Consult Chile was invited by Lusine Kane with Taxes for Expats to share some questions from subscribers, which would be answered by their founder, Ines Zemelman. Thanks to all our readers who submitted questions! Here’s the Q and A—I hope you can get some of your questions answered here.
Taxes For Expats is a New York-based firm that specializes in taxes for citizens of the US living abroad. If you want help with your tax return or just want to learn more about filing taxes from another country, check out their website.
Am I required to pay US property taxes on real estate that was acquired in Chile after I became a permanent resident?
You do not pay US property tax on Chilean property. If you decide to rent out your Chilean property, you will be required to report the rental income on your US tax return.
If an American citizen who lives in Chile made a charitable donation to a Chilean organization, can that be included as a deduction for US taxes?
Unfortunately no. Please see https://www.taxesforexpats.com/faq.html#49
Please note, as of the latest tax reform, this will matter less as the standard deduction has been doubled. Please see Winners & Losers from Tax Reform 2017
Do self-employment tax rates differ if the business is based in Chile, not the US?
The tax rate is the same, but in practice the reporting is slightly different. Since Chile has a Totalization Agreement with the United States, this means that if you pay into the Chilean Social Security system, if your tax return is filed properly, you will not have to pay social security tax (SECA Tax - 15.3%) to the IRS. Note -if you do not pay into the Chilean system, you will be required to pay into the US system. As per the agreement, you must pay into one of them (not both).
How do I report wages that I, as a dual US-Chile citizen, pay to employees of a Chilean business that I own?
Wages you pay to your employees are ‘expenses’ for the business. Please see Business Owners Abroad. Note - an Associación/Independent member and sociedad colectiva/sociedad limitada have different filing requirements.
If I have permanent residency in Chile and I’m studying at a Chilean university, can I deduct the tuition fees when I file taxes in the States?
You can deduct tuition fees if the school you are attending is on the list of eligible institutions for Federal Student Aid (FAFSA).
If I hold dual citizenship with the United States and Chile, do I have to pay state taxes as well as federal taxes?
Please see TFX -- State Taxes & Expats - in general, if you do not live in the state and have no income in that state, you likely don’t have to file. However, some states are more rigorous than others, and require you to sever ties ‘to the satisfaction of the commissioner’ of the state.
Is it possible to obtain agricultural tax exemption for property purchased/owned in Chile?
No - this is for US property only.
Which (if any) tax brackets for individual taxpayers would benefit from using Foreign Earned Income Exclusion or Foreign Tax Credit?
Everyone would benefit from utilizing these tools available to foreign based taxpayers.
Can I deduct medical expenses from my US tax filing that were incurred in Chile as a person with dual US-Chile citizenship?
Yes - but in general this affects very few people. Why?
On one hand, medical expenses during the tax year are deductible; on the other hand, you may not claim medical expenses totaling less than 10% of your AGI (Adjusted Gross Income) for that tax year. Only the amount above this "floor" qualifies for deduction. Please see itemized deductions on your tax return
Your annual income was $150K, thus you may deduct the portion of medical expenses that is above $15K (10% of your AGI). Assuming you spent $20K, you may deduct $5K.
However, in order to deduct those expenses you have to give up the option of standard deduction, which is $12K per single person.
Am I still eligible to receive Social Security benefits if I am a citizen of Chile as well as the United States?
Yes - see Social Security & Expats Q&A
Is there a penalty if I’ve been living in Chile as a permanent resident for over 4 years (while earning income from employment in a Chilean business) and have not filed a US tax return since leaving the United States?
I have good news. The IRS has an Amnesty Program for foreign-based taxpayers behind on their US taxes & FBARs. Please note - all US citizens and GC holders are required to file an annual tax return with the IRS declaring their worldwide income.
Joining this program would require filing of the 3 last years of delinquent tax returns (currently. 2014-2016) and 6 years of FBARs (2011-2016). You can read all about this program on our site: IRS Program - Delinquent Tax Returns.
The program is specifically designed so that those who are behind on their taxes can file them with no fees or penalties (which can be very sizable if the IRS finds you first - please see: FBAR Penalties).
We get asked a lot of questions about the program and answered them all in one place (including scenario analysis) here: Streamlined Program FAQs & Situational Analysis
Please feel free to ask us questions or express concerns. Don't worry if you think your situation is difficult - we often deal with such cases and have successfully resolved many challenging cases for clients in the past (please see www.taxesforexpats.com/testimonials for references that over 500 clients have left). Either way - we're here if you have any tax queries.
Ines Zemelman, EA is the founder of www.taxesforexpats.com
She can be reached at email@example.com