least for tax purposes. All DTAs spell out how to define who's a resident for tax purposes. For us expats, that's being here over 180 days, cumulative, in a tax year.

3 hours ago, beammeup said:

Your stance is not popular because they are your opinions

...but extremely well thought out opinions -- which is the best we can go with, until further clarification from the govt.

2 hours ago, TallGuyJohninBKK said:

So when Thailand says they want to tax all income worldwide for Thailand residents, do they mean all undistributed earnings or only distributions from IRA accounts?

Only the distributions from your conventional IRA -- like your annual RMD. This is clearly labelled in the DTA, particularly in the Technical Explanation. They'll just be concerned with mirroring what's in your US 1040, as to what income they're interested in. And, yes, you'll get a one for one tax credit against your US taxes for the Thai taxes paid on this IRA distribution. Undistributed earnings are of no interest to Thailand, or the US, for taxation purposes.

Roth IRAs are an interesting scenario. The Thai US treaty doesn't mention them, because the treaty was signed before Roth came about. But look at the following from the latest OECD Model tax treaty (2017):

Quote

Notwithstanding subparagraph (a) of this paragraph, the amount of any such
pension or remuneration arising in a Contracting State that, when received, would be
exempt from taxation in that Contracting State if the beneficial owner were a resident
thereof shall be exempt from taxation in the Contracting State of which the beneficial
owner is a resident

 And this, from the US-UK DTA:

Quote

 The Technical Explanation states, “Thus, for example, a distribution from a U.S. ‘Roth IRA’ to a UK resident would be exempt from tax in the United Kingdom to the same extent the distribution would be exempt from tax in the United States if it were distributed to a U.S. resident.”

So, this is the current OECD feeling on Roth IRAs -- and should the Thai-US treaty be reaccomplished, this would certainly be in there. Sadly, we're stuck with the current treaty's ancient language.

What to do? This is what, in the CPA world, is called a grey area. But -- to not declare any Roth distribution as assessable income to Thailand -- seems ethical under the new criteria, and in accordance with more modern standards than when the existing treaty was written. Now, I've been warned to not give tax advice on this forum -- so, just say what I just mentioned was an observation.

That TRD would even be aware of the term "Roth" (which they wouldn't be if you didn't have to declare non assessable income somewhere). Even if they explored your 1040 tax return, Roth would not show up. So, forget anything about any Roth distributions, should you have taken any (no RMD here), as somehow being reportable assessable for Thai tax purposes.

2 hours ago, Mike Teavee said:

shared his findings from Sherrings who clarify the use of the word "May" as to mean they would be the only ones who would apply Tax..

Nope. "May" by itself means there's a primary and a secondary tax authority. "May only" means there's only an exclusive taxation authority. In US treaties, because of the savings clause, where there's an exclusive ("may only") taxation clause, like for private pensions, this evaporates into a "may" situation. Thus, IRAs and private pensions, in this situation, have Thailand as primary taxation authority, but with the US having secondary taxation rights.

18 hours ago, Mike Teavee said:

IIRC (It's been a few months since I looked at this), Thailand has primary taxing rights on UK Rental Income

Negative:

Quote

 Income from immovable property may be taxed in the Contracting State in which
such property is situated. [from uk thai treaty]

This language is similar to other DTAs -- the situs country has primary taxation rights, but the resident country has secondary taxation rights. ['may be taxed' is treaty language for there being a primary taxation authority, but also a secondary one. If it said 'may only be taxed, ' then there's only an exclusionary taxation authority, no secondary.]

So, submit tax returns to both countries -- with UK collecting all the taxes, and issuing a credit toward Thai taxes. If Thai taxes, after absorbing the UK tax credit, are positive -- well, you'll owe this delta, plus full fare to the UK.