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US Taxation of MPF Funds - God Give Me Clarity!

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  1. #1

    Talking US Taxation of MPF Funds - God Give Me Clarity!

    Does anyone out there actually understand how to properly account for MPF funds on US taxation? Speaking with a variety of competent tax advisors, long-term expats, drunk people in bars, actual IRS staff, and attorneys, I've been told the following.

    1. Include your employee and employer contributions as taxable income, but don't worry about anything else until distribution.

    2. Mark to market your balances every year, claim the difference as taxable income regardless of whether gains are realised or not.

    3. List them as trusts, fill out the form stating as such, followed by a variety of advice on what to include as income.

    4. Ignore it all until you take the money out, in essence like a 401k plan in the USA.

    5. Claim realised gains (fund transfers, etc.) as income but only if the money is available to you.

    6. Always disclose your accounts on FBAR and Form 8938 if needed. Seems to be little debate on this item.

    For the most part #1 and #6 seem to be the standard, but certainly there is no definitive guidance from the IRS. I called them three times and received three different answers, likely because there is no formal notice on these but many notices which can be interpreted differently.

    So, curious what the expat community thinks. I even wrote a formal list of questions I'm trying to get answers on from tax advisors, have a look at it if you are bored or can't sleep.

    THANKS!!!

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  2. #2

    Join Date
    Aug 2020
    Posts
    549

    Not a tax expert but pretty sure there is no standard. I think it's one of these cases where if it's an issue, just have everything. documented and you should be fine. It's not like 3000 HKD x however many months is going to be a super large number.


  3. #3

    Join Date
    Feb 2012
    Posts
    419

    For my US taxes, I include my employer and employee MPF contributions as part of my total earned income, and I convert my income to USD using the IRS' currency conversion table for the relevant year (I don't bother trying to convert whenever I make a contribution.) For 2020, I just used the 1USD = 7.756, which you can see at https://www.irs.gov/individuals/inte...exchange-rates

    For FBAR FinCEN Report 114, I use the treasury's rates, and I do input my MPF accounts highest balances. This is annoying to calculate, but it's usually after my latest MPF contributions get into my MPF account in December, and I look up the fund prices (I just use two HSBC MPF funds these days). I didn't do anything when I changed my MPF investments because at least in my non-professional opinion I didn't take out the money and I can't actually get the money (until I permanently leave HK), so I shouldn't need to do anything (I'm hoping this is good enough for acting in good faith).

    I will do everything I can to avoid filing Form 8938. Except for MPF (HSBC) and TVC (BEA) all my liquid investments are with US brokerages (Schwab & M1 Finance), and I've also never for even a moment had 300,000+USD in liquid assets in my name. I've also never had 200,000+USD in liquid assets in my name at the end of any year. My one and only property (a flat in HK) that I live in doesn't count towards the Form 8938 applicable assets.

    You've asked lots of good questions, and I don't have answers that 100% will be IRS audit compliant. I'm always scared of the IRS and a potential audit, but I've generally tried my best, and I consider myself a small potato that just tries to do the right thing without paying tax professionals to do what I strongly believe should be free and fairly simple.

    When it comes to using tax professionals, it's important to remember their incentives. Some try to be as honest and helpful as possible, but some want to make things as complicated as possible to charge you more fees (just like investment professionals). Personally, I try to avoid tax professionals and/or lawyers, but my avoidance costs me peace of mind when it comes to the IRS. I've used TurboTax since I got to HK in 2012 (I used Taxes for Expats for my overly complicated 2014 US tax return), and so far I haven't been audited, and I hope my luck continues forever.

    I have no idea how to treat TVC accounts appropriately, but I did at least put my highest 2020 TVC account balance on the FBAR FinCEN Report 114. I converted my HKD balance to USD with the US Treasury 31 December 2020 rates at https://www.fiscal.treasury.gov/repo...istorical.html

    HSBC doesn't allow US citizens to open TVC accounts, but BEA let me. Maybe HSBC doesn't want to deal with US citizen's TVC paperwork (they let me have MPF accounts, but I haven't found a way out of MPF for my circumstances). Or HSBC thinks US citizens aren't allowed to have TVC accounts, but just like asking two tax professionals, or two people from the IRS, or two US citizens working in HK - there is a good chance you'll get two different answers, so maybe just HSBC's tax lawyers said TVC accounts are not allowed for US citizens, but other financial institutions either didn't consult tax professionals or their lawyers gave them the green light for US citizen's TVC accounts.

    Oh another thing I'd like to know how to do legally would be how to transfer my US investment assets to my wife (no US tax obligations of any kind) without paying any taxes or fees (less than 100USD). I don't want to sell any of my investments (I want to avoid taxable events), and I think Interactive Brokers HK would have all the ETFs I am currently invested in with M1 Finance (I just follow Paul Merriman's advice). Except for the 30% dividend issue, customer service, and ease of use, it'd be best to keep assets in my wife's name whenever possible. However, so far I've kept things mainly in my name as I try to build up my wealth (buy and long-term hold).

    Last edited by LoganH; 14-08-2021 at 09:44 AM.
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  4. #4

    Join Date
    Oct 2012
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    6,617
    I wonder if somebody can help me confirm I'm doing the right thing on my US taxes. Usually, I just put in my HK salary as wage, and then claim the same amount as a foreign income deduction, giving a grand total of $0 taxable income.

    Last year I opened a Schwab account and bought a few US-based ETFs. I have been handed the 1099-DIV and 1099-INT forms, which if I understand right, I need to report on my 1040 form. I've just put the various amounts in the standard boxes for "taxable interest / qualified dividends / ordinary dividends" (boxes 2b, 3a, 3b) in the 1040 form, so that now my total taxable income is non-zero (although tiny). Is this the right thing to do? Or should this income go under foreign income too? What is the rule, does it depend on whether the ETFs are domiciles in the US or abroad?

    Also, since I am reporting about $100 in dividend income, does it mean that I have to pay $10 to the IRS, since the lowest tax bracket is 10%? Or does the fact that I report wages (which are deducted to zero via foreign exclusion) put me in a different bracket?

    @LoganH I wonder if you have some insight, since you were the one to recommend the Charles Schwab account?

  5. #5

    Join Date
    Feb 2012
    Posts
    419
    Quote Originally Posted by Elegiaque:
    Last year I opened a Schwab account and bought a few US-based ETFs. I have been handed the 1099-DIV and 1099-INT forms, which if I understand right, I need to report on my 1040 form. I've just put the various amounts in the standard boxes for "taxable interest / qualified dividends / ordinary dividends" (boxes 2b, 3a, 3b) in the 1040 form, so that now my total taxable income is non-zero (although tiny). Is this the right thing to do? Or should this income go under foreign income too? What is the rule, does it depend on whether the ETFs are domiciles in the US or abroad?
    On Form 2555 you can exclude up to 108,700USD on your 2021 US taxes, but note that is earned income. Thus, passive income like dividends and interest aren't 'earned' income. I use TurboTax to import all the relevant forms from Schwab and other brokerages I use, and if you sold many times it would be annoying to do it manually. You can do it manually though.

    Dividends are interest do show up on your 1040 and can't be excluded from potential taxation using Form 2555, but with a standard deduction you still will pay 0USD in US taxes assuming you excluded all your earned income (you said you had) and you don't exceed the following standard deduction amounts for non-earned income. Standard Deductions for 2021: "$12,550 for single filers. $12,550 for married couples filing separately. $18,800 for heads of households. $25,100 for married couples filing jointly."

    I'm not an accountant or a US tax professional. I'm just a teacher that hates paying accountants and tax professionals, but I have paid for TurboTax (Amazon seemed have to have lowest prices for downloads and CDs). I hate paying for TurboTax as they've successfully lobbied to make US taxes more complicated.
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  6. #6

    Join Date
    Nov 2018
    Posts
    110

    Hi Logan, about the first 2 paragraphs- that is exactly my approach when I did filed my Taxes through Myexpattaxes.com. I also included my employer and employee MPF contributions as part of my total earned income, especially as the online CPA may not be familiar with the HK MPF system- It doesn't fit in a single category on the Online account system form, being HK Government mandated, but arranged through our Employer via a Third Party Private company. Whew. Yes, I also convert everything to USD, to standardize and also for greater ease for the CPA. I suppose time to get our finances, invoices and receipts all in order before 2024 for greater ease of filing for the 2023 tax year. And the beat goes on.

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