Greenback Expat Tax Services has revealed a surprising statistic from a recent survey: nearly one-third of American expatriates are strongly considering renouncing U.S. citizenship to simplify their tax season.
A Burden to Bear
Many Americans are baffled by the process of filing taxes, and those who live abroad are no exception. Foreign paperwork, translation efforts, and additional filing categories further complicate the already tremendous feat.
Freelance Filing From Afar
Post-COVID, many Americans have opted for a freelance lifestyle to fund their globetrotting. Freelance visa workers will need to comb through invoices, emails, and contracts.
This often receives little to no support, as freelancers do not have a set bureaucratic system to rely on.
Discomfort Beyond Borders
Unsurprisingly, tax season causes many to panic. In a recent survey, 1 in 5 US expats claimed feeling uneasy when asked how confident they felt in their abilities to accurately account for their income.
An Underrepresented Group
When compared to the USA’s gargantuan population, only 5.1 million citizens live outside the borders long-term.
Subtracting those in military service, that leaves a mere 3.9 million who are left bewildered during the month of April.
CEO Weighs In
“We also saw a big jump this year in terms of dissatisfaction…” states Greenback CEO Mike Wallace. He notes a significant increase (30% of expats) with the percentage of expats desiring to forgo their American passport.
Homeland Demands
All U.S. citizens, regardless of their homebase locale, are required to file U.S. income taxes. This subjects many of those living and working abroad to dual taxation: Once in the U.S. and once in their country of residence.
Filing Frustrations
There are options to avoid double taxation. The IRS offers certain tax credits as well as a foreign income exclusion document to lessen the burden.
However, this can be a lengthy and costly measure, which is often a bigger headache than handling paying tariffs in two countries.
Under a Microscope
Expats, along with their annual income tax, also may be obligated to organize FBAR filing. This report involves registering any foreign bank accounts and other international financial records.
Pay the Price
Ensuring thorough tax filing is crucial for all citizens, particularly emigrants. Without proper paperwork, some could suffer severe penalties from the IRS.
Dazed and Confused
While the IRS insists on FBAR filing regulations, an estimated 17% of foreign-living citizens are not aware of what FBAR is.
An even higher percentage skip the filing consciously, running a risk that could make repatriation an expensive process.
Voting With Tax Returns
It is no surprise that many expats have a distaste for domestic politics. In fact, around 75% of expats report feeling unrepresented in civic affairs.
Self-Sacrifice or Self-Sabotage?
“While dumping U.S. citizenship to forgo the ‘tax and reporting headache’ may be tempting for some expats, it generally doesn’t make sense,” declared Jude Boudreaux, a certified senior financial planner at The Planning Center.
Think Things Through
Expatriates can successfully file their taxes with an egregious amount of effort, but it may very well be worth it.
Those wishing to visit family or return home for the holiday season will have a much easier time re-entering the country.
Ask an Expert
Boudreaux cautions that dodging legal filing practices could create economic challenges if expats plan to return home. Instead, Boudreaux advises seeking professional assistance to assuage any complications.
A Pragmatic Approach 15
Giving up your passport is certainly an aggressive move, most likely tied to underlying political statements.
Tax experts like Boudreaux and Wallace encourage a less permanent solution for tax management, which diminishes the need for such actions.
The Cost of Freedom
In order for expats to fully surrender their passports, there are certain hoops to jump through. After collecting the necessary documentation, future ex-Americans should be prepared to pay a fee of $2,350.
Closure
In an ongoing struggle with the IRS’s infuriating processes, pressure for reform may come from one of the smallest groups of representatives.
Growing political tensions lead to a prediction that is less a matter of “if” and more a matter of “when.”
The post American Expats Contemplate Giving Up Citizenship Over Tax Burden first appeared on Wealthy Living.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
