Are you a U.S citizen permanently living abroad? Today we’re bringing some clarity on the U.S. tax requirements for U.S. citizens abroad and why many are choosing to renounce their citizenship.
People leave the United States for many reasons. Some plan to leave permanently while others simply fall in love with another country and decide to stay. There are millions of natural U.S. citizens who are currently living and working abroad in other countries. Some have become citizens of their new home country and do not plan to return to the U.S. to live and work. For people who meet the criteria, living outside of the U.S. should mean that you don’t have to file U.S. taxes if you’re not making U.S.-based income, right? Wrong.
Unfortunately, the U.S. tax system is complicated enough for regular U.S. working citizens who file every April. It’s much more complicated for Americans living abroad.
Renouncing is Becoming More Complicated and Expensive
Over the years, numerous expats have reported feeling scared or intimated by U.S. lawyers, making them hesitant to begin the renunciation process. The simple truth is that the IRS does not want you to renounce your citizenship. Although you are perfectly free to do so, the process has become more expensive over the years, and the price will only continue to rise.
Several years ago, the processing fee for renouncing your citizenship was $400. Now, it is $2,350. However, with new tax laws taking effect in 2020, we anticipate sharp increases in the cost.
Moreover, the United States has limited the number of interviews an embassy can take. Because of this, we have seen wait times increase drastically. Currently, the U.S. embassy in Toronto has an 18-month waiting list for expats.
The bottom line: if you’re tired of the anxiety and confusion surrounding U.S. taxes, renouncing your citizenship might be a good option for you. However, the sooner you do it, the better due to changes in the tax laws.
U.S. Taxes for Expats- What You Might Not Know
Even though you are neither living nor working in the United States, you still have to do your taxes. This causes expensive accountant fees and a confusing paperwork process. For instance, you could have an inactive or low balance bank account that you opened while living abroad. Without the proper tax filing, you could be charged up to $10,000 in fines for doing your Foreign Bank Account Report (FBAR’s) improperly. What’s more, starting in January 2020, non-US banks will also face a penalty if they do not report your account information to the US Treasury.
The bottom line: if you are a U.S. citizen living and working in another country permanently, you must still be tax compliant.
Why Many U.S. Citizens are Renouncing Their Citizenship
For many expats, the confusion of tax season for a country in which they no longer live makes for a miserable few months out of the year. In fact, at Expat Tax Online, we helped over 5,000 U.S. expats file their tax returns, and less than 500 of them even had to pay taxes. This administrative and expensive headache has caused many expats to renounce their American citizenship.
What if I’m way behind on my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.
Get a quote here.
Jenny – A Personal Story from an Expat
Recently, we interviewed Jenny, a U.S. citizen who has lived outside of the country for over 30 years. She originally immigrated from the U.S. to Britain in the 80’s before moving to Canada. Before she renounced her U.S. citizenship on October 17, 2018, she had three different citizenships.
Throughout her decades spent abroad, Jenny had several different accounts and pensions. She felt completely overwhelmed by lawyers that threatened fines for accounts that may be inactive. Every year, Jenny felt anxiety and worry hang over her head around the tax season. Jenny was also active when it came to understanding her taxes. She went to seminars and worked with accountants, including family in the finance industry. However, the thought of paying accountant fees for the remainder of her life finally prompted her to begin the process of renouncing her citizenship. Suddenly, the $2,350 processing fee did not feel so bad compared to a lifetime of accountant fees, anxiety, and hours of paperwork.
Because of the scare tactics used by lawyers and U.S. officials, Jenny felt scared at first. She wondered what would happen if she tried to enter the U.S. She feared that she would be unable to return in case something happened.
Jenny had heard that the interview was stressful and intimidating. However, once she began the process in Canada, she found the officials at the U.S. embassy in Canada were nothing but kind and professional. Jenny found the interview to be straightforward and easy; in fact, no lawyers were present. The officials asked her for her reasons and began the process. From Jenny’s perspective, she had lived outside of the U.S. for over half her life and as she neared retirement, she didn’t see herself going back.
Now, Jenny has received her certificate notifying her of the loss of her nationality, and she couldn’t be happier. She continues to reside in Canada- a country she loves- without the burden of U.S. tax season.
When asked what advice she would give to somebody on the fence, Jenny says to go for it. She recommends that expats choose not to fear the process and instead pursue what they want.
Expat Tax Online is an online tax service that files tax returns for expats. Expat Tax Online can also assist with renouncing your U.S. citizenship.