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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?

  • 6
    Yes, you have to file a return, but there's also a healthy deduction for expatriates that isn't difficult to meet for someone that is genuinely living abroad long-term. Does your question take this deduction into account, and go on to ask about what isn't covered by it, or would you like an answer about the deduction itself? Unless you make a lot of money abroad, you don't have much of a liability. – Tim Post Mar 13 '14 at 12:53
  • You have to file taxes, but in most cases you get a full deduction if you pay your taxes in the other country. At least, I do. It may be country dependent. – Manishearth Mar 17 '14 at 3:35
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    An easy way to get out of your tax responsibility is to move to a non-extradition country. – hairboat Dec 17 '14 at 7:24
  • @abbyhairboat are you suggesting an untoward migration tactic? ;) – Mark Mayo Dec 17 '14 at 8:13
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    @abbyhairboat good advice, but not really a legal way – Dirty-flow Dec 17 '14 at 10:37
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You will need to cancel your US Citizenship and much more beyond that.

You will have to:

  • Move abroad and make your new home in a (lower/no-tax) foreign nation so you are no longer a “resident” for U.S. income taxes;
  • Obtain alternative citizenship and passport;
  • Give up U.S. citizenship and change your legal “domicile” to avoid U.S. estate taxes;
  • Arrange your affairs so that most or all of your income is derived from non-U.S. sources; and
  • Title your property ownership so that any assets that remain in the United States are exempt from U.S. estate and gift taxes.

There is no other way around that, unfortunately.

Full explanation can be found here.

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    Always seems ironic to me that the original Tea Party was provoked by taxation from abroad :) – Benjol Mar 13 '14 at 5:40
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    This is what Tina Turner did. If she can't find a way .... – Jeremy Miles Mar 13 '14 at 18:08
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    Point #1 is unrelated. The question is about avoiding taxes in the US, not avoiding taxes entirely. – littleadv Mar 17 '14 at 4:53
  • Well "Move abroad" is pretty much a prerequisite. Where you move is a different issue. I also would assume that you do not want to move somewhere where the taxes are even higher... – uncovery Mar 17 '14 at 7:28
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    Technically, obtaining another nationality is not strictly necessary to renounce U.S. citizenship. – user102008 May 26 '14 at 6:04
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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...

4

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.

3

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.

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    @littleadv: I don't see anything in the U.N. charter that says a country can't leave a person stateless. If that were true then there would be no need for articles 5-8 in the Convention on the Reduction of Statelessness of 1961. Plus, the U.S. does not require you to have another nationality to renounce U.S. nationality. – user102008 Mar 23 '14 at 4:34
  • @user102008 Thank you for the correction. – littleadv Mar 23 '14 at 5:47
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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.

  • They are not required to file state taxes if they are not residing or receiving income in that state. – Karlson Mar 13 '14 at 11:34
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    While this is important information, it seems that it is better suited as a comment rather than an answer. – StrongBad Mar 13 '14 at 12:15
  • @Karlson: For example, California "residents" include people who live outside the state but intend to return (ftb.ca.gov/individuals/glossary.shtml#R). – igelkott Mar 13 '14 at 12:16
  • @StrongBad: The question wasn't limited to federal tax returns. – igelkott Mar 13 '14 at 12:18
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    @igelkott If your bank is national you don't need to close bank account in California to open the same in Indiana. Driver's license if you move you normally have 30 days to change in most if not all states. So in order to go after you for not paying state taxes the state has to prove that you have been domiciled in that state. – Karlson Mar 13 '14 at 12:39

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