Americans abroad are treated like US income tax cheats according to Bloomberg. The U.S. is unique in the way it taxes citizens working abroad. Its system is extremely bad for Americans living abroad.
An estimated 9 million American citizens living outside the U.S. face us income tax nightmare those at home can’t imagine and none should ever suffer. The reason: The U.S. is one of only two countries in the world (the other is Eritrea) that taxes its citizens regardless of where they live.
American expats don’t necessarily owe the U.S. any tax: They can deduct taxes paid to host countries, which are often higher, or take an exemption. But they have to file returns and disclosures regardless, at a significant cost in accounting fees, nuisance, and needless anxiety.
The rules are often unclear, and foreign employers and financial institutions don’t report the numbers in the way the Internal Revenue Service prefers. The penalties for even innocent mistakes can be draconian. The U.S. proceeds as though any citizen with a foreign bank account were a likely tax evader or money launderer.
Citizens with foreign assets must disclose them not only to the IRS but also to the Financial Crimes Enforcement Network.
Surprisingly enough, people who live and work abroad tend to acquire other overseas assets along the way. The IRS sees a plain-vanilla European mutual fund, for example, as a “passive foreign investment company,” and requires disclosures that are Kafkaesque.
The Obama-era Foreign Account Tax Compliance Act made things worse. It threatens foreign banks with drastic penalties if they fail to provide information on customers who are “U.S. persons” (citizens or green-card holders). As a result, many financial institutions simply refuse to serve Americans at all.
Owing to the original sin of citizen-based taxation, moreover, every tweak to American tax law seems to exacerbate the problem. President Donald Trump’s reform of 2017 added rules aimed at the overseas profits of U.S. companies.
The IRS now treats the American owner of a lemonade stand in Belgium like Google, forcing them to declare a new kind of income known as GILTI.
The original targets of this harsh regime were rich Americans living in the U.S. and stashing money in hidden offshore accounts. But hardened tax cheats developed new evasion strategies long ago.
The victims are Americans citizens living abroad with ordinary incomes and no special tax expertise.
Americans living abroad include:
Some U.S. expats renounce their citizenship, but few want to cut ties to their country, and for most, the cost is prohibitive in any case. They should never be made to feel that it’s necessary.
At a minimum, the U.S. should simplify the rules for its expats and raise the balance thresholds so middle-income filers are exempt. But the best solution would be even simpler: Follow the example set by almost every other economy and base the personal income tax on residency, not citizenship.
We, the founders of Americans Overseas, were born in the Netherlands and obtained our American nationality through our (American) mother.
When we heard about the US tax system for the first time around 2013, we were in total disbelief (it can’t be true!), anger (how can they do this?), fear (am I going to get fined or pick up other problems?), and panic (what should I do?). It is (unfortunately) true that there is an additional American tax levy. But there’s no information from the local government, and when approached, the consulate referred us to the IRS, and the IRS was impenetrable.
That’s why we started this initiative to help people from all over the world by providing proper information about the US tax system to avoid unnecessary panic and offering help free of obligation and free of charge. If needed, we have a network of affordable professionals (accountants) who can help you with your tax obligations.
If you have more questions about the new relief program for America’s tax compliance law you can contact us at Americans Overseas.
Contact us for more information
Source: Bloomberg
Understanding the US tax system, the obligations, and all the additional terms can be difficult. Especially if one lives outside of America. Is your question not answered? Contact us.
U.S. citizens and resident aliens who live abroad are generally required to file a federal income tax return and pay taxes on their worldwide income.
Read more... about Who is required to file taxes in the US?Yes, US citizens are required to file taxes on their worldwide income, regardless of where they are living.
Read more... about Do US citizens living abroad still have to file taxes in the US?Received an American check? You can cash your check in the following ways: cash the check at your own bank, transfer to another person (endorsement), cash checks using an online service or cash the check by another bank.
Read more... about How can I cash my US check?US citizens living abroad may be required to file Form 2555 and/or Form 1116 to claim the foreign-earned income exclusion.
Read more... about Are there any special tax forms required for US citizens living abroad?FBAR (Foreign Bank Account Report) filing is the requirement for certain U.S. individuals and entities to report their foreign financial accounts to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury. The FBAR filing requirement applies to U.S. persons who have a financial interest in, or signature authority over, one or more foreign financial accounts if the aggregate value of those accounts exceeds $10,000 at any time during the calendar year.
Read more... about What is FBAR filing?