U.S. expats, a question

[marc873]

So, I had a client today who's company relocated him to Frankfurt 3 years ago. He was telling me that when you leave the states with a permanent plan to not return, that you have to have a meeting with the IRS to finalize any taxes owed, and that if you don't, you go on a list as a tax fugitive. Anyone know anything about this. As we are planning on leaving for good next spring.

[xanthuos]

I doubt it. You have to file a return every year with the IRS, regardless of country of residence or your income. Only the first $80,000 you make outside of the US is exempt from income taxes. The price of American citizenship.

[space virgin]

^ I'm surprised it's so high... my friend Eva, who has dual US/Germany citizenship, had to pay taxes while living in Deutschland for a couple of years in a podunk little town. She made less than 20k euros/year and the US gov't still found her to make her pay taxes.

Sigh.

[ajb3000]

Erm... that's a bit messed up, why should you pay taxes on money that wasn't even earnt in the USA? Presumably you'd have to pay taxes in the country you're working in as well...?

[marc873]

Maybe i should rephrase, if and when one decides to give up there U.S. citizenship, thats when the exit interview with the IRS happens. I'm just trying to figure out the logistics of traveling for 2-3 years, then settling down abroad. How would the U.S. really track me down, and after years of constant travel, what income exactly would they be taxing?

And to answer ajb3000's question, our govt. has to pay for all its fucking wars someway right!?

[voyd]

Originally Posted by marc873

How would the U.S. really track me down, and after years of constant travel, what income exactly would they be taxing?

Well, if you give up your US citizenship - do you also give up your SS and other retirement benefits that you had paid for and accrued?

This is a good overall question.

If you ex-pat - what are the pros & cons of keeping or relinquishing your US citizenship? And what is the process for that either way?

And on a tangent - you should still receive your company 401K and pension, etc regardless of where you end up by the time you retire, right?

[LiveFreeorDie]

Why not just continue to file tax returns from abroad? As Xuanthous noted, tax exempt income earned abroad is over $80k, plus there is an additional exemption for housing costs, etc which could push it up to $90k. This assumes you are out of the country for the entire tax year - check the rules, but I think you can only spend the equivalent of two or three weeks in the states during the tax year to still qualify for the exemption.

Assuming you make less than $90k abroad, it would be a simple matter to file a U.S. return via the internet. With the income exemption you should be all set and not have to pay anything. The important thing is to file and stay current with your returns.

To really take advantage of this, you should move to a low tax country like the UAE, Hong Kong or Singapore. Otherwise, the reality is you will probably be paying more tax to your new host country than you would have in the states. Most European countries have very high tax rates. Good luck!

[xanthuos]

Originally Posted by space virgin

^ I'm surprised it's so high... my friend Eva, who has dual US/Germany citizenship, had to pay taxes while living in Deutschland for a couple of years in a podunk little town. She made less than 20k euros/year and the US gov't still found her to make her pay taxes.

I don't really know - just basing it on my parents experience. They aren't dual nationals though, they are just US citizens who live & work in Canada.

Originally Posted by ajb3000

Erm... that's a bit messed up, why should you pay taxes on money that wasn't even earnt in the USA? Presumably you'd have to pay taxes in the country you're working in as well...?

I don't think one should have to, but I DO know that the US is certainly not the only country that requires this.

Originally Posted by marc873

If and when one decides to give up there U.S. citizenship, thats when the exit interview with the IRS happens. I'm just trying to figure out the logistics of traveling for 2-3 years, then settling down abroad. How would the U.S. really track me down, and after years of constant travel, what income exactly would they be taxing?

From the US State department's website:

LOSS OF NATIONALITY AND TAXATION
P.L. 104-191 contains changes in the taxation of U.S. citizens who renounce or otherwise lose U.S. citizenship. In general, any person who lost U.S. citizenship within 10 years immediately preceding the close of the taxable year, whose principle purpose in losing citizenship was to avoid taxation, will be subject to continued taxation. For the purposes of this statute, persons are presumed to have a principle purpose of avoiding taxation if 1) their average annual net income tax for a five year period before the date of loss of citizenship is greater than $100,000, or 2) their net worth on the date of the loss of U.S. nationality is $500,000 or more (subject to cost of living adjustments). The effective date of the law is retroactive to February 6, 1995. Copies of approved Certificates of Loss of Nationality are provided by the Department of State to the Internal Revenue Service pursuant to P.L. 104-191. Questions regarding United States taxation consequences upon loss of U.S. nationality, should be addressed to the U.S. Internal Revenue Service.

Don't take this the wrong way, but at least for the few years you'd be traveling, I don't think you'll be qualifying for a "second look" from the IRS.

Originally Posted by voyd

Well, if you give up your US citizenship - do you also give up your SS and other retirement benefits that you had paid for and accrued?

This is a good overall question.

If you ex-pat - what are the pros & cons of keeping or relinquishing your US citizenship? And what is the process for that either way?

The first point is indeed a good question. I would assume no - I think regardless of your citizenship at the time of claiming benefits, what you've earned to that point under SS would remain. I don't think it's different than a US citizen working in a European nation (under the proper visas) and earning retirement in their social system (a colleague of my dad's collects from the government of France because he worked there for several years and now is past the government's retirement age - even though he's currently working full time in Canada and is not retired).

As for the pros and cons, well I think taxation is the biggest con (in more ways than one...haha, punny!) especially if you're no longer a resident earner in the US...but as for pros, there was a fantastic example of a similar situation last summer (although not with US citizens) when Lebanon was having the conflict with Israel. There were 50,000 Canadian nationals who were demanding evacuation by the Canadian government - many of them were actually Lebanese people who had fled Lebanon in the 1980s conflict, settled in Canada long enough to get citizenship, and returned to Lebanon once things quieted down. THAT sir, is the golden prize of having US (or Canadian or British) citizenship - being able to get the hell out of wherever you are when shit goes down and being protected...that is a pro in my book :D.

Originally Posted by LiveFreeorDie

Xuanthous

Man, I really need to find another handle to use!

[LiveFreeorDie]

^Sorry dude, my apologies!!

[LiveFreeorDie]

^^As to the question of cons of giving up your citizenship (U.S. or otherwise), you better make damn sure you have citizenship somewhere else first. If you have no citizenship, you have no permanent place to live and will always be at the mercy of ever changing visa rules in foreign countries (including the U.S. at that point). It can be very difficult to get long term visas in most countries, so it could be a real problem. Not sure why you would want to ditch your citizenship, the tax issue iseasy enough to deal with. I don't see any other real benefits?

[Sutra]

Originally Posted by LiveFreeorDie

Assuming you make less than $90k abroad, it would be a simple matter to file a U.S. return via the internet. With the income exemption you should be all set and not have to pay anything. The important thing is to file and stay current with your returns.

Even though US citizens are not required by law to file income tax returns. Yes, yes it is very true. There is absolutely no constitutional basis for American's to pay taxes on their wages.

As marc873 pointed out, how else are we to pay for our country's wars and shenanigans?

Ever watch America: Freedom to Fascism? You tube/torrent/rapidshare it. Aaron Russo made a documentary that explains the whole shebang quite nicely and not in an obnoxious Michael Moore approach.

[joe7f]

^Actually the 16th amendment gives Congress the power to levy taxes.

I think that is an interesting, if somewhat alarmist, documentary.

--Joey

[maracle]

Originally Posted by ajb3000

Erm... that's a bit messed up, why should you pay taxes on money that wasn't even earnt in the USA? Presumably you'd have to pay taxes in the country you're working in as well...?

You get a credit for any foreign taxes paid. And lots of countries have explicit tax treaties with the US to prevent having to file in both places (or simplify it greatly). Since US taxes are pretty low this usually means you don't owe any extra tax if you move some place like Europe.

[Dell]

If you are concerned about your tax liability I would reccomend waiting until you know what country you are going to settle down in and then call up the embassy for that country. All embassies and consulates have experts on taxes and on who and how much you should pay. They also maintain lists of local accountants that are qualified in dealing with both the local tax system and the US system. Do your own research but do not be afraid to ask the guys as well.

As far as giving up your citizenship, why not just have dual citizenship (if you can). I have many friends who enjoy the benefits of dual citizenship and they love it (from US programs like Visas Waiver Program with other countries to free health care from the other country).

Hope it helps.

[Sijuki]

If you give up citizenship or otherwise decide to no longer contribute to the SSI or FICA, then you you will no be eligible for any gov't support programs. No SS retirement, no grants, loans, insurance, medicaid, medicare, etc.

Sticking low and just filling out the form will probably be the easiest method. Unless you plan on making some serious vig.

[astro25e]

Keep the US citizenship because, like people said, it's the best thing to have. One of the coolest things I have ever done is walk past an entire line of visa seeking people at the US consulate in Germany because I was american. It was like a movie!!! I was mostly impressed because I have often been on the other side of that line getting residence/working visas for both the UK and Germany where I was waiting hours in a line.

And yes, we have much lower taxes than Europe if you plan on working there. Keep the citizenship, you can get permanent residence/working status for other countries and stay Amerrrrican.