Ep 62: Mind The Gaps - 5 Top Cross-Border Pitfalls To Avoid!
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We discuss the top five blind spots that foreign nationals often encounter in their cross-border finances.
We cover misunderstandings of your individual financial situation, the risks of false economies, the need to report foreign assets, and more.
We also touch on cultural adjustment and the importance of being prepared for potential changes in residency/immigration status.
Takeaways
Don't assume your financial situation is the same as others
False economy - Pay for professional services
Your cultural background significantly influences financial decisions.
Comparing financial systems between countries is just bad
Foreign assets must be reported to avoid severe penalties.
Estate planning is essential, regardless of wealth.
Understanding U.S. tax obligations is crucial for foreign nationals
Preparation for potential changes in residency is vital. A comprehensive checklist can help plan for cross-border transitions.
Chapters
00:00 Identifying Blind Spots in Cross-Border Finances
03:00 Understanding False Economies in Financial Decisions
05:51 Cultural Adjustments and Financial Planning
09:05 The Importance of Reporting Foreign Assets
11:55 Estate Planning Essentials for Foreign Nationals
15:11 Preparing for Potential Changes in Residency (immigration status)
Episode Links and Resources
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Jane Mepham, CFP (00:03.422)
What are the top five blind spots we see when it comes to your cross-border finances?
Working with foreign nationals on work visas and other foreign-born individuals, we see a lot of misses. Let's call them that. What we're calling blind spots. And so in today's episode, we're going to talk about the top five blind spots that we see when it comes to your cross-border finances and taxes.
Manasa Nadig, EA (00:33.282)
Yes, all is not lost though, dear listener. Many of you are indeed getting the things right, but the ones that you're missing can have a significant impact on your finances. But before we go on to the rest of the episode, let me just pause for a moment and ask you to please leave us a five-star review on Spotify or Apple.
And you know what that does? It helps others looking for this information find us thanks to the five-star reviews you give us. And also, if you're on YouTube, you will see that Jane is actually wearing the International Money Cafe t-shirt. It's a cute T-shirt we designed, and we would love for you to go to YouTube, take a look, and let us know how you like it. Right, Jane? Now, yeah, now get back.
Jane Mepham, CFP (01:31.072)
Okay, Manasa, didn't want to talk about my fashion sense, but hey, what does it matter? Love the t-shirt. So anyway, let's get back to... thank you. I appreciate that. So let's get back to the blind spots. And by the way, we see a lot and we really, really sympathize with your situation because we've seen it all.
Assuming Your Situation Is The Same As Your Neighbor (U.S. Citizen)
Jane Mepham, CFP (02:00.054)
We've experienced it, which is the reason why we do what we do. So the number one blind spot that I see is assuming your situation is exactly the same as somebody else working in a similar position. This happens a lot, where Manasa and I have done this in the past.
I'm in this cube; my next-door neighbor is doing exactly the same thing I do, probably making about the same kind of money.
But the difference is that in my case, as a foreign-born national, I ignore my immigration status. I ignore my cultural background, which, as we know, informs your life and financial decisions. Ignore my non-US future plans because not everyone is planning on retiring here.
And so if you put all that together and start comparing yourself with, let's say, U.S.-born individuals, you end up feeling like you're way behind, but you're not. It's just that we need to look at your situation through different lenses. And if we do that, it does make it a little bit easier to sort of stay in your lane and actually get things working.
False Economy – Not Paying For Professional Services
Manasa Nadig, EA (03:16.524)
Right, right. In fact, that kind of helps me jump to the second-biggest blind spot people miss, which is our sense of false economy, you know? And let me explain what I mean by that. This is when you don't pay for professional services because you think that you're saving a lot of money by doing that.
That is...maybe not the best thing to do. And especially when you are looking for professional services for tax filing, when you have assets overseas. Now, there are many over-the-counter tax software programs, you know, which people use and which may be okay for most people. But if you have overseas and foreign assets, you know, bank accounts and other trusts, and maybe you have, you know, shares in foreign corporations, you will have to report those to the IRS, and maybe these over-the-counter tax software programs are not equipped to handle that.
And not only that, you may then go to the second pet peeve that I have is you may go to AI to look for answers. And don't get me wrong, I like AI, but...You know what, we are not there yet, so you may be getting information from these sources, which are unique to your situation. And maybe you're missing out on other opportunities where you don't know the consequences of doing or not doing something. That's also a sense of false economy. And then also, you know, immigration questions, really.
These are not something that you want to ask your friend, ask AI, know, go on the internet, and search for things. Yes, you can do that to get a sense of where you're at. But for exact answers to your specific situations, you need to talk to an immigration attorney and other
finance and tax professionals who know this cross-border space. So that's my pet peeve. Also false economy, Jane.
Jane Mepham, CFP (05:44.822)
Yeah, and the way I like to think about it is the cost of doing business. We've come a long way. We've spent thousands and thousands of dollars to live in this country. If it means paying somebody a couple of thousand dollars to get the exact advice, to me, it's absolutely worth it. And it's something I put in my budget. Anyway, the next blind spot that we see, and I see this one a lot.
Comparing Everything To Back Home
Jane Mepham, CFP (06:14.454)
When people arrive in the country and they are new. And part of it is, I know you're dealing with a lot of other issues. You're trying to settle down. You're trying to learn the system. But I think the worst thing you can do, and I get it, is where you start comparing everything to back home. And yes, I get it. That's the only lens that you have to look at things. And you can do that, but please.
Don't assume, for example, that something like as critical as financial planning, the way it's practiced in the U.S. is the same way it's practiced in your home country.
For some of those really big decisions, taxation, finances, immigration, please, please, please don't look at it. Don't compare it with what happens back home. Know you're in a new system.
And the only way you're going to succeed is to immerse yourself in this system. It's okay to talk to folks, but find the right ones. But again, keep thinking it's not business as usual. And if you don't know what you need to do, it's okay. We've all been in that situation. It can be done.
Just don't keep comparing to what happens back home. And one more on this, I think after a while, people stopped doing it. This is kind of a fun one, actually, where you compare the cost of things back home. It's like, oh, I used to buy that for $5. I do the conversion here and
it's like, oh, I'm going to have to spend $100 on this one item. It's okay, we're in a new system. And the best thing you can do is say that was a different system. I'm lucky to be in a new system. So let me start adjusting and learn how things work in this country. Manasa, does that make sense?
Reconciling The Exchange Rate
Manasa Nadig, EA (08:06.446)
Yeah, totally. Oh, you know what? Actually, I think that it's a very hard one to overcome, especially when if you are from a country where the exchange rate is very, very different. Like, for example, if you are from India, which is where I'm from, and I came a long time ago, but I still remember that even then, it was like,
Manasa Nadig, EA (08:34.734)
30 rupees to a dollar or something. So every time I spent a dollar, I used to feel like I'm spending 30 rupees on something, which it's something that it takes time to overcome, I suppose, but it's a good habit, like Jane said, to not do it anymore. yeah, but working off of what I said earlier about false economy, the next blind spot, the fourth blind spot that I want to talk about today is
Ignoring Your Overseas Assets
Manasa Nadig, EA (09:05.514)
Ignoring your assets overseas. I mean, this is something that I just can't tell you how many people miss this stuff. In fact, we work with many people when we even ask them about their foreign assets. Even to this day, they are like, but why do I have to report them?
You know, but they because they are over there.
No, the IRS's rules are that if you have foreign assets, and those could be, you know, your bank accounts, your fixed deposits, your rental properties, your mutual funds, and your holdings in foreign corporations or foreign partnerships, all of those get reported on your U.S. tax return.
And you just cannot afford to ignore those because guess what? Failure to comply with those requirements just lead to just horrible penalties. It's like if you got a gift of $100,000 from a parent who's not a U.S. citizen or an uncle, whatever, and if you're misreporting it, the penalty is 25 % of that.
That's just nuts because all it really takes is for you to file one form.
So ignoring assets overseas is a huge blind spot. And I mean, it kind of also then goes back to what I was saying earlier about working with professionals and that kind of is sort of tied together.
So, ignoring assets overseas, where you have to file your FBARs, your FATCA reporting is bad.
And of course, prefix if you have foreign mutual funds and things like that. So make sure you're filing everything so that the clock on the statute of limitations is running for that information and you're not subject to high penalties. mean, I don't know. I could go on and on all day about this, but I guess I have to stop your chain. Yeah.
U.S. Taxes You On Worldwide Income
Jane Mepham, CFP (11:26.498)
Right. So the key thing to your point is I like to keep saying this, US taxes you on worldwide income. That's it. And I think as soon as people understand that, then you understand why Manasa wants you to report everything. So full transparency is really what's being called for here.
Ignoring Estate Planning
Okay. Number five. So The biggest number five blind spot that I see is ignoring estate planning. What I find, anytime I ask people about this, they go to, I don't have millions of dollars, so I don't need estate planning. And I have to explain to them, yes, you do. You don't need a million dollars to plan your for, for your life.
And so what I explain to people is when it comes to estate planning, it all comes down to think if something happens to you, if you're incapacitated, who's going to make those critical life medical decisions for you? Who's going to make those financial decisions for you?
And the minute I start talking about that, you can kind of see the light go off. It's like, you're right. I don't need millions of dollars. To have somebody be able to make some of those critical decisions for you. And then once we get past what I call the basic state planning, of course, if you have kids, you don't need millions of dollars to plan who will be the guardians of those kids.
And the way I explain this is there's already a plan for you in place made by the government or the state, and you're probably not going to like that plan.
So to get around that, let's put a plan for you in place where you're the one that's making these critical decisions. If something happens to you, you have to leave the country in a rush or you're in some problem. Who's going to take care of your kids? Who's the kids' guardian? So that's critical. And then when you think about, and this is the other thing I'll say to people, your family makeup, right?
If let's say you're in a situation where you have a mixed marriages and in our situation when we say a mixed marriage we're talking about different citizenships right different rules apply think about your immigration status who can be your trustee who can be your beneficiary so do not ignore estate planning the minute you get into the country there's some critical decisions that you need to make
Estate Taxes And The 60k Exemption For Non-Residents
Jane Mepham, CFP (14:18.25)
And critical things that you need to have in place. And again, this is one that I see a lot of people ignoring, but once we fix that or once you understand that, you'll be in a much better situation. The other bit that I want to talk about as far as ignoring the estate planning, and we've been seeing a lot of questions on this, is where we talk about estate taxes.
And again, folks will say, oh, it doesn't matter, Jane. I don't have what 15, 16 million, but I'm like, if you're a non-resident alien, I hate to use that word, but that's what IRS says. And you end up having to leave the country and you have what we call U.S. Situs assets. This number could easily come down to 60,000.
And so it's critical that you talk to somebody who understands cross-border planning, who can help you not only understand this but also put in place the critical aspects you need based on your situation. I think we have another episode on estate planning so we can always come back to this later. Yeah.
Ignoring Your Residency (Immigration) Status
Manasa Nadig, EA (15:26.936)
Yeah, absolutely. no, that was really something that we need to think about because you know what? It's all good when it's good, but then it starts not to be good, you know? And speaking of that, there is a bonus blind spot, which, you know, if you are on a work visa, you want to hope that things go as planned, but if it doesn't,
then you have to make sure that you have, you're prepared rather to leave the US and put into place everything that needs to be done at that point. So, you know, remember that is also a blind spot. Anything else? Yeah.
Jane Mepham, CFP (16:22.358)
And actually, Manasa, let me say this on this last one, and actually, you're right that you're of sneaking this as a bonus. Because of what's happening today in the country, we're seeing a lot of people actually saying, I don't think I'm going to be here a long time, even though I plan to. So we've gotten a lot of calls on this.
So what we've done, we've actually put together a checklist. It's a 52-page checklist.
Manasa Nadig, EA (16:33.336)
Yes.
Jane Mepham, CFP (16:50.048)
That walks you through if you're planning to leave the US at some point on a work visa, here are all the critical steps, here are all the things you need to plan for, and you can sort of go down the checklist saying, okay, I've planned for these, I've planned for my accounts, I've planned for my, I don't know, for my money, I've planned for my taxes, I've planned for my house, you know, my real estate.
Jane Mepham, CFP (17:19.58)
If you're on a work visa and want to prepare for the possibility of leaving the US, you might want to grab this checklist. It's going to be on the IM Cafe under store. Go grab that
checklist and you can start using it to prep for this kind of situation. If it ever arises, better be prepared is what I'm going to say. And so you can go ahead and finish. I just wanted to put that in. Yeah.
Manasa Nadig, EA (17:44.271)
No, no, no. Think that that was, yeah, I think that that's great that you brought that up because you know what? We spent a lot of time putting that checklist together and it's based off all our experience working with many different foreign-born individuals on many different work visas that eventually, you know, at some point in time, if they decide that they don't want to stay in the U.S. anymore and want to go back,
Jane Mepham, CFP (17:50.987)
Okay.
Manasa Nadig, EA (18:14.228)
I have to tell you, even if we say this ourselves, that checklist is a good one. It's 52 pages, dear listener, and it just kind of walks you through a timeline of what you need to do and how to plan for things and what to do even after you've moved out. So, it's a great checklist. So I think, Jane, that I am going to actually conclude with that, you know?
Go to our website, theimcafe.com, T-H-E-I-M-C-A-F-E.com, and go to our store, and you will see this awesome checklist that you can grab. You know, we actually have a good deal going on right now because we are still celebrating 50 episodes. So it's 50 % off. So please look at it.
Let us know what you think of it if you did happen to grab it. We would love to get a testimonial from you. And thank you for listening. Until next time, bye.
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The speakers' views and opinions discussed in this episode should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.