U.S. Expats Balk at Tax Law: American Citizen Renunciations Are Soaring
online.wsj.com
online.wsj.com
That aside, I am thinking inevitably I would renounce my citizenship given the opportunity to get a citizenship in Europe. I am no longer interested in associating with the political shithole my nation has become, and it looks like that will not change.
Reality tells me however, and from experience: a) whatever country I would establish in would turn to shit and I cannot shop for citizenship every time some country loses its mind (which happens frequently these days) and b) Americans are treated very well as expats in terms of low restrictions on visa requirements and barrier to entry (unless you are going to Iran and the like). Point A is minor, while Point B, having been married to an Arab national for only over a year, has proven that being anything other than American or one of the European countries of high standing is very uncomfortable for anything requiring travel, and often humiliating. That is why, sigh, she is clamoring for her US citizenship ASAP.
I cringe at the hassle my American friends have to go through whenever they travel through a densely-packaged country region such as Europe .. whereas we Australians seem to get treated pretty well.
As an American citizen who's been to over 60 countries and as someone who's currently traveling through Europe, I've been treated with nothing but warmth and welcoming attitude by immigration (and other) officials.
Never had a single issue anywhere.
We need people and it's awesome here, so come on over. It's even easier to travel on a NZ passport than the Australian one - we offend nobody. As a bonus we hang out in the top 3 places in the world for the World Bank's Doing Business survey and Transparency International's (least) corruption index.
(1) https://www.immigration.govt.nz/pointsindicator/ http://www.immigration.govt.nz/migrant/stream/work/workperm....
US tax laws are inconceivably, horribly bad for expats like me, even if you are just a working dude. The amount of paperwork and headache I undergo yearly just to stay within the law on taxes is ridiculous—that translates into direct costs to me, mainly for employing two accountants (one for each tax jurisdiction). They're constantly communicating about how best to structure things—not so I can save some money on the imaginary millions I don't have, but to simply not be a criminal.
It gets worse from year to year, as the US passes ever more complex tax laws. Some of them are a major financial burden (double taxation). Some of them are just expensive to comply with (accountant hours).
I'm not going to renounce my citizenship anytime soon, and I get that expats are probably a tiny group, but it's a major pain. Almost every other country on earth taxes based on location, not based on citizenship. Don't reside in Germany all year? Great—no taxes, and no state services for you.
It was a long time dream/plan of mine to try get sponsored and on to the green card system (because I think the US is a beautiful country - and I would love to live there for multiple years) until I discovered these taxation laws.
Over the threshold, you only pay taxes if you live in a country where taxes are less than the US, which is, to be honest, not that many countries.
It's (sort of) that simple for earned income. In another country you may throughout your life receive money from a wide range of sources (health benefits, health recovery, child benefits, pensions, scholarships, the list goes on...) - the US tax status on these is incredibly complex at best. The punishments for making a mistake can be severe.
Also the US has now imposed laws that require financial institutions to report to the IRS if you are a US citizen. I'm not in the financial industry so can't verify first hand, but all reports are that the paperwork and reporting burden is significant. So much so that many banks now have a "no US citizens" policy.
Produce them. Please.
It's not like money would be flowing from these people anyway - they were hiding assets, according to the article, and now that those assets have to be disclosed, they want to cut the ties. These weren't people who were already contributing their fair share.
Moreover, using statistics from when the program has just changed and pretending that a massive uptick in renunciations won't continue and will merely flatten out after a temporary bump is at best intellectually lazy and at worst dishonest and misleading.
I say, let them renounce.
I'm afraid to say your government is making you intensely unpopular, pretty much everywhere.
I find your comment supremely hilarious given that our current president lived as an expat in Indonesia for 4 years as a child.
Yup, it sure is atrocious that he did so without paying his taxes. As a child.
Under $90K and you pay taxes on your income in another country, and you didn't earn any of it in the states, you can exempt it entirely. Over $90K, you can take the foreign earned income tax exemption AND then deduct your foreign taxes from the rest using a complicated formula. This year I did all my taxes the long way (deducted my Chinese taxes) as I didn't fit the domicile requirement, but the result was the same.
If you live in a high tax country, you usually do not owe to the states; that wouldn't be fair right?
Trust me, unless you're very well connected, you're not getting any benefits of US citizenship when you live overseas.
I met a triple Dutch/UK/American citizen. Sounded English, self-identified as Dutch, but always travelled on her US passport (she was a world traveller, big time). Why? Because the US actually does things to support its citizens when they travel in foreign lands, whereas everyone else just gets "well, you were stupid, weren't you". She was quite clear on the point that Americans get more assistance than others do, and she wasn't well-connected in the US (being early-mid 20s European)
Maybe American support is better, depending on the region, do citizens get evacuated to US military bases in case of emergency? (Tsunami, etc?)
If you're in trouble abroad, don't hold your breath.
Hell, you can't even walk into embassies any longer for citizen services, you have to make an appointment for all citizen services and even then, they still make you wait for half an hour in an empty waiting room with bullet proof glass before they get around to seeing you.
That's not exactly the best way to ask for help. You are asking them, not the other way around.
"who appealed to my patriotic duty"
She appealed to you?? Shouldn't it be the other way around?
I suspect your experience is not shared by most people, and has more to do with you than with the US embassy.
Here are some examples of just how great the US assistance was when evacuating citizens from Libya back in 2011:
http://www.npr.org/blogs/thetwo-way/2011/02/24/134034173/u-s... http://thecable.foreignpolicy.com/posts/2011/02/23/us_citize...
For what it's worth, what does it cost the United States if a citizen lives abroad? A citizen still has to have paid into the Social Security system to qualify for benefits and employment abroad doesn't count. Do you object to the U.S. being "obligated" to rescue a citizen in the event of unrest in the country where he or she went? If so, at what point is that right given up? What about a tourist who is overseas for a week or a month?
Getting rid of the citizenship is then best done around the age of eighteen, but chances are no one will tell you how much of a pain in the ass all of this is, and likely you won't even be aware of the tax potential tax burden and paperwork. Alternative is to pretend like nothing and hope you never get caught.
When you finally get around to renouncing the whole thing becomes a never ending process of getting all the IRS papers and possibly back taxes in if you earn enough, getting a SSN as you can't file taxes without it, actually renouncing, and likely getting the SSN after you renounced as the whole thing takes bloody ages, and then finally figuring out exit taxes and if you are actually exempt from paying them. The exit taxes of course have two loop wholes, one of which is you were born a dual citizen _and_ still pay taxes to the other country, which means you are screwed if you are working abroad. While the other test checks net-worth, average income over the last five years and a few other things. Oh, and for the exit tax the states assumes you have sold all you assets and will tax you on the capital gains of those fictive sales...
Whole system is a mess, there is no way in hell expats can fix it as their votes don't in essence don't count and it's "free" money for the state. The level at which taxes kick in for expats of course stopped being adjusted long ago as the state realized that if they stop increasing the min. amount they get more money. Though it is still being moved slightly up, it's long since stopped targeting the truly wealthy and is now hurting more and more regular people (especially if you live in a high cost country with high wages that has crept above the threshold).
Throwing money and/or time out the window is no fun, so I have no problem understanding why people want to get rid of their citizenship if they can without becoming stateless.
As an Australian I have no advantage on the education front over any other foreign student. I at least have a leg up in the E-3 visa.
Dual citizenship can smooth the edges too, depending on the 2nd citizenship. Lots of countries have reciprocal tax treaties with the US that will excuse American citizens earning in the foreign country from paying American income tax, because they are paying local taxes. And vice versa.
edit: And yes, if the citizenship is a good or bad thing is of course highly dependent on your other citizenship, your plans to study/work/live in the US, the country you intend to live in instead of the US and a number of other factors.
Yeah, I think most Europeans definitely would _not_ want that.
As the author of the words I feel a certain ... authority ... on this.
But I wouldn't renounce my citizenship over this, that would just be stupid.
Mine took five minutes to fill out. Four minutes to find the postal address for my bank branch, one to flip through my bank statements to find the peak balance and covert it to USD.
It may get slightly more complicated if you control an account in the Cayman Islands with $30 million which you might have forgotten to file on your taxes for the last 30 years.
Sadly, it's not that simple!
Suppose you in the year 2013 have 200k units of Foreign Currency X (FCX) in your non-US savings account, and the money has never had anything to do with the US (it's all been earned and saved abroad, where you live and work). Let's say the conversion rate in 2013 is 2 FCX to 1 USD. OK, so you report 100k USD on your FBAR. Let's say 2013 is a bad year for you, so you haven't been able to put anything in your savings account - in 2014 it still stands at 200k FCX. But lo and behold, the value of the USD has fallen against the FCX, so the dollar equivalent in your account has now in 2014 become 150k USD. This means [1] that you have to put 150k USD on your FBAR and that the difference of 50k USD is taxable as capital gains. This is utterly, entirely, completely insane! It's nothing short of international robbery. (I repeat: I'm not talking about money earned in or brought into or out of the US here - I would understand if it were taxed. This money has never had anything to do with the US, and has never been converted from one currency to another, except on the FBAR form.)
This cannot be OK. Not at all. I understand that the laws were made for catching US money hid away overseas. That goal makes perfect sense. But the way it works now is just insane.
Second, the US does not tax unrealized capital gains. In the situation you have just described, you have not realized any capital gains and have no taxable income, even if you believe that receiving currency in year N and disbursing of it in year N+X counts as capital gains if the currency has appreciated against the dollar. This interpretation is contrary to what the IRS will tell you is the law.
Should you want to actually use the money, you should say that "My cost basis in the 200k Euros is 200k Euros. I liquidated them at their fair market value, of 200k Euros. This gives me a capital gain of 0 Euros, which when I put it on forms I will convert into dollars, for capital gains of $0." There are more complicated things you'll want to do if you operate a currency exchange business, but that isn't relevant to you.
If you disagree that this is the correct interpretation of US tax law, you can do what I did and phone the IRS. They'll explain it to you.
If you doubt this is correct, use some of the 200k Euros to have a brief chat with a tax accountant. I know this sounds new and scary for you. It was new and scary for me, too, eight years ago. It's a lot easier than you think it is.
For a US citizen, the functional currency for personal taxation is ALWAYS the US dollar. See particularly points 12 and 13 of http://openjurist.org/93/f3d/26/quijano-v-united-states
Basis must always be converted to US dollars using the exchange rate at the time of purchase, and sale price likewise converted to US dollars using the exchange rate at the time of sale. The US capital gain is then the difference between these two US dollar values.
This can easily (and frequently does) lead to having to pay a capital gain on a transaction that lost money in the currency in which it actually took place. Particularly the last decade was bad for this with the falling US dollar.
Many expats (if they are aware of their obligation to worldwide taxation which most are not) may calculate this incorrectly. This will often be ignored by the IRS, because they have no matching information to use to flag the foreign transaction for audit. However, with FATCA coming, the IRS will finally get some matching information and it is a strong possibility for nasty surprises in the future.
Anecdotally this is happening, ex. Eduardo Saverin. ( source: http://www.forbes.com/sites/briansolomon/2012/05/11/eduardo-... )
So it's not the 0.1%, it's the 0.00001%, and they've all been jumping the country for the last few years. Uruguay now has several valleys full of "ranches" (shacks), which said exiles own and visit once in a while in order to retain their domiciled status.
https://twitter.com/Amazing_Maps/status/366328072066187264/p...
Some of us are US citizens born abroad. We are the children of one or two US parents, born outside the US. We have lived our entire lives as citizens of another country, and our ties to the US may be as slim as having been there on vacation a couple of times. We are still subject to all of this. And while it is true that most (all?) won't be double-taxed, the reporting requirements are so complex and so strict - and made all the more complicated by incompatibilities of the tax codes of our native countries and that of the US - that it's almost impossible not to make a mistake. And mistakes are punished severely - at least in theory. Even trying to evaluate whether university scholarships in my country is taxable by the US (an obscene idea on the face of it) seems to take a lawyer or accountant. Where does it end? What about child benefits? Pensions?
Yes, we could renounce our US citizenships when we turned 18. In my case, however, I was not told I was a US citizen. It's now more than a decade on, and I've never filed with the IRS because my US parent did not tell me I was a citizen until recently. What on Earth do I do? So far, I've frozen in place and not dared do anything. I am not a US person in any common sense of the word, but I feel entirely trapped by that foreign country. The benefits of a US citizenship that have come up in this thread have an entirely opposite sign for me: I'm a researcher, and would love to spend significant time at US institutions, but now I can't - I can't stay beyond a tourist visa as a foreigner because as far as the US is concerned I'm not a foreigner. And I can't travel on a US passport because I don't know what will happen to me if I get one and do. And I can't fix things with the IRS (which I'd love to do), because I have no idea how many laws I've accidentally and unknowingly broken. I'm sorry that I have, and I wish I hadn't, but how could I possibly have known? You might say that my parent should have told me - and I agree - but that didn't happen. While ignorance of the law is no excuse normally, I certainly am not going to do anything that places me in danger (financially or otherwise) from a foreign nation - so here I am, frozen in limbo. As for any social service the US might provide, I can tell you that every one of these is provided better and more generously by my liberal European homeland. I don't want anything from the US - I only want to either be let go and leave the club, or be treated fairly. Either one is fine by me, but the current situation is not.
Incidentally, any pointers from HN would be much appreciated. I know my status quo of "do nothing, sit still" won't be good in the long run, but I also have no damn idea on how to approach the matter.
Let me summarize again: I've never earned a dollar in the US. I've never received a dollar from any US entity, save the odd birthday present from relatives as a kid. I've never been to the US for more than a couple of weeks at a time - and only as a tourist. I've never voted in the US. I've never brought money into or out of the US - except ordinary tourist amounts. I pay (comparatively) high taxes where I live - in my country, my home, which is not the US. I never knew I was a US citizen. Now all of these benefits that people bring up apply to me with a negative sign. I'd gladly give up my US citizenship - but you can't unless you've proven that you're good with the IRS going back 5 years, and that you're not renouncing for tax reasons. As for that latter part - some might say I am... I am, afterall, trying to avoid being haunted by a foreign nation's tax collecting agency for the rest of my life. Is that renouncing for tax reasons? God knows...
(Sorry for the rant - this has just constanly occupied 10% of my head for a while, and it's not like there's a lot of people nearby in the same situation to talk to... any pointers from you guys would be great).
[1] https://en.wikipedia.org/wiki/International_taxation#Citizen...
To be able to actually file the taxes you need a SSN. You can get this by going to a consulate or embassy, bringing the proper original documentation (get in touch with them for the details). They will make certified copies, mail those up the chain until it gets to the state department and 3-6 months later you will have your SSN.
For actually doing the taxes one option is to pay someone to do it. You still end up doing a lot of prep-work yourself, so you are basically paying to some peace at mind that they've signed of on things being correct.
If you go for a renunciation, the date you renounce is the date your tax obligation ends, this has recently changed and not all tax accounts, even the ones that specialize in expats seem to know this. This means you might end up with renouncing before you have a SSN, and thus your taxes in order, so look into the laws and/or ask an expert before deciding how to handle this.
Last bit is figuring out exit taxes, there the tax accountants seem to be useless as it makes no sense for them to specialize in one time customers. But it seems they will happily charge you for looking over and sanity checking the form once you fill it out.
You can also forget calling the IRS and getting any help about renunciations, they consider such matters "advanced" and will only tell you to get a lawyer and/or tax accountant.
http://web.archive.org/web/20130626160026/http://www.renunci... used to have a very comprehensive coverage of the renunciation process, but seems to have disappeared :(
As for how to proceed, and what makes sense to do is a highly personal matter and depends on so many things. The act of renunciation is irrevocable, and should not be taken lightly. I wish you the best of luck as having this type of stuff looming over you is really draining.
2) You're going to want to file back taxes with the IRS. Include a letter explaining your situation briefly (didn't know I was an American until quite recently, received passport as of $MONTH_AGO, and am making a good-faith effort to bring my tax situation into compliance with the law) and file for the last six years. Pick a different number if your accountant tells you different.
Despite the IRS' reputation, they do have actual human beings working there, and they do make compassionate decisions. And guess what? Squeezing you for your US tax liabilities, which are quite likely to be zero, won't make anyone's quota.
3) Here's what you're going to do for each year you filed: take a copy of your $NATION taxes. Find the gross earned income number. Convert to USD using the yearly average exchange rate, which you can find published on http://www.irs.gov/Individuals/International-Taxpayers/Yearl...
You put that number in the income line of your Form 1040. You will then file a Form 2555, Foreign Earned Income Exclusion. You can probably get away with the 2555-EZ, which is the quick-entry version. Check the box for Physical Presence Test, since you spent 330+ days out of the year physically outside of the US and can trivially prove this. (You're also a slam dunk for Bona Fide Residence but FPT is easier on both the IRS and you.)
You will copy the number from your 1040 which you reported for income, deduct it using Form 2555, and report (unless you're making over $85k a year, which I think is unlikely in Europe as a researcher unless I miss my guess) 0 taxable income and, as a consequence, 0 taxes.
You then mail this off to the IRS.
If you hear back from the IRS, it will likely be to request additional documentation. If it isn't screamingly obvious what documentation they want, talk to your accountant. But, again, this will occupy a low-level staffer's time for about twenty minutes as they punch your information into the computer and then promptly forget about you.
Rumor has it (I can't find the source again) that US embassies now report every passport application to the IRS.
> Pick a different number if your accountant tells you different.
My accountant? This is an example of the glaring "incompatibilities" between the US tax system and that of other countries. In my country nobody has an accountant unless they're a millionaire or owns a business. It's insanely expensive to have one. Using an accountant every year is not a solution. But I appreciate your input :-)
> 3) Here's what you're going to do for each year you filed: take a copy of your $NATION taxes. Find the gross earned income number. Convert to USD using the yearly average exchange rate, which you can find published on
Yes, but there's still the vast minefield that is non-earned-income money. This is a substantial amount in many European social democracies.
> (unless you're making over $85k a year, which I think is unlikely in Europe as a researcher unless I miss my guess)
Not at all. It's true in my case, but in the private sector $85k for a researcher would be considered low in my country. Again, it's an absolutely impossible situation to work from a fixed dollar amount that has no connection to the cost of living in a given country. Some European (an other) countries have an insanely higher cost of living than the US.
Your reading of the situation is pretty close to my first impression - "rather reasonable - just a lot of paperwork". But it's a vast minefield as soon as you start reading the fine print. I do really appreciate your input, though :-)
If you tell me what particular public benefit you're talking about and what country it is from, I can find you an authoritative citation for this, but I am almost certain that the type of benefit you are thinking of is not income for the purposes of US tax law.
Publication 525, "Do not include in your income payments made from a public welfare fund on the basis of need [except] if they are compensation for services or obtained fraudulently."
You are not allowed to exclude passive income on form(s) 2555. It is foreign earned-income, not foreign-earned income.
Although foreign retirement benefits are also taxable to the US for many countries.
This is 2013, so you can consult US-based accountants over the phone. The initial discussion will likely take an hour or so and cost at most a couple hundred dollars. Ask about the fee in advance. There is a chance that a friendly accountant will explain the steps for you for cheap, as part of the sales process for future business.
Who said anything about "every year"? Consult an accountant once, to learn the score. Then decide whether or not you want to consult one again.
That you are apparently culturally conditioned to believe that accountants are ultra-rare tools of the super-elite explains a lot about why you sound so nervous. Accountants are a routine in the USA. Mine costs a few hundred bucks a year, easily pays for his own services in taxes-saved, and much more importantly provides a lot of peace of mind. I often have to guess what laws and forms and fine print might apply to me, but accountants know, as part of their job.
In all seriousness, if you don't at least support the American gov't with your wallet or with your life (military service), you aren't really American. Why should you always have the option to go back to the US?
Supporting the US government is not a prerequisite of citizenship. Not at all.
If you are a citizen then you can hold a Hong Kong passport. The majority of the population is either Cantonese or Han Chinese in ethnicity (Han Chinese being the largest ethnic group in Mainland China).
Hong Kong has a pretty liberal immigration policy. After 7 years continuous residence you are eligible for Permanent Resident status. Gaining temporary residence is pretty much as easy as landing a job there.
(I'm an Australian who has been living in Hong Kong for the past few years.)
On a side note Cantonese people are as Han as Northwsterners. It's a strong regional identity and it could have supported a nationalism, like Ukrainian did in the Russian/Soviet context but the time is gone.