According to Fortune, US government statistics show record numbers of people that are renouncing their U.S. citizenship, but not because of president Trump, it’s because of American taxes.
The IRS publishes the names of each American who gives up his or her citizenship. Last year, a record 4,279 people renounced their citizenship. Why are US citizens saying so long to Uncle Sam?
It is not because of president Trump: It’s because of American taxes. A lot of U.S. persons are tired of the hassle and expense of complying with US tax rules. Most of them are U.S. citizens who have been living abroad for a longtime and weren’t even aware they had to file American taxes.
Because of the Foreign Account Tax Compliance Act (FATCA) that was supposed to “detect, deter and discourage” tax evasion through offshore bank accounts, foreign banks are required to report whether their clients are U.S. citizens.
Unlike nearly every other country in the world, the U.S. taxes individuals based on their citizenship and not their place of residence. This means that many longtime expats can face reporting and payment obligations. While tax payments to a foreign country can offset U.S. tax obligations, US persons sometimes owe additional taxes based on capital gains related to a their home or other assets.
In addition the penalty for not complying is high. That has caused plenty of consternation among foreign banks, some of which have closed accounts belonging to US citizens as a result.
The regulations also created new filing requirements for individuals with assets overseas and increased fines for missing a tax form. The penalty for failing to file is $10,000 per form. The consequences are even steeper for intentionally not filing a document known as the Report of Foreign Bank and Financial Accounts, which could result in a fine of $100,000 or 50 percent of what’s in the bank account.
People get worried and terrified. They don’t want to have anything to do with the IRS and consequently want to renounce their US citizenship.
Many of these Americans living abroad have been paying taxes in the country where they live and may not have bothered filing a U.S. return. Most countries in the world expect you to pay taxes only when you live inside their borders. But two nations —the United States and Eritrea —require its citizens to pay taxes on income while living in other countries.
For example: A Dutch American living in the Netherlands sold his house with a profit. In the Netherlands he was not required to pay taxes on this, but under US tax law he is required to file a tax return and pay taxes.
People ask themselves the question: Is my U.S. citizenship worth hundreds or thousands of U.S. dollars? America may be the land of the free, but leaving it isn’t, and neither is it cheap. Those who renounce their citizenship could be subject to an exit tax on all of their assets.
For those who choose to throw in the towel and renounce, even that process is not easy or cheap. Those who want to cut ties must pay back taxes for five years, plus an exit tax in some cases, They then have to make an appointment at the U.S. consulate to formally give up their citizenship. You have to come clean with the U.S. before you can give up your citizenship, and you can’t put the blame on Trump for this one.
Americans Overseas helps Americans living abroad to become US tax compliant in an organised way and avoid unnecessary double taxation. Based on your personal situation, we introduce you to the appropriate US tax advisor in our AOS network. They will make you a tailor-made offer to help with your tax filings. Free of charge and free of any obligations.