

Why More U.S. Expatriates Are Turning In Their Passports - geoka9
http://www.time.com/time/world/article/0,8599,1983238,00.html

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octover
Many Americans living abroad are ignorant of the duty to still file federal
taxes while residing abroad. It gets fairly complicated fast and mistakes can
have huge ramifications for those that ever intend to move back. If you
haven't filed you can go back and file them late. So long as you live in a
country with a double taxation treaty with the US (most countries do, google
it) and your local taxes are more than the fed wants you won't owe anything.

It gets worse if you work for yourself, i.e. I'm a freelancer, and so I get to
pay social security and medicare no matter what. Also recent law changes have
meant that you have to report any bank account with more than $10,000 in it.
As to services of the embassy they charge for everything I've used them for,
and it's not cheap, more annoying cause at least the Stockholm embassy won't
take a US check or bill pay from Swedish internet banking, instead you have to
get the equivalent of a cashiers check which is all but obsolete in Sweden.

I'm going to go dual citizenship this summer. I want to be able to vote in
national elections and it will allow me to live and work anywhere in the EU,
plus sometimes it's easier to travel on an EU passport. Sometimes I want to
toss aside the US citizenship cause of the headache and expense of filing my
taxes properly, but I wouldn't want to close the door on being able to return
to the US easily either.

The whole tax citizens abroad is mostly based in a bygone era when rich people
went abroad to avoid taxes. These days the world is a lot smaller and it's
biting regular folk in the ass.

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jacquesm
Strange world where family and friends consider you a traitor for giving up
your nationality.

Words like that shouldn't be used lightly.

~~~
Sukotto
A traitor is someone who committed treason. In the US, treason is defined in
the Constitution
[http://en.wikipedia.org/wiki/Article_Three_of_the_United_Sta...](http://en.wikipedia.org/wiki/Article_Three_of_the_United_States_Constitution#Section_3:_Treason)

So "traitor" doesn't hold up. But since he pledged allegiance to the US, and
then renounced the country they can certainly call him an oathbreaker, liar,
false witness, or perjurer.

Not that I care personally. I'd do it myself if I were in his position.

~~~
ahoyhere
If you are born a US citizen, you don't have to pledge anything to stay a US
citizen. It's a birthright. You don't have to pledge anything to get a
passport.

So you can't call him an oathbreaker, liar, false witness, or perjurer.

He's just a man who gave up his citizenship because it was undesirable.

~~~
Sukotto
You only have to speak an oath once for it to be morally binding.

The guy went out and got citizenship in another country and renounced the US.
Did he ever pledge Allegiance to the flag of the United States (and the
Republic)?

If so, then I consider that a broken promise.

~~~
Rod
Since when are the citizens property of the state?

~~~
Sukotto
I never claimed that they are.

From the upvotes on your comment and the downvotes on mine it's clear that
you're not the only one who mistakenly thinks I did.

~~~
jacquesm
If that oath is so 'binding' on first saying how come people are asked to
repeat it all the time?

Oaths to flags and countries are pretty meaningless, unless taken by an adult
that has a viable option to pledge allegiance to some other entity (say in
immigrant).

What if every country should ask for a pledge of allegiance from its citizens,
would that mean that any immigrants are to be refused on the grounds that
they're oath breakers?

If the Netherlands (where I was born) would ask me to pledge allegiance I'd
hand in my passport instantly because I think that is not something a country
should ask of its citizens. Especially not a country that has 'freedom' high
in it's list of standards.

It's more of a symbolic device than a pledge that you can hold people to or
call them an oathbreaker if they don't. Most kids don't even realize the
meaning of all those words, just say them to avoid being an outsider.

Get them while they're young...

~~~
ahoyhere
As a rule, Americans have no idea how much they are indoctrinated.

I tell my European friends about how I know 3 different songs about the flag,
and 3-5 additional songs about how awesome America is, and were made to sing
them in school, and they are aghast.

When I tell them about the mandatory daily Pledge of Allegiance, and that book
by Avi about the "rogue" kid who refuses to say it (based on true stories),
they about shit their pants.

Then I tell them about Cuba, and they die.

Land of the Free, my ass!

------
david927
I'm a U.S. Citizen and next month I'll be giving up my passport to be a
citizen of the Czech Republic.

Normally I would keep both passports, but the way the U.S. taxes its citizens
abroad pretty much precludes that.

~~~
arethuza
Any idea why the US objects to people having dual nationality?

~~~
david927
They don't object. (The Czech Republic does.) And the reason they don't object
is that they're getting tax revenues from you but you're not consuming
services.

~~~
timthorn
They do object - if I were to apply for US citizenship I would have to
renounce my British citizenship.

~~~
david927
Sorry for the confusion. They don't object to me having a US passport and
adding Czech citizenship. In the same way, I'm sure Britain doesn't mind you
adding US citizenship. But the countries, in my case Czech, in yours the US,
that are being applied for, do mind.

The US Embassy hinted that I can sign saying that I've renounced my
citizenship, even though I haven't actually renounced it. I don't know if that
works in your case, however.

------
squidsoup
I've been living abroad for 12 years and wasn't even aware that I was expected
to pay taxes in the states. Presumably if I ever move back to the US to work
this is going to bite me in the proverbial...

~~~
pelle
As David927 mentions you probably don't owe anything. But you still need to
file 1040's and 2555 for every year. So few Americans actually do it, you get
the feeling that they are so happy to just receive them. Before returning to
the US I did a batch of 5 tax returns with no tax liability.

The other thing to note is that if you are married even to a foreign spouse
without green card you can file jointly and you now get a full $182,800
exclusion. There are also rules where you can deduct further for housing
expenses as well as tax paid locally.

This is the IRS guide you should read.
<http://www.irs.gov/publications/p54/index.html>

The bad news though is that for entrepreneurs, consultants etc. If you are
self employed, in a partnership (including LLC's) you are not exempt from
paying self employment tax (15.3% of the first $106,000 earned.

This is likely the biggest issue for some of the people renouncing
citizenship.

The second issue also mentioned in the article is reporting of bank accounts
containing more than $10k.

Final bad news for US entrepreneurs abroad is that your startup might be
classified as a Controlled Foreign Corporation, which in theory could lead to
it being taxed in the US. These rules are so complex they make my head hurt
just thinking of them. This PDF seems to explain it fairly well:

<http://www.avcadvisory.com/documents/pdf/CFC.pdf>

~~~
rubyrescue
As a US expat, I setup an S-corp for 2009 and it is VERY beneficial for
consultants who live abroad and can setup their own US company: because it
allows me to pay myself a reasonable salary underneath the Foreign Earned
Income Exclusion; to take business expenses against the remainder, and most
importantly, NO self-employment tax.

~~~
pelle
I hadn't thought about that. Very good idea. The only issue is that cofounders
have to be US citizens/residents. But it sounds like it would work well if you
don't need that.

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FluidDjango
If you dislike the idea of being taxed while residing abroad, how about the
idea of being "exit taxed" for the right to stop being taxed:

"Relinquishing U.S. citizenship is a fairly simple process: after filling in a
few forms, and in some cases, paying an exit tax (based on the applicant's
worldwide income and assets)..."

Wonder how much that amounts to?

~~~
geoka9
Exactly my sentiments. However, since it says "in some cases", maybe this
refers to paying the regular taxes due before relinquishing.

~~~
jaaron
No, the exit tax can be pretty bad:

"The so-called ‘mark-to-market' tax will apply to the net unrealized gain on
the expatriate's worldwide assets as if such property were sold (the ‘deemed
sale') for its fair market value on the day before the expatriation date."[1]

[1] [http://www.withersworldwide.com/news-
publications/324/exit-t...](http://www.withersworldwide.com/news-
publications/324/exit-tax-u-s-expatriates-to-become-law.aspx)

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DrSprout
It would be better if there were some way to suspend US citizenship. That
said, you shouldn't be allowed to vote while not being subject to the tax
code. It's the flip side of "no taxation without representation," and it's
equally important.

~~~
ahoyhere
It's extremely difficult to vote from outside the US, anyway, because you
cannot vote in a "nationwide" sense -- you must vote as a citizen of a state.

Which, since you don't live in the US and ergo don't live in a state, is
tricky. Typically you can vote in your state of last residence, however...

...voting in your state of last residence can cause you to be liable for
income taxes to the state.

Land of the free, says I.

~~~
dmm
Live in New Hampshire: no state income taxes.

~~~
starkfist
New Hampshire has residency requirements which make this impractical. South
Dakota is the easiest place to establish "residency" for expat purposes.

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quant18
It gets even worse if you try to incorporate a business abroad and own more
than 50% of it. Form 5471 and 8832. Wrangling with the definition of a CFC,
qualified dividends, etc. Subpart F (the rules for when the U.S. government
considers your company's income as if it was just plain old personal income).
Etc.

All these laws were designed to catch rich U.S.-resident tax evaders, but they
have the side effect of making life miserable for U.S. expatriates. And
probably it won't change, because no one in the U.S. really thinks about
expatriates anyway ... maybe because of the ingrained mental image that the
U.S. is supposed to be a sink, not a source, of migrants.

And for everyone else, it makes for a very strong incentive NOT to partner
with an American when you start a company, because of all the accountants'
fees you'll need to keep up with the paperwork, or worse, the danger that you
simply don't know about any of these draconian requirements and it hits you
like a truck years later when you have some serious income.

Another really perverse incentive created by U.S. taxes on expats is the
housing exemption. Basically, if you have a dollar, you can either spend that
whole dollar on renting a nicer apartment, or pay 35 cents to the U.S.
government and be left with 65 cents to save or spend. Hence lots of American
expats keep spending more and more on housing, up until the point where the
marginal utility of $1 more square footage or $1 swankier address drops below
65 cents ... and of course, driving up prices for everyone else.

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hannibalhorn
It's now becoming so popular that the Department of State is introducing a fee
to renounce - $450. See DOS-2010-0035-0001 on regulations.gov.

------
markbao
(different comment, different question)

It sounds like renouncing your citizenship is somewhat permanent. If you ever
wanted to come back for an extended period of time, can you re-apply for
Permanent Residency?

I was a citizen of China (now a US citizen). It took years for my green card
to be processed, and a good amount of time for citizenship.

~~~
david927
I don't understand the question. You mean, if you give up your US passport,
can you get a green card later? I think you can but you wouldn't receive any
special treatment from having had the passport earlier.

~~~
Retric
I think in some cases you can skip and they let you pretend you never left.
However, you will need to pay taxes on the missing years etc.

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DanielBMarkham
We have several trends happening all at once. Entitlement programs are going
broke -- the U.S. government has promised more than it can deliver. More
places abroad, with low costs of living, are becoming very amenable to U.S.
citizens. Finally the U.S. is reaching out for incomes and bank accounts above
certain amounts -- and those amounts are subject to change.

Seems to me (without doing the math) that there is already an income amount
somewhere around 10K a month or so where it might be better to be a citizen of
a different country. You could take the tax money and pay for the services
yourself. If this trend continues, it's possible that we could see an exodus
of folks from the U.S. Kind of like white flight but on a global scale.

------
markbao
Can an expat/tax guru shed some light onto how that whole tax thing works? Do
you pay local tax + US federal tax, or something?

~~~
ahoyhere
Living in Austria, I have to pay the total of my Austrian taxes... but the US
gets first cut. So if I theoretically owe $25,000 to Austria total, but
$20,000 to the US, I pay the US the $20k and Austria gets $5k.

Even though I get awesome healthcare and other social services from Austria.

Basically, it's the world's shittiest deal.

~~~
starkfist
This sounds deeply wrong, unless Austria has an odd arrangement with the USA.
It is not like this in Japan or Australia. In many countries, taxes are
automatically deducted and it would be impractical if not impossible to give
the USA first cut. Also, if you get residency in a state with no income tax
and form a corporation in the USA you can pay yourself below the foreign
earned income exclusion and for most practical purposes owe the USA nothing. I
would get a second opinion from a different tax specialist.

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ahoyhere
I plan to give up my US Citizenship as soon as possible. Unfortunately, it'll
be another 4 years' wait for me.

