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Old 08-06-2007, 07:51 PM   #1  
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Default A Tax Equalization comparison

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Last edited by iarapilot; 08-06-2007 at 08:01 PM.
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Old 08-06-2007, 09:39 PM   #2  
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I have a good tax comparison from a crew member for the equalization vs. doing it yourself. The problem is that it is in an Exel format. I tried copying and pasting. It doesnt look good. Then I tried just typing it in a post....still doesnt look good. So, here it is.....not looking good!

I think it is important enough to post though. Ya'll can figure it out!




First Officer Income US Tax Rate

140,000.00 Wages 0.30

23,800.00 HK Tax
--------------------
163,800.00




US Tax Calc (paid by Fedex) HK Tax Calc (paid by Fedex)


Income 163,800.00 140,000.00
Less Exclusion -85,000.00 HK Tax 17% = 23,800.00
Less Standard Deduction -10,300.00
Less Personal Exemption -6,600.00
------------------
AGI 61,900.00
US Tax Calc (rate in D2) 18,570.00
Less Foreign Tax Credit -23,800.00
-5,230.00
---------
US Tax Liability 0.00 HK Tax Liability 23,800.00



Price Waterhouse Coopers Calcs (paid by Pilot)


Income 140,000.00
Less Standard Deduction -10,300.00
Less Personal Exemption -6,600.00
AGI 123,100.00
------------
US Tax Calc (rate in D2) 36,930.00


Pilot Pays Fedex Price Waterhouse Coopers 36,930.00
Fedex Pays US Tax + HK Tax 23,800.00
Fedex Profits 13,130.00




Captain Income

230,000.00 Wages
39,100.00 HK Tax
-----------------
269,100.00



US Tax Calc (paid by Fedex) HK Tax Calc (paid by Fedex)


Income 269,100.00 230,000.00
Less Exclusion -85,000.00 HK Tax 17% 39,100.00
Less Standard Deduction -10,300.00
Less Personal Exemption -6,600.00
------------
AGI 167,200.00
US Tax Calc (rate in D2) 50,160.00
Less Foreign Tax Credit -31,000.00 "Think FTC capped at 31,000ish"
------------
19,160.00


US Tax Liability 19,160.00 HK Tax Liability 39,100.00





Price Waterhouse Coopers Calcs (paid by Pilot)

Income 230,000.00
Less Standard Deduction -10,300.00
Less Personal Exemption -6,600.00
AGI 213,100.00
US Tax Calc (rate in D2) 63,930.00


Pilot Pays Fedex Price Waterhouse Coopers 63,930.00
Fedex Pays US Tax + HK Tax 58,260.00
Fedex Profits 5,670.00
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Old 08-06-2007, 10:11 PM   #3  
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Quote:
Originally Posted by iarapilot View Post

I tried copying and pasting. It doesnt look good. Then I tried just typing it in a post....still doesnt look good. So, here it is.....not looking good!



Try putting [code][font=couriernew] in front of your data, and [/font][/code] after it. All of your characters will be the same width, and leading blanks won't be deleted.


That will clean up the appearance of the numbers, but it won't make them correct.




.
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Old 08-06-2007, 10:31 PM   #4  
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Quote:
Originally Posted by TonyC View Post
Try putting [code][font=couriernew] in front of your data, and [/font][/code] after it. All of your characters will be the same width, and leading blanks won't be deleted.


That will clean up the appearance of the numbers, but it won't make them correct.




.
You are right, Tony. The sample numbers the Union published are much, much more accurate. Anyone... Beuhler, Beuhler?... Anyone?...
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Old 08-06-2007, 11:25 PM   #5  
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Originally Posted by iarapilot View Post
I have a good tax comparison from a crew member for the equalization vs. doing it yourself.

I am glad people are working on some actual numbers for the tax equalization. I don't have all the answers either, but my research shows a few problems with those numbers.

First,the most you can pay in Hong Kong is 16%. The top tax rate is 17%, but you can not pay more than you would using the "standard rate" which is 16%. Here is the website for the Hong Kong equivalent to the IRS. http://www.ird.gov.hk/eng/welcome.htm They actually have a calculator on the site that will let you try out some different scenarios.

Second, the US tax rate is not even close to 30% on your whole paycheck. These are from 2006, but you get the picture. At $123,100, your tax liability would be around $24000 not $36900. That is a $12900 swing right there.
Schedule Y-1 Married Filing Jointly or Qualifying Widow(er)

If taxable income is over-- But not over-- The tax is: $0 $15,100 10% of the amount over $0 $15,100 $61,300 $1,510.00 plus 15% of the amount over 15,100 $61,300 $123,700 $8,440.00 plus 25% of the amount over 61,300 $123,700 $188,450 $24,040.00 plus 28% of the amount over 123,700 $188,450 $336,550 $42,170.00 plus 33% of the amount over 188,450 $336,550 no limit $91,043.00 plus 35% of the amount over 336,550



Third, you can't claim the foreign tax credit on the $82,400 exclusion that you take. The basic formula for the limit is as follows:



us tax liability * (foreign earned income - the exclusion)/all income



The foreign earned income is only what you would pay us tax on. With that formula the tax credit is pretty small for F/O's but get significantly larger for captains. I don't think there is a high end number where the credit stops. You just use the percentage of your tax liabilty. Using our numbers from above, 140,000 is foreign income, but we get our standard deduction of 10,300 so our foreign earned income is 129,700. Our formula would look like this




us tax liability * (129,700 - 82,400)/129,700



Which is



us tax liability * 0.36

You would only get a credit for 36% of your tax liability.



When you start factoring in all those factors the equation is much more in our favor. If this is really important to you, you might want to run your own numbers, but I came up with the pilots coming out ahead every time. The amount varied from 9,200 for an F/O to 5,800 for a captain.



Sorry about the long post. My numbers are in a spread sheet as well, if anyone is interested, I will try to put them up.
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Old 08-06-2007, 11:27 PM   #6  
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Sorry about the formating on the tax chart. If you want you can look it up at http://www.irs.gov/formspubs/article...150856,00.html
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Old 08-06-2007, 11:39 PM   #7  
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At least one problem with your numbers. First (and I will paste directly from the IRS website for accuracy,) your Foreign tax credit (or deduction) is $14008 off, as (from IRS topic 865 - Foreign Tax Credit)

"You may not take either a credit or a deduction for taxes paid or accrued on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. There is no double taxation in this situation because the income is not subject to United States tax."

Using your 17% HK tax rate on the $82400 exclusion (as of 2007 tax year)means you can't deduct or get a credit for $14008 that you have included in your figures.

Also, from IRS Publication 54, Section 4, "Figuring tax on income not excluded. If you claim the foreign earned income exclusion, the housing exclusion (discussed later), or both, you must figure the tax on your nonexcluded income using the tax rates that would have applied had you not claimed the exclusions. " Therefore, a rate of 25% or so would probably apply, and then 28% after $128500 (prior to the exclusion.) Captains will most likely be in the 33% bracket.

A newhire or fairly new FO in HKG will lose money. I don't know if a Captain will.
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Old 08-07-2007, 12:16 AM   #8  
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Quote:
Originally Posted by TonyC View Post
Try putting [code][font=couriernew] in front of your data, and [/font][/code] after it. All of your characters will be the same width, and leading blanks won't be deleted.


That will clean up the appearance of the numbers, but it won't make them correct.




.

They aren't exact, but they are accurate. Tell me Tony, how many tax returns have you done as an expat? Better yet, how many did the NC do in examing this LOA? Was it the same number as the apartments they visited in HKG. I'm SFS based. I've done expat tax returns. These numbers are in fact accurate. Although, I come up with slightly different numbers, the fact is the pilots will be paying all foreign taxes and most, if not all, of the their own $2700 housing allowance! But, because of tax equalization the company can say they're paying for it.

And please, don't tell me I can take the current section 6 option if I would like. You've changed it by tacking on this repulsive "tax equalization" to it. Tell you what, take out tax equalization. I pay and get credit for $38,000 in HKG taxes. I actually get to take the foreign earned income exclusion, which under equalization the company withholds. I end up owing $0 in US federal taxes, and now I keep the $55,000+ dollars of my own money. That, coupled with the 79 CH pay, will go farther than the $2700 the "company" will "give" us, of our own money.
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Old 08-07-2007, 12:36 AM   #9  
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Quote:
Originally Posted by Underdog View Post
They aren't exact, but they are accurate. Tell me Tony, how many tax returns have you done as an expat? Better yet, how many did the NC do in examing this LOA? Was it the same number as the apartments they visited in HKG. I'm SFS based. I've done expat tax returns. These numbers are in fact accurate. Although, I come up with slightly different numbers, the fact is the pilots will be paying all foreign taxes and most, if not all, of the their own $2700 housing allowance! But, because of tax equalization the company can say they're paying for it.

And please, don't tell me I can take the current section 6 option if I would like. You've changed it by tacking on this repulsive "tax equalization" to it. Tell you what, take out tax equalization. I pay and get credit for $38,000 in HKG taxes. I actually get to take the foreign earned income exclusion, which under equalization the company withholds. I end up owing $0 in US federal taxes, and now I keep the $55,000+ dollars of my own money. That, coupled with the 79 CH pay, will go farther than the $2700 the "company" will "give" us, of our own money.
Way to go Underdog.
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Old 08-07-2007, 02:41 AM   #10  
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Quote:
Originally Posted by TonyC View Post
Try putting [code][font=couriernew] in front of your data, and [/font][/code] after it. All of your characters will be the same width, and leading blanks won't be deleted.


That will clean up the appearance of the numbers, but it won't make them correct.




.
I dont know HTML Tony so...thanks though.

Also not sure the numbers are 100% correct. But I think they are fairly close, and at least give you an accurate picture of how the tax equal plan works. I have been filing as an expat for 9 years, so I have an idea how the foreign filing works. I hope!
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