WHAT ABOUT IF YOU ARE MARRIED TO A NON-US CITIZEN?

This is where things start to get interesting, especially if you are brand new to the US. You have the option of filing separately or filing jointly. The final decision is determined by whether your non-US citizen spouse is considered a tax resident or a tax nonresident.

Is The Marginal Tax Rate The Same As the Effective Tax Rate?

The marginal tax rate is the rate you pay on an additional dollar of income. This is the same rate as your tax bracket. The effective tax rate is your average tax rate or the percentage of your taxable income that you’ll pay in taxes. In other words, the share of your total annual income you’ll need to pay in taxes. Average Tax Rate = Total Tax Paid / Taxable Income This is the more accurate representation of how much you pay in taxes. This graphic from Nerd Wallet illustrates the point clearly. With an income of 50k, your total tax bill is $6800, which is 14% of your income. Hence your effective tax rate is 14%, while your marginal tax rate is 22%.

What’s The Difference Between A Tax Credit and A Tax Deduction?

According to Investopedia, a tax credit is the amount of money you can subtract directly from the taxes you owe. The type of credit you get is determined by factors like your filing status, income, etc. They are three types of tax credits Nonrefundable Refundable Partially refundable Refundable credits are the most beneficial type of credit. They lower the tax bill due, and if they reduce the bill to below $0, you’ll be due a refund from IRS. A great example of this is the premium tax credit which helps you cover the cost of premiums for health insurance purchased in the health insurance marketplace On the other hand, a tax deduction is an amount you can deduct from your taxable income, which will likely reduce your tax liability. Essentially lower the amount of taxes you pay. There are two ways to complete this Standard deduction – a fixed amount based on your tax filing status Itemized deductions – you combine a bunch of deductions like mortgage interest, charitable gifts, etc. If this total is greater than the standard deduction, it makes more sense to use use it, but everybody’s situation is different. This is an area that’s constantly changing, so check with a professional regularly A tax credit is more favorable than a tax deduction.

What’s The Difference Between Taxable Income (AGI) and Gross Income?

The best way to explain the difference is as follows Gross Income – Adjustments to Income = Adjusted Gross Income (AGI) Adjustments to income include things like deductions, retirement savings, etc. Anything that lowers your income. Gross Income is the sum of all your income which includes any overseas income. Adjusted Gross Income (AGI) is what you end up paying taxes on.

What Are The Benefits Of Saving Money In A Roth IRA Account?

In a previous post, I addressed the benefits and features of a Roth IRA Account. There are a couple of benefits to saving money in a Roth Account. Some of the benefits include the following. The money is contributed after taxes and grows tax-free and can grow for as long as you (the owner) are alive. There are no RMDs (Required Minimum Distributions). RMDs are typically required so IRS can get its share of taxes. In this case, since there are no taxes to be paid, this is a moot point. But keep in mind that once the account passes to your beneficiaries at death, even though it passes tax-free, the inherited IRA rules kick in and they will be required to withdraw all the money from the account within 10 years of your death. You can take the money out tax-free. Keep in mind that the Roth IRA account needs to have been in existence for at least 5 years to be able to get the money out tax-free.

How Do You Deal With The Roth IRA Mistakes?

Now that I have detailed the mistakes I typically see, you are hopefully not going to make them in 2023. But if you’ve already made them, there are a couple of ways to fix them, but work with your financial advisor, and your CPA to figure out the best solution for your situation. The fixes will depend on the mistake, but also when you made the mistake. If you’ve made illegal contributions (that’s what IRS calls them) – you might be able to recharacterize them as traditional IRAS. Otherwise, you might have to remove those contributions. Every year the money remains in the account, and there is a 6% penalty. But if you remove the money by October 15th after the year it was made, SECURE Act 2 has changed the rules, so you won’t be penalized. If you’ve messed with the Pro-rata rule and did not include the extra income, you might have to amend your prior years’ returns, to account for the extra income. The Roth IRA is a great tool, make the most of it, and you have a shot not only at improving your future but also creating and passing on generational wealth.

Financial Planning For Expats On A Work Visa

Financial Planning For Expats On Work Visas.

Last week, I had a chance to sit down with the Plan First Wealth team.

Plan First Wealth is a US/UK wealth management firm that works with HNW British expats in America.

The conversation was basically a friendly exchange comparing notes with other expats in the space.

Our chat focused on how I work with immigrants (foreign nationals) on work visas, plus a few other areas of mutual interest.

It really came down to financial planning for expats on work visas and making the most of that opportunity.

Richard Taylor the founder of Plan First Wealth is a long-time British expat in the US.

Despite my many British connections, his journey is very different from mine, but there is one thing we both agree on.

There are many pitfalls and traps for foreign-born individuals or foreign nationals on work visas, especially based on your country of origin.

It’s best to reach out to a professional especially when starting out.

Conversation Topics – Expats On Work Visas

In the wide-ranging conversation – here are some of the topics we covered.

- My journey to the US.
- My visa journey and the role it played in me starting up Elgon Financial Advisors.
- How we define the American Dream (Hint – it’s alive and well).
- The work visa overview.
- How to make the most of your visa situation.
- Pitfalls to avoid when you come to the US on a work visa.
- The advice we’d give somebody if they reached out to us before moving to the US.
- What to do if you lose your job on a work visa.
- Investing on a work visa and why everybody needs a taxable account.
- Saving for college on a work visa.
- Tax treaties, and retirement saving.

A lot of fun chatting with my fellow expats.

Have a listen on one of these platforms

Apple: Financial Planning For Expats On Work Visas

Spotify: Financial Planning For Expats On Work Visas

Or even better, watch it here!

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for the purchase or sale of any security, investment advisory services, or legal advice. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jane Mepham and all rights are reserved. Read the full disclaimer here.

Jane Mepham, CFP^® is a Fee-Only financial planner who loves simplifying the complexities of the U.S. financial system for immigrants and foreign nationals on work visas and those in tech. She’ll work with you to map out a personal strategy that addresses all areas of your financial life while avoiding key financial mistakes that could derail your American dream.

Critical Financial Planning For Expats On Work Visas (Video)

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Conversation Topics – Expats On Work Visas

Need Help With Your US Finances?

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How To Deal With The Challenges Of FIRE Planning On Work Visa

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Elgon Financial Advisors is a Fee-Only Registered Investment Advisor in Austin, Texas, with clients nationwide.

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About

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