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I don't think it's quite that bad. I've been an expat for some years, and I pay about $200/year to a CPA to make sure everything's filled out. At least for regular employment income it's pretty straightforward, if slightly tedious: report your income and foreign tax paid, run things both with and without the AMT, and declare any foreign bank accounts (declaring again, another way, if any had over $10k in a year). I could probably do it myself, but I figured I'd pay a CPA just to make sure it's done right. Things do get more complex if you run a business or own property, I suspect, but just as an employee I haven't found it difficult to do the annual "$0 tax owed" paperwork.

$200 is an awful lot of money for effectively nothing at all. You sound like someone who doesn't expect to be abroad very long, if you expected to be abroad for the remainder of your life (as many expats are) you'd likely find that $200*40 years to be less pleasant of a proposition.

I would hope that that cost covers tax preparation in general, not just the US-specific paperwork.

At least in the UK, paying any money at all for tax preparation is unusual.

Having to do tax preparation is unusual period.

I've filed a total of zero tax forms with the UK government in my lifetime. I've filed several hundred with the US government in a couple of years (and paid third parties money to file "for me" because filing directly is insanely difficult).

Having to do significant tax prep is unusual in the US, too: most US employees have taxes withheld (which is required by law), and usually end up with the Treasury owing them at the end of the year.

Many people fill out the 1040-EZ themselves (a one-page form you can use if you just take the standard deductions and have no unusual tax situations). However, if you can deduct more than the standard deduction, you have non-trivial investments, or any of numerous other situations apply, you have to fill out the full 1040 form, and that requires sufficient effort that there's a substantial tax preparation industry in the US.

That said, there shouldn't be; there's quite a bit of lobbying by the aforementioned tax prep industry to prevent simplification of taxes to the point where everyone could simply file them on their own, as well as to prevent the establishment of an online government-hosted tax prep system. And that's completely ridiculous. The IRS already has more than enough information to simply send everyone a pre-calculated bill.

Guess it depends on what you mean by significant. Mine is a significant burden, but I'm probably unusual, so I checked the national averages.

The IRS says the average time to complete a tax return is 13 hours: - 12% complete 1040EZ at 4 hours each, - 19% complete 1040A at 7 hours each, - 69% complete 1040 at 16 hours each [1].

Since some 150 million returns will be filed this year [2], that's an aggregate of almost 2 billion hours spent. That's just federal, of course. States are probably less time each, since they piggyback on federal, but there's certainly some time spent there.

[1] http://www.irs.gov/instructions/i1040/ar03.html [2] http://www.irs.gov/pub/irs-soi/P6187.pdf

In my case, I pay more than that for just the US-specific paperwork. Naturally, I also have to deal with the Italian side of things, which is not exactly a low-bureaucracy system either.

Yes, but $200 is alot smaller than $5000 stated in the parent comment.

Eh, it's not nothing, but $200/yr is hardly even among the most important monetary considerations when it comes to being an expat. It'd be better if it were $0, but it's not really a factor in my decision-making, considering all the other costs and complications involved. I certainly wouldn't choose where to live or what citizenships to have over an amount of money that adds up to $2k per decade.

when I enquired about having mine done (after I learned about the FBAR) I was quoted in the realm of £2k and I'd have to make the trip to London with all my data.

Considering my taxes would be easy peasy, I wouldn't think $5k is out of the range of normal.

My friend works at one of the big 4 accounting firms doing international tax, and $5k is the going rate for the services he provides. He said most of the time their services are paid by the employers, though they have a few high net worth individuals who pay for the service.

Ah yeah if it's a big service like that, esp. selling via employers, I could see $5k being the going rate. My employer paid for Deloitte to provide relocation assistance (mostly helping me find an apartment), and I think they charged about the same. You don't really get in the door at those kinds of places for less than a few $k.

If you're an individual with a fairly "normal" expat job (just a salary), I'd recommend finding an independent tax preparer who's done expat taxes before. There are a lot of CPAs who have 1-person offices doing tax prep, and some are knowledgeable about how to file for an expat. I asked around and found a friend-of-a-friend in that line of business.

I personally use www.taxesforexpats.com - they charge $350 for the Federal return and $75 for FBAR.

I've been very happy with their service and am happy to recommend them.

Neat! I really should check that out.

Do you have a pension fund? Some kind of health insurance that behaves like a bank account? Anything that looks like a mutual fund investment? If so, either your CPA is undercharging you or he is not doing his job properly. I you live a "standard" European life, following the us tax code to the letter is going to put you at a 50-100 page filing.

And if you don't follow the letter - well, depends how much the IRS thinks they can extract from you.

There's a lot of boilerplate in the filing, so yeah, it's pretty long. It's pretty mechanical though: you go down a checklist and make sure you've filed everything. I do have a pension fund whose existence I report as an asset. It's exempt from taxation, because the state-administered Danish pension system is specifically exempted in the Denmark–U.S. tax treaty, but I report it on form 8938 and through the FBAR as an account I have an interest in. Healthcare is a single-payer state system, so no accounts or insurances are involved. I do agree things could be simpler, but it's really not the most complex thing about living in another country.

>>> On the other hand, it is possible to change it with very little loss of revenue to the US because this taxation raises very little money in practice.

Are you sure? These tax laws also collect money from US Citezens working as contractors for the US military over seas not just someone who has decided they would rather live in Europe for the rest of their lives. They are often paid 6 figures salaries and there are 10's if not 100's of thousands of them around the world esp. supporting the wars in Iraq and Afghanistan. I don't think you would find a lot of support for reducing their taxes to zero.

They're being paid by a US employer in that case, and I suspect that they're not being taxed by the host country, since they're temporary residents. Wouldn't that pretty pretty easily distinguished from "employed by private UK company, pays UK taxes"?

No, the fact that the salary is paid by a US employer has nothing to do with it. The tests for the Forgein Earned Income Exclusion are where your "tax home" is which is determined by your place of physical employment and the number of days per year you spend outside of the US. So long as your tax home is in a foreign country and you spend at least 330 days outside the US you don't pay federal income taxes on your first

This site explains the basics. It most definitely does apply to US contractors.

http://www.hrblock.com/tax-answers/services/jsp/article.jsp?...

In Canada, if your working for the canadian government in an embassy or similar in a foreign country, you are taxed according to canadian tax law. Same with temporary assignment abroad. I think the USA can continue taxing it's government soldiers in a similar fashion.

It seems like the 97.6k income exemption and double taxation tax credits help explain why this taxation isn't a huge burden on normal expats.

However, we've seen plenty of examples of American corporations setting up offices in foreign countries to avoid paying U.S. taxes -- what's to prevent the highest paid individuals from doing something similar to avoid their tax burden if this taxation policy was changed?

I didn't say that the taxes only affect a small fraction of people. I said that only a small fraction of people have (or can easily attain) dual citizenship, and can reasonably do something about it.

Someone who doesn't have dual citizenship is certainly going to complain about the tax paperwork, but they're not in a position to do much about it. They're not a big enough voting bloc to effect change and they're certainly not going to renounce their citizenship over it without having citizenship in another powerful western country to fall back on.

$5k for an accountant to do your taxes is pretty high. I'm self-employed, and I'm paying EUR 500 per year to my accountant. More expensive ones cost EUR 1000. If the US tax system is so complex that it'd require $5000 in accountant work, that's certainly pretty extreme.