Frequent Traveller Nightmare Part 1: Why I don’t travel (that much)

I used to love to take a trip on an airplane.  And my airline of choice was United.  I flew on them because their planes were clean, they got me to where I wanted to go most of the time without a plane change (particularly when I lived in San Francisco), and I could follow all of the air traffic fun on my headset, giving me something the remote possibility of learning something, while mindlessly staring out the window.

Almost a decade ago my love affair with flying ended, sometime after the love affair with my (now) wife began.  We were often separated by hours of overnight flights and thousands of miles.  It was also a time when United went bankrupt while their planes were over capacity.  Since then, the Towers fell on 9/11 (I was in the UK at the time), and we’ve become so paranoid about our personal safety thanks to the Bush Era approach of leading from a position of fear that air travel has become a flying prison experience.  And so I have largely stopped.

My own personal travel has dropped from a peek of 120,000 miles per year down to roughly 30,000.  Yes, I still travel, but considerably less, and not often to America.  There are more than a few reasons for this:

  • Flying is expensive, especially for families.  I now have one.
  • Fuel surcharges that can be over 200% of the cost of the ticket (something that Continental misleads customers to believe it is entirely beyond their control).
  • Distance- this cuts both ways: I don’t need a plane (or even clothing) to see my wife and daughter, while my parents and American friends are much farther away, making the trip both more expensive and difficult.
  • Convenience- who wants to deal with the TSA?  To be fair, here in Switzerland they really do make it as painless as possible.  I have only ever once missed a flight here in Switzerland, when a train broke down, and the SBB actually rebooked me on the next flight before I arrived at the airport!
  • A long flight is hard on a child– any child.  Parents need to think long and hard before putting their children– and other passengers– through that.  We made that mistake by bringing our daughter on a long haul at the age of 4 months.  When she was sick.  Big mistake.  Even though the doctor told us it was okay for her to fly (he was wrong) in order to get to Florida.
  • But beyond that, anyone in the back of a long haul has a miserable experience ahead of them from the moment they board.  You can be assured that drinks on American airlines won’t be free, the movies will be lousy, and the food will be, if anything, worse than you remember.
  • Families have very few options to upgrade.  When I’ve done so, it hasn’t been worth it.  After all, what’s a comfortable chair if you can’t sleep because you need to attend to a child?

All of this boils down to the fact that the average flight to the U.S. costs us around $3,100.  It’s about 1/3 that to elsewhere within Europe.  Compare that with the $388 it used to cost me to go from San Francisco to the East Coast.

This leaves business travel.  I have reduced that as well.  A lot.  Some people aren’t in a position to do so, I am, and I have.  It has helped that my company now discourages travel where four years ago people would just as soon hop an airplane than pick up a phone. Now we have TelePresence, WebEx, and all sorts of other collaboration tools at our disposal.  I applaud the change.

But even when I do travel, within Europe I prefer the train when it is feasible.  I recently chose the train over the plane to get from Zürich to Maastricht.  That turned out to take only about an hour longer without a plane than it would have taken with.  But it cost quite a bit more.  Within Switzerland I always use the train to Geneva.  No reservations required, and it just works.

Pumpkin Pie: I’m a bit screwed

Thanksgiving is coming, and so here in Switzerland I felt like making a pumpkin pie today.  Yes, it’s not actually Thanksgiving, but I could either celebrate it before or after, so I’m doing both.  Here’s the thing about pumpkin pie: because it really is an American dish, some of the ingredients are really American.  My favorite recipe is Libby’s, but my wife and daughter both were not thrilled. But it also has two other problems, one of which is difficult to avoid.  Libby’s calls for condensed milk and canned pumpkin.  There is absolutely nothing to be done about the canned pumpkin part.  Anyone who knows anything knows that you just get a can of pumpkin for pumpkin pie, because quite frankly, we all have better things to do than to chop, bake, skin and mash a pumpkin, and probably the wrong pumpkin at that.  The catch is that here in Switzerland, apparently they don’t, or they simply don’t eat pumpkin.

So that leaves the condensed milk.  Some recipes call for it, and some call for cream cheese. This year I tried a recipe from the Joy of Baking, which merely calls for cream.  It makes a very light pie, but the spice doesn’t bowl you over.  Quite frankly I found it a bit meek.  But this is precisely what, I think my wife and daughter liked.  Also, this pie isn’t too sweet, which is something I like.  This is a Martha Stewart recipe.  Are they all so middle-of-the-road?

Anyway, Happy (early) Thanksgiving, America!

Tax Time! Here we go again!

paperworkSome time ago I wrote about the difficulties that expatriates face when we calculate our taxes.  As an American I don’t mind paying my fair share of taxes, even though I don’t live in the country, and even though America is practically the only supposedly-civilized society to tax non-resident citizens.

And as I wrote even more recently, I began the process in early March, trying to sort through this year’s paperwork.  For those keeping track, this year’s taxes look to weigh in at about 350 grams, or just over 3/4 of a pound. Here are some things we expatriates have to do:

  • Keep track of every day we spend in America for business.  This is the chunk of change the U.S. gets.  I think the idea is that someone shouldn’t live just across the border in Vancouver, for instance, and then commute to Washington.
  • Don’t just assume Turbotax will do the right thing with the standard deduction.  In fact, this isn’t just an expat thing: if you are subject to alternative minimum tax (AMT), the standard deduction is taxable, and so if you have some deductions it is sometimes better to itemize.  The change from last year is that more expatriates pay AMT this year due to America’s deflated currency.
  • Keep track of the largest sum in each foreign account for the year.  This is because the Department of Treasury wants to know if we’re laundering money (we aren’t).  This one is particularly important to manage because the government claims they can seize accounts for which information is not correctly reported.  It’s also not made easy for investment accounts, where portfolio values vary by the day.  This is a change from last year.
  • Allocate deductions between those that are related to foreign income, and those that are not.  The change from last year is that many could have used the standard deduction.
  • Properly calculate exchange rates for both income and taxes paid or accrued.  For those who have to do this, has a lovely web site for this purpose.  Perhaps the most annoying thing for expatriates is that many of the fields we fill in need to be converted to dollars.  What’s more, in Europe it is not uncommon to have multiple currency accounts, making everything just a bit trickier.  This is particularly true in Switzerland where some securities are only issued in euros.

And so, the average expatriate has to fill out the following forms:

  • 1040 (no 1040a or -EZ);
  • Schedules A, B, and possibly D.
  • Four copies of Form 1116 for Foreign tax credit (general, passive) both normal and AMT;
  • Two copies of Form 2555 for Foreign Income & Housing Exclusion;
  • Form 2441 for children;
  • Form 6251 for AMT;
  • Treasury Form TD-F 90-22.1 for foreign bank accounts;
  • a plethora of explanation statements for currency conversion and allocations.

If you own a home, there’s more paperwork.  If you have other income, such as royalty income of some sort, you have more paperwork.  If you have a disability, there’s more paperwork.  If you have a home office, there’s more paperwork.

This is all for federal taxes.  Nominally many states such as California would then like you to repeat the effort.  If you have any deferred compensation from when you lived in the U.S., such as stock options, you will end up having to file state returns just to reclaim excess withholding.  Some states want you to file for merely having attended a professional convention or conference (what some people call the basketball tax).

And so you might say, “Eliot, isn’t your time worth more than doing all of this paperwork?”  No. The cost of accountants who prepare expatriate tax returns runs into the thousands of dollars for us, and ours is a relatively simple return.  Often times employers will pay for these returns.  If so, it’s a good deal for the employee.

Also, all of this does not take into account the taxes we must file in Switzerland.  Here we do use an accountant.  While my German has improved somewhat, each country has their own rules on where to fill in what column.  I will say this about Zürich: they provide free copies of tax software to anyone who has to file.

Misadventures with taxes

I began my tax preparation this year with my mind on President Obama looking to tax the wealthiest Americans a bit more to pay for a reduction in taxes on the rest of us.  For expatriates, taxes are a sore subject.  American expatriates, unlike citizens of just about any other country, are required to file tax returns no matter where we live in the world, an we have to claim back foreign taxes, as either a credit or a deduction.  The notion behind all of this is that you can’t simply move off shore to avoid paying U.S. taxes.  Fair enough, except that of course you don’t get to avail yourself of nearly any of the services you are paying for.

The way this works is that we get a deduction for housing and a credit for tax paid.  In the end the idea is still that if you’re not working in the U.S., you shouldn’t have to really pay much. The deduction for housing was limited based on where you lived. This year, we in Europe are treated to an extra insult.  Because the American dollar did so poorly overall in 2008, we all expected that the Department of Treasury would adjust the housing limit accordingly – but they didn’t.  That amounts to about a 10% additional tax on us.  And of course there are penalties for not prepaying based on the currency fluctuation.

I might not mind so much, except that as an American citizen I still cannot buy mutual funds, just because I live outside the U.S.  There are many other services I don’t get, that perhaps I would enjoy.  Like courtesy at the American consulate in Zurich.

Taxation and Representation, Take 3

Bureau of Economics

Saving money is hard for lots of people.  It certainly is something that nowhere near enough Americans devote time or money to.  In other societies, saving is done mostly by the government or through fixed pensions.  In the case of Switzerland there is a three legged approach, where you, the government, and your employer all contribute to retirement.

In America, we have 401k plans, IRAs of various sorts, educational savings accounts, medical savings accounts, social security, and then private saving.  Many of the *SAs and things like 529 plans require speculation, and indicate a government that is hell bent on taking your money should you NOT get sick, or should you need less education than you planned.  Social security is a very small suppliment as compared to actual costs of living, and health care remains problematic.

If you’re like most people, you probably have a little money in mutual funds.  At some point, if you have children, you might even open for them a custodial account.  As it turns out, neither of these options are available to expatriates due to the way they are regulated.  That is- they are regulated by the states and if you don’t live in one, many brokerages will not know what regulatory framework to apply (and thus protect themselves with).  While this sounds like a negative situation, it can have some advantages: there exist professional fund managers whose primary purpose is to maintain a balanced portfolio for individuals, given a set of goals.  Mutual funds charge money.  These guys charge money.  So long as they know what they’re doing, you’re getting about the same service, only your portfolio is kept balanced and the stocks are at least somewhat vetted, which is something many people neglect over time.  And you don’t need to be an expatriate to take advantage of the service.  You just need to have some funds.

Most Americans place their primary savings into their houses.  This is advantagious from a tax perspective.  If you live outside the country, doing so (a) may not offer you those same advantages and (b) may tie you to a locale in which you do not wish to live (either the current international location or some place in America).  This in turn can keep people from setting down roots in a community, which itself is probably bad.