My understanding is that US Citizens who have emigrated to another country are still required to post tax returns to the US, declaring foreign income.
Is the only way out of this to cancel your US citizenship, or is there a form you can complete to declare you definitely won't be living in the US again, or something similar?
You will need to cancel your US Citizenship and much more beyond that.
You will have to:
There is no other way around that, unfortunately.
Full explanation can be found here.
The US doesn't have a "tax residency/non-residency" notion for its citizens/permanent residents. If you're a US citizen/permanent resident - you're considered to be under the US tax jurisdiction, wherever you are and wherever you get your income from.
However, the US law allows certain ways to avoid double taxation (for example, foreign tax credit or foreign earned income exclusion). If your foreign residency is in a country with a high income tax rate (comparable to the US, or higher, which is most of the Western world), you'll probably just be burdened by the paperwork, but won't pay additional taxes. That is, if you're not self employed, since the SE taxes are still there (unless there's a totalization agreement).
Tax treaties also mitigate some of the taxes, but many of them have savings clauses that exempt citizens from most of the provisions. These treaties come handy, however, for pensions and other government-paid benefits - these are usually exempt from the US taxation by most of the treaties, and the exemption includes US citizens (savings clause usually doesn't apply to pensions/social security benefits articles).
That said, if you want to avoid the US taxation altogether the only way would be to renounce your citizenship, but even then you'd still be subject to the US taxes.
First of all, when you renounce your citizenship, you need to provide a certification that your tax issues are in order (no delinquencies, all taxes paid, all returns submitted, etc).
Then, if you have high net worth (>$2MM or above >~$150K/year tax liability in the last several years), you'll have to pay taxes on deemed sale of all your assets (in the US and abroad, since all your income is taxable).
Then, for the next 10 years, you shouldn't spend more than 30 days/year in the US, if you do - that year you're considered a US tax resident and pay taxes on worldwide income as if you were still a citizen.
After 10 years after you renounced your citizenship, your love affair with the IRS will finally be over.
I'd suggest, instead of renouncing your citizenship, calling your senators and representatives and urge them to change the law and welcome the US into the 20th century, where countries only tax their residents. Maybe even 21st century, where the tax code can take less than a book...
Not all US citizens need to file a tax return. The IRS provides a we page to help decide. One of the key pieces is you need to have an income less than $10,000. Not making any money is probably the easiest way to avoid having to file the tax return.
The question, really, is how much you want to avoid this. You can renounce your citizenship (get citizenship somewhere else first, as this is not a requirement at the embassy and you don't want to be stateless), but that's kind of extreme.
The fact is that you can pay FICA/FUMA (Medicare and Social Security) taxes and take the foreign income exclusion if you are living somewhere else. This cuts your taxes dramatically and tax treaties may help reduce that further. Talk to a tax lawyer before doing anything rash.
Additionally, many nations have treaties with the US to avoid double taxation of income. This is something to run by a tax lawyer, but if you are somewhere that does not have a tax treaty then you need to assume that double taxation of income is possible.
Additionally there may be more taxes you may be subject to including state taxes, estate taxes, etc. The ways to avoid them depend very much on specifics and again, consult a tax lawyer. Keep in mind that every way people have to avoid these taxes in the US you have also, plus there are cases (like foreign income exclusion) where foreign residency gives you some additional options.
My recommendation is, see what a tax lawyer in the US can help you with before even considering giving up your citizenship over this issue. You would still have to post tax returns, and this is a pain sometimes, but at present I can't see giving up citizenship over that issue.
Note that US citizens may also be required to file state tax returns as well. It depends on the state but some will try to hold on to you until you've cut all your ties and don't expect to return.
See http://www.taxesforexpats.com/articles/expat-tax-rules/state-taxes-expat-tax-return.html for some details.
