America is one of I believe only 2 countries that demand tax on income from its citizens who live and earn abroad (and who have almost certainly already paid tax on that income to the country in which they are living).
My understanding is that they won't always even accept a renunciation of citizenship if they believe you're doing it to avoid paying them taxes.
It's no surprise to me that there are significant numbers of expats with large unpaid tax bills, possibly from years of working, paying taxes in the country in which they live but never paying US taxes.
Point being that this is probably not primarily targetting rich people who aren't paying their share, but people who are paying their share in the country in which they live and work, but are failing to pay an extra portion of tax to a country they left years ago.
You're aware that foreign tax can be taken as a credit or deduction, yes? Further not only are you incorrect about the whole "won't accept" thing, they have a whole process for exactly how you do it. Importantly, that process only applies to well-off expats (multiple years at $150k+ or >$2m in net worth) and anyone else who wants out can get out quickly and cheaply. This whole flap isn't about"can't pay", it's about "don't want to".
A lot of the problem isn't that they owe taxes but that they have trouble filing correctly. You're required to file even if you owe no tax. The US has fairly high reporting requirements.
Think of all the tax forms you've received in the US. W2. All the various 1099s. All the docs related to stocks, SPP, interest on mortgage, real estate transactions, etc. The IRS still needs all that paperwork even if you have these deductions. As you live abroad and conduct these transactions abroad, it becomes entirely your responsibility to fill out these forms properly as they're only going to give you forms relevant to their country's taxes.
This proves burdensome enough that a lot of expats pay thousands a year to tax firms to get all this info and file on their behalf. It's too time consuming and risky to do it yourself. For those lower income folks it's cheaper to renounce than to keep paying these fees.
10% would be excessive if it were typical for the general public, I would agree. But not so much for a tiny subset with high earnings and particularly complex affairs. It doesn't make one the moral equivalent of children locked in cages.
>But not so much for a tiny subset with high earnings and particularly complex affairs.
I think this is where I think we're talking about different things.
It does not only affect people with high earnings. It affects all US citizens working abroad - including those who didn't exactly choose to live abroad.
Again, I'm not talking only about double taxation. I'm talking about the need to file (which is true even if you earn $20K/year in a Latin American or Asian country). In my other comment to you I gave examples of fairly ordinary people in other countries who will be considered as US citizens under current tax laws who are legally bound by the US to do all that paperwork every year. As someone else pointed out, if your income is over $11K/year, you have to file. Run a small store that barely pays the bills? You have to file. Do some stock transactions and gain/lose money? You have to file.
Just think of everything you have to include in your tax form (if you are in the US). Then think of all the tax docs you receive annually. You need to create all those tax docs yourself - including the ones you don't include with your return (in the US, the agency that issued the document already reported that info to the IRS). I got all these docs from various agencies even as a low earner in the US - this is definitely not about high earners.
"think of all the tax docs you receive annually. You need to create all those tax docs yourself - including the ones you don't include with your return"
I find this inconceivable - it sounds absurd, because (a) not all income is reported on those forms anyway, even US based, and (b) fabricating them yourself eliminates their purpose as a means to prevent tax evasion.
What's the IRS going to do, say "well, you tried to file a tax return with 10K euros of income, but we didn't get a W-2, so you're in deep trouble now"? Are they going to add to that 10K or subtract from it?
If you are a US adult who has filed tax returns for a few years, I would expect you to have some experience paying taxes on income that wasn't independently reported. Surely you don't fabricate the documents that are normally sent by the income source, when they aren't present. I just don't believe that is a thing that is done.
Most of what I said is a simple Google search away. This will be my last comment:
>I find this inconceivable - it sounds absurd,
This is a fairly poor metric for evaluating the veracity of anything.
>because (a) not all income is reported on those forms anyway, even US based
In my experience, most forms of income in the US have been categorized. If you made money, there very likely is some appropriate form you should fill out. How much information the IRS needs about it varies amongst income types. As an example, I sold stuff online for a short while - did not make much money, but the volume was large (probably in the hundreds of items in one year). When I looked into what I needed to report for tax purposes, I was hoping it would be a simple case of 1. Costs of goods 2. Revenue made, and tax on the net. Nope: I found it fairly burdensome. Had I paid a tax person to do it, I would have spent more on the tax professional than my net profit (which really was very low).
>If you are a US adult who has filed tax returns for a few years, I would expect you to have some experience paying taxes on income that wasn't independently reported. Surely you don't fabricate the documents that are normally sent by the income source, when they aren't present.
No one said anything about "fabricating". If the agency doesn't provide you one, you provide that information to the IRS in some way or other. Sometimes it will literally be filling out the same form. In other cases, the IRS will have a schedule for you to fill out. Perhaps the W-2 was a bad example.
I know someone who sold a property he owned outside of the US. The income generated from the sale had to be reported and capital gains tax had to be paid. Now in the US when you do this, some party (I believe the seller's agent) gives you a simple form which you should attach to your tax return. Since this was a foreign transaction, the other party gave no such form. He considered just reporting it as an investment without that 1099. He consulted some tax folks, and they told him that he should do that, but while the IRS may look the other way, legally he is obligated to fill out the form and attach it. The problem was he did not have access to all the figures needed to fill out the form. They advised him to fill out what he could and likely the IRS will accept his explanation.
I personally have had to deal with the IRS - as others have commented, while it always does seem to work out, they can be very annoying. In my case, I was claiming education credits. Some years after I left school, they wanted proof. It took several back and forths to get them off my back, and the experience was quite negative. They continually said "Yes, if you give us such and such information, it will suffice," and when I gave them said information, they kept saying "Not enough - we want more proof". Had to reach out to the university for help, and they were quite surprised - they said they never had to give out as much information as I was asking for students to get those credits, and I was lucky they still had the extra information that I was requesting.
So yes, perhaps usually the IRS will accept the explanation for missing information in forms you can't get because you don't live in the US. But it's not a guarantee.
>It's a matter of opinion, but I don't think it's an intolerable burden if your tax prep costs are <10% of your total tax bill.
And I do. For most of the world, tax prep costs are negligible. I'm not sure how many countries have tax prep for individuals as a big business like it is in the US.
In context, we're not talking about a big business, because the market is a small number of people with special needs. It seems quite inappropriate to compare them to "most of the world".
>In context, we're not talking about a big business, because the market is a small number of people with special needs. It seems quite inappropriate to compare them to "most of the world".
I think we're talking about very different things. To directly address your comment: When you say the market is a small number, you are correct: The market is workers living outside the US who happen to be American. Foreign workers of pretty much every other country do not deal with this. It's a market very targeted to Americans.
And its smallness makes it expensive.
But when I said how your comment about paying for tax prep was a very American outlook, I was referring to the reality that so many in the US rely either on tax software or pay a company to do their taxes. This is a practice alien (AFAIK) to most countries - they have much simpler tax codes and rarely do they need to make special payments for tax prep. Having to pay a tax prep company because you happen to be American is effectively a tax on being an American. For many outside the US, saying "It's not a big deal - just pay a tax company to handle it" is like me telling a typical American "It's not a big deal. Just pay a company $500 annually to do the paperwork that gives you the right to own a pet" - it's a crazy notion. It's easy to dismiss it as "Less than 10% of your tax burden - what's the big deal?"
Just a few days ago I was reading a story of a Canadian/American dual citizen. She was born to American parents, but as a kid her parents migrated to Canada - she had lived most of her life in Canada, and had no real relations in the US. The old tax law was that she is not considered a US citizen unless she actively declares herself as one after she turns 18. That law changed recently (I think under Obama) to treat her like all other Americans for tax purposes. Suddenly she had to deal with filing paperwork, and getting taxed on certain retirement/investment benefits (that are tax free in Canada but not in the US - think stuff like Roth IRA in the US), etc.
When I was in school, I knew many foreign grad students - it can take 5-8 years to get a PhD - and if you're young and married, there's a good chance you'll have a kid or two during your stay at school. Some of them returned to their home countries (contractual obligations, etc). I don't know if their kids will eventually move to the US and claim citizenship, but they will have the burden of dealing with US taxes wherever they live in the world - whether they earn a good amount of money or not.
"It's easy to dismiss it as "Less than 10% of your tax burden - what's the big deal?""
My heuristic is that a percentage of a percentage is quite small, in general. It's fundamentally different from $500, which could be a lot of money or not depending on context. Percentages scale.
I'm aware that it's not what you said, this song ain't about you homie.
(The rhetorical) you has a choice; fill out the paperwork you knew you were going to have to fill out (!), or renounce citizenship. If you make enough that this is a hardship, you can afford to pay someone to fix it for you. If not, renouncing (what I was talking about) is easy and cheap.
>If you make enough that this is a hardship, you can afford to pay someone to fix it for you. If not, renouncing (what I was talking about) is easy and cheap.
Your statement has within it an assumption that it is not a hardship for low income earners.
I would like to congratulate you. For a while now I've wondered at the value of engaging in online debate, and you've finally convinced me to apply this rule:
"Don't engage much with someone who can be enlightened with 30-60 minutes of searching the Internet, unless there is an audience."
Summary: Life is too short.
You have come off as quite sure of your stance, and I do not get any signal from you that you'd like to be informed otherwise. The submission is old enough that I do not think there is any audience left. I do not see any merit in engaging further.
You might get more out of the conversation if you read more critically. You have repeatedly on this thread totally missed the point of the person you are replying to.
That lack of understanding dovetails nicely with your apparent goal of educating others about their mistakes.
Renouncing citizenship is not something anyone should do who does not already have citizenship of another country. It's not always trivial to acquire said citizenship.
You seriously underestimate the burden the US places on its expats and banks that do business with them. Its to the point most foreign banks will not do business with US nationals.
Its actually the vast majority of foreign banks, except those with a strong US presence (and even then not always. E.g. Deutsche bank won't take US clients in Germany [0]).
> Most Foreign Banks Don't Want U.S. Clients; How To Find One That Does [1]
> U.S. ambassador to Switzerland is asking banks in the country to reverse course and accept Americans as clients.
[2]
"America is one of I believe only 2 countries that demand tax on income from its citizens who live and earn abroad"
When I pay taxes to a foreign country, I generally get a tax credit on my US taxes. Complaints like yours tend to lead me to infer you think you're entitled to lower than US tax rates in some tax shelter locale, but you are implying (for sympathy) the issue is being taxed higher than a typical citizen of the EU or US.
And? If you're that invested in another country, give up your US passport and get one with the new country. Alternatively, work to get the tax laws in the US changed. It's not like this stuff is a secret - if you want to work abroad you're going to get double taxed. Not paying the US portion of taxes is illegal. I don't understand the issue here, maybe you can explain it to me?
It is not that simple to renounce US citizenship. As op wrote, if they think that you are renouncing because of taxes, they will flat out deny your request. Furthermore, changing tax law for an expat is virtually impossible because it is very hard to vote from abroad, and expats are very diverse so no one politician would care to represent them.
What do you mean double taxed? If you get a tax credit for foreign taxes, it's rather disingenuous to claim to be double taxed, although you could argue it's true in the sense you file for multiple jurisdictions.
My understanding is that they won't always even accept a renunciation of citizenship if they believe you're doing it to avoid paying them taxes.
It's no surprise to me that there are significant numbers of expats with large unpaid tax bills, possibly from years of working, paying taxes in the country in which they live but never paying US taxes.
Point being that this is probably not primarily targetting rich people who aren't paying their share, but people who are paying their share in the country in which they live and work, but are failing to pay an extra portion of tax to a country they left years ago.