Since 2011, almost 1,800 people have renounced their US citizenship or turned in their green cards. Has America lost its luster? Why would anyone give up a golden citizenship?
Many have left America because taxes are too high. According to the IRS, the number of citizens who have given up citizenship is almost eight times as many as the number in 2008, and more than the combined total of 2007, 2008 and 2009. The US is one of the few countries to impose taxes on citizens who earn income abroad. While the deadline for stateside taxes is April, the deadline for those living abroad is June. Though the deadline for US citizens abroad is later, there is much paperwork and many obstacles when filing taxes abroad. There is also no way to avoid filing, unless you renounce your citizenship.
As a US Citizen living abroad, you still have to report and file on all bank accounts. This includes international joint accounts and retirement funds. The IRS has high monetary penalties for those who do not report all their bank accounts, often as much as $10,000 or 50% of your undeclared accounts.
The Report of Foreign Bank and Financial Accounts and the Foreign Account Tax Compliance Act are two of the IRS’s filing requirements that affect US citizens abroad. The first law requires all Americans, and those abroad, to declare any overseas bank accounts that hold at least $10,000 using a supplementary file form. The second law requires foreign financial organizations to report information on US clients to the IRS. However the US has announced that they will allow foreign and domestic institutions to report information directly to the government, instead of going through the IRS. Failure to do this can be drastic for these institutions, and could result in 30% tax withholdings on US payments and property sales.
Foreign Earned Income Exclusion rules allow foreign income of at least $95,100 to be earned tax-free in the US. The IRS allows a few grace periods for expatriates to file back taxes without being subject to criminal charges; however, severe monetary penalties are quite possible.
See you in my next blog.
Nalini S Mahadevan, JD, MBA
Lowenbaum Partnership, LLC
St. Louis, Missouri
Copyright 2012. All rights reserved.
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