Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

A family friend ran into this. She lived in Canada nearly all her working life and only heard about having to file paperwork with the US when it was being announced there was going to be a crackdown due to the recession.

Fortunately between her and her husband they had enough money to get a good lawyer and get it sorted out before they tried to nail her for all the tax she owed.

I think the biggest issue with the "tax by citizenship" is that it turns US citizenship into a commodity to be traded for personal benefit.

It's noble to try to chase the tax dodgers, but it's a lot more practical to tax the people who stay and ensure anybody who wants to flee is going to be losing sizeable amounts of their property.

Canada has investment rules based on nationality/citizenship and the owners of those shares can't just elope and expect to keep their controlling interests. In fact most of the big companies that face these rules have their foreign investments near maximum, so that anyone fleeing would be forced to sell all their stake and selling a big stake of any company means selling at a sizeable loss.

How do you see hell-banned posts?

canada?

switzerland?

Any EU citizenship is more useful and less dangerous and more lucrative and more flexible and subjects you to less world-wide paperwork, tax, and business restrictions.

So Estonia, Poland, Romania, Bulgaria, Slovenia (or is it Slovakia?), Lithuania, Latvia, Slovakia (or Slovenia?), and Greece have more valuable passports for their citizens.

If you travel a lot in East Asia, Japan's passport is awfully useful and has much nicer perks than US citizenship.

Obviously, France, Britain, Canada, Germany, Italy, Sweden, and other core wealthy nations have much, much better deals for citizens, too.

The US passport and citizenship is more and more like a third world quality passport every year, with one major exception. That exception, of course, is the right to live in the USA, which is a dang nice country with excellent open country, parks, forests, space to breathe free, big highways, fishing, hunting, the right to keep and bear arms, and fine honest people.

But if you don't love this land, you're better off with Latverian or Hungarian or Freedonian citizenship, because our politicians have done squat to keep our citizenship valuable around the world.

The first world ones are all pretty much equivalent in terms of getting you around, one or two countries difference with no Visa among the top, not sure where the discrepancies are...

http://www.ibtimes.com/best-passports-have-unrestricted-trav...

US citizenship means you have tax liability on income overseas and dealing with a few weird things like the Cuba embargo, but you're also a citizen of the most powerful nation on earth, which does matter if you get stuck in a revolution or something.

After you give up citizenship you file a tax return for that year.

After that you only file income tax returns if you have income from US sources or you become a US resident.

The 10 year rule was repealed in 2008.

I believe that's Singapore. Albeit, the rules are being changed due to rapid influx of rich foreigners into Singapore causing social issues. https://sg.news.yahoo.com/ferrari-crash-fuels-singapore-anti...

You have to solve two problems -- your place of citizenship and your place of residence. Dominica and St. Kitts are the two places most people look to buy citizenship. There are other more expensive places too.

Residence - this is easier to arrange. If the country will give you a tourist visa you're in, at least temporarily.

If you have lots of money, you can buy citizenship and a sweet tax deal from one of Switzerland's municipalities/cantons.

Two separate issues there :)

The news cycle for this topic is quarterly since the government releases statistics on that time cycle. That's why you see the topic written about fairly frequently.

I talk to journalists all the time. I try to be helpful in some times they thank me by putting a quote in the article. Sometimes not.

US citizens overseas are required to declare all income (and capital gains) to the IRS regardless of source. They still have to file returns in the US. Bob will owe tax as a result, but he can probably write off the 4% he payed in PR against his US taxes. He's not a resident of California, so he likely avoids the state tax.

(Note: I don't know specifically about Puerto Rico, but generally the above is the case for US citizens in foreign countries.)

In this case Bob would pay IRS 20% tax for the price appreciation happened when he lived in CA. The 4% tax applies only to the price gain during his stay in Puerto rico.

Yes, the flaw in the above scenario is that for capital gains that have a cost basis that began prior to becoming resident in Puerto Rico ("built in gains"), you will owe taxes at both the US federal and Puerto Rican levels.

3 scenarios:

If the business was started and sold prior to becoming a Puerto Rican resident, then taxes would be owed at US federal and state levels like normal.

If the business was started while resident on US mainland and then you moved and became resident in Puerto Rico (the OP's scenario), it gets a lot more complicated. Just considering capital gains from a sale of the business to keep it easier, you will owe taxes to both the US and Puerto Rico. These are called "built in" capital gains. You can look up details on this, but taxes are owed to the US and to Puerto Rico at rates that change over time depending on how many years you are resident in Puerto Rico before selling the business. This is the most complicated scenario.

If you start a qualifying Puerto Rican business after becoming resident in Puerto Rico and after having been accepted into Act 22, then you would start with a zero cost basis. This is the best case scenario. When you sell this business, you could owe 0% capital gains. However, during the lifetime of this business, you will still pay FICA taxes (15.3%) on earned income to the US Federal government up to the regular cut off levels, personal Puerto Rican earned income taxes on a portion of your income, and 4% corporate tax on business income. This is the easiest scenario since it starts with a zero cost basis.

Btw, IANAL.

TLDR 1.) Started & sold business in Cali, no capital gains tax benefit. 2.) Started business in Cali and sold after becoming resident in PR, crazy complicated, but taxes do apply at both federal and puerto rican level. 3.) Built and sold business in PR after acceptance into Act 22, and after becoming resident in PR, 0% capital gains tax, but other taxes apply during the lifetime of the business.

For those interested, residency is 183 days per year.

Do you cure cancer or save orphans for a living? If not, how do you justify yours?

Taxes pay for government services, which the citizenry of the United States broadly speaking wants, though they quibble every 4 years about the relative mix and funding levels. Tax laws are complex, highly technical, and require application of a voluminous body of rules to the infinite variety of potential fact patterns.

Many citizens, particularly those who have complicated fact patterns in their personal lives, are not capable of calculating their own taxes or would prefer to avoid doing so. Tax accountants and attorneys assist citizens in their obligations to calculate and pay the taxes required by the law, without paying more than they are obligated to pay.

I have a great accountant. (Hiya Cameron. waves) He sherpas me through my increasingly complicated international tax situation every year, which will never include renouncing my US citizenship but does often include such scintillating topics as "Does the US Revenue Code consider Japanese Self-Employment tax to be an income tax or not? If it does, should my income tax return for 2013 reference Japanese self-employment tax paid in 2013 or accrued in 2013? Is it most to my advantage to treat that as a necessary expense incurred by my business or as a deductible foreign tax or in some other fashion defined by the US-Japan Tax Treaty?" I pay Cameron so that I don't have to spend a week figuring that out, and can instead ship software, write emails, and otherwise move the business forward.

Really? Would you care to elaborate on your position, as it seems a touch sophomoric.

We're talking about American expats who permanently live abroad, do not utilize taxpayer-funded services, and aren't planning on returning home. Hell, they aren't even utilizing what one might call the privilege of American citizenship. From the government's perspective, there's really no difference between an expat and a corpse (excluding the IRS, naturally).

In that context, how can choosing to renounce their citizenship be considered immoral? Particularly when that citizenship comes with the rather significant problems that are the result of a federal tax code that taxes overseas income for taxpayers abroad whose income will never see the United States (nor, for that matter, will the taxpayer). If we're going to argue about ethical codes, how do you taxing worldwide income and the onerous penalties that disproportionately affect the lower quintiles?

"The IRS fined him more than $172,000, roughly eight times his back taxes" - this also seems to require some justification.

No one has had any problems returning to the USA.

The USA is the only country that taxes its citizens who live outside the country. I think that's what you're asking. British citizens living abroad don't pay UK income tax.

The IRS hasn't taken any interest in my clients -- the tax returns are clean and that's all they should care about. But the Lois Lerner affair shows that they are corrupt, unfortunately.

The people I know who give up citizenship almost all do it with extreme regret. I assume this feeling persists even after the fact.

This is exactly right. HNers who are US citizens will set up a perfectly ordinary corporation in their country of residence and run their company perfectly legally in that country. Years later they hear of Form 5471. The government's SOP on this is to impose a $10,000 per year penalty then force you to beg for the penalty to be removed. Sometimes that happens. Sometimes that doesn't. How many small businesses could stand a $40,000 or $50,000 hit just because you didn't file a piece of paper saying you owned stock in a foreign corporation?

The greatest part is that now most of these banks are required by law to report our accounts to the IRS. So now that the IRS is notified we no longer have to worry about penalties right? Wrong. Now they have an automated way to detect and fine us.

It depends on how much money you earn and where you live, mainly. If you make < 100k a year U.S. and pay taxes on it in the country you live in, you can get by with a 1040 and one or two extra forms as far as the IRS goes, and not have to pay the U.S. anything in income taxes.

However, the issue with the WSJ article, where you would also have to disclose retirement and savings accounts or pay a penalty can be an unpleasant surprise for people. Makes me want to just put everything in my spouse's name and pretend the U.S. government doesn't exist.