Friday, November 4, 2016

Declare the Pennies On Your Eyes

Americans love to complain about taxes, especially during an election. Obviously, even 1% is too high if you don't want to pay anything, but there are people throughout Europe paying 40%, 50% or 60% of their income in taxes. I don't know any American who pays anywhere close to that. The average is somewhere around 15% (according to a 1 second Google search).

It's just like gas prices. Americans blame whoever the president is when gas prices go up, as if he sets the rates. When the national average went up to US$3/gallon, there was almost a revolution. At the time, gas cost US$10 in Hong Kong, and that wasn't even close to the highest in the world.

When I lived in the United States, I paid around 20% in income tax, but I was single and didn't have any deductions. The more deductions you have, the less you can pay. And if you're married with children, you're automatically at a lower rate. Then there are state taxes. Unlike smaller countries, the United States also has income tax based on your state. A few states don't have any income tax, while most are much lower than the federal rate. In Minnesota, I always paid around 7%.

Giving the government 27% of your income seems very high to people in oil rich Arab countries, but it's pretty low for people in Sweden or Holland.

I don't live in Minnesota anymore, so I don't pay state taxes. But I still get to pay federal taxes. That always surprises my non-American friends. All American citizens, regardless of where they live, are supposed to file taxes. Let's say I never go back to the United States, I'm still legally required to file for the rest of my life. Now, if I really never went back, and don't mind them taking away my passport, I could simply not pay anything. They're not going to come and get me.

Like all Americans living in Hong Kong, I get to pay American and Hong Kong taxes. Fortunately, the highest Hong Kong rate is somewhere around 15%. Since I'm far from the richest person in Hong Kong, I pay a lot less. I'm usually closer to 8%.

That doesn't mean I'm currently giving 28% of my income to two different governments. The American tax rate is based on all income from anywhere in the world, but the Hong Kong rate is only based on whatever I earn in Hong Kong. That affects the math, especially since I'm now earning an income in 3 different countries.

Since I've started working in Tel Aviv, I'll get to list all of that income on next year's US tax return. And I get to pay taxes in Israel.

The Israeli tax code might just be as complicated as the American system, but I have a few things on my side. I'm not an Israeli citizen, so I automatically pay a lower rate, and I don't live in Israel, so I'm in some kind of “specialist” category. I don't know all the details yet, but it looks like I can save myself a lot of hassle if I limit all future visits to under 30 days. If I ever stay for over 120 days, I'll still be a foreigner who needs a visa, but I'll be taxed like a resident.

I don't know if there's a moral to this story. I put myself in this situation. But it's funny that I will never be a billionaire, yet I pay more in income taxes than Donald Trump. I pay taxes in 3 different countries, yet I complain about taxes less than any American I know. I'd much rather deal with all the bureaucracy every year than make so little money that I don't have to pay anything.

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