6 ms·

Taxes Prompt More Americans to Renounce Citizenship

42 points by stfu 15y ago

DanielBMarkham 15y ago
We have a truly insane taxation system. In a related story, InfoWars goes on their usual over-hyped tirade over the non-travel law being proposed. Even accounting for the usual hype, it is a serious problem to civil liberties. http://www.infowars.com/irs-travel-ban-revoking-citizenship-by-stealth/ http://www.infowars.com/irs-travel-ban-revoking-citizenship-... (I tried submitting this story but it looks like the domain is on the auto-delete list) I really can't believe the system has gotten as bad as it has.
taligent 15y ago
This is one dumb article. Firstly it's only 1800 people. And secondly of course more people are going to renounce citizenship when the economy is bad versus 2008/9/10 when it was notably better.
- zmanji 15y ago
  Did you read the article? It relates the increase of people renouncing citizenship with the increased enforcement of IRS and legislation targeting foreign income. This has been a topic of discussion in Canada for some time now where there are many dual citizens. I think that it is insane that even if you have not earned any income in the USA for many years you still need to file a return or face insane penalties.
- stellar678 15y ago
  What world were you living in where the economy was notably better in 2008/9/10 than it was in 2011? I'll agree that 1800 is a number so small (three orders of magnitude smaller than the number establishing citizenship/permanent residency) that it's hardly worth a glance.
- GFKjunior 15y ago
  The 'low points' of the economy were in 08-09. The bottom of the market was hit around Feb 09. I use quotes because I personally believe it is still really bad. On another note, does anyone on here have multiple passports? I do and consider it my last resort in case the US becomes a full blown police state.
- loverobots 15y ago
  the econ turns instantly horrible when you live in, say, South Korea and find out that you may owe a fortune to the IRS, just because your dad was /is a US citizen.
  - nknight 15y ago
    If I remember right, there are actually rules about that specific type of situation. If you've never lived in, had any substantial economic links to, or done anything that could be seen as claiming US citizenship, I believe you can renounce your citizenship and received a formal waiver of any tax liability.
aethr 15y ago
I experience this first-hand myself. I am a dual citizen of US and Australian citizenship, living in Melbourne, Australia. Under the tax treaty between Australia and the US, I can declare tax paid to Australia (where I work) and I receive an exemption from paying that amount of tax to the US. With Australia's income tax almost universally higher, this means that I will probably never need to actually pay tax to the US. However, I still have to file tax in both countries every year. This is made more difficult by the fact that the tax year in Australia runs from July to June, with the US running 6 months offset. This makes the paperwork time consuming and difficult to perform, and there are very few accountants in Australia versed in US tax practices, so I can't even go out and hire a professional who can manage both my Australian and US tax lodging. Although I was born and raised in the US and in many ways still think of the US as my homeland, I am on the verge of giving up my US citizenship for exactly this reason.
- jcampbell1 15y ago
  Don't do it. Learn how to use turbo tax online. It costs $50, and takes about 2 hours. I don't know about your personal situation, but you are likely very far from owing any US taxes. You don't need an accountant. Just do it to the best of your ability. It is pretty simple. Income, AUS taxes paid, foreign account list. TurboTax will tell say you owe nothing, then click the e-file button. Don't trash a US passport over $50 and 2 hours. Once you do it once, it will take about 30 minutes the next year.
  - terinjokes 15y ago
    I thought that most of these online solutions bail very early if you don't live in the US.
    - jbarham 15y ago
      FWIW I used H&R Block At Home to file my US tax return after I relocated to Australia and it worked fine. Note that e.g. American teachers at international schools have to file US tax returns so there are accountants out there who understand the issues.
philiphodgen 15y ago
I was the tax lawyer interviewed for this article. I have helped dozens of people terminate their citizenship or green cards. Ask me anything.
- GFKjunior 15y ago
  Very cool that this article interviewed a hn member. My understanding is that you still have to pay taxes for 10 years after terminating citizenship, is this true?
  - philiphodgen 15y ago
    Nope. That was the old system. That went away in 2008. The new system is that you are treated as if all your tax chickens come home to roost at once. All your IRAs etc are treated as distributing. You are treated as selling everything you own. It is a giant mark-to-market event in your life. This applies to "rich" people. This means $2 million net worth and up, or you paid an average of $151k of Fed tax over the previous five years. Under these limits? You are out with paperwork, no tax.
- thematt 15y ago
  For those that do terminate their citizenship, what is the most common country they choose to live in afterwards? In other words, where is the grass perceived to be greener?
  - philiphodgen 15y ago
    Most of my clients end up in high tax countries. Europe. Canada. NZ or Australia. Makes you question the knee-jerk bias, doesn't it?
    - timClicks 15y ago
      How do people tend to find the move after 2-3 years?
wheels 15y ago
Another annoyance: with the latest batch of reporting regulations for accounts of US citizens, many foreign banks won't let US citizens open up investment accounts since it's not worth it to them to deal with the reporting. (Presumably they make exceptions for large accounts, but e.g. in Germany, where I live, most online brokerages don't allow such.)
- philiphodgen 15y ago
  This is increasingly common. You know the saying "The Internet interprets censorship as damage and routes around it"? Substitute the US tax system for internet. Our politicians and bureaucrats do not understand that it is a very big world. We risk declaring ourselves irrelevant. A large chunk of the world may simply shrug and say "meh who needs you." Exhibit A: China loosened its currency today. You KNOW they are going to pimp it as a reserve currency preferable to the USD.
  - HSO 15y ago
    Isn't it funny, when the Chinese don't loosen their currency, it's called mercantilism; when they do, they "pimp [the CNY] as a reserve currency". A case of damned if they do, damned if they don't?
    - philiphodgen 15y ago
      Yeah it is a no-win. Not only for the Chinese government but for all of us--critics will be with us. The Chinese government is taking an action to create its own future. Let's see what happens. I was a boy living in Africa at the tail end of the Empire. I still remember watching the pound sterling slowly drift into irrelevance.
- beedogs 15y ago
  The reporting requirements are seriously going to be what gets me to renounce. The limit they set -- $10,000 -- is absurdly low, and, honestly, since all of my income and all of my savings are made and held outside of the US, I don't see how it's any of the IRS's goddamned business in the first place.
beagle3 15y ago
I estimate I spend two full work weeks a year on doing my nontrivial US taxes (and that's on top of paying a professional to actually do that -- that's just the "homework" he leaves me with, which he cannot do himself because he doesn't know the country's internal tax codes and language)[1]. This is an additional 4% tax on my time that is counted nowhere. And the tax professional's fees are not actually deductible because I'm in AMT regime. My effective tax rates turns out to be 10% or so above my official bracket all things considered -- in the sense that I cannot avoid paying those 10% (even if they do not go to the government's coffers -- they come out of mine) I have income coming in from another country, which makes things complicated. I have to file there as well; I think it amounts to about 5 hours collected over a year to file (and that includes reporting my US based income to that country). The federal US tax code is 73,000 pages. If you're an average person (you don't have fisheries or hundreds of the other special cases and exemptions), then only 5,000 pages or so are relevant to you (not the same 5,000 to every person - of course). And those 5,000 pages change ever so slightly every year. If you've been doing your taxes by yourself, it is almost guaranteed that you are either overpaying or did something wrong (or both). Even if you are using a professional, the chances are extremely likely you are overpaying and/or wrong. And if you are living in the US, you have state tax codes on top of that. Living in NJ and working in NY? You have two tax codes to work with and reconcile. This is a complementary insane and broken part of the system to what's discussed in other responses to this posts. In most european countries, if you are a salaried worker, you don't ever file anything with the IRS equivalent unless you have a nontrivial, uncommon situation (e.g., working for two employers at the same time _and_ you do not want them to know about each other; or income from abroad). [1] No, I haven't been able to find someone who is qualified enough in both jurisdictions. My situation is complicated, though far from unique -- and no, as the "other way around" shows, a reasonable tax code can make filing trivial even if the situation is not.
jbarham 15y ago
Quite apart from Americans denouncing their citizenship, this absurd tax policy is surely a strong disincentive for many ambitious and successful global entrepreneurs from considering taking out US citizenship or applying for a green card, since many of the same penalties apply. In my case as a Canadian, I worked as a software engineer for 4+ years on work visas in California before relocating to Australia in late 2010. My wife is an Aussie so I have permanent residency in Australia. Although I turned off my US job site profiles, I still get emailed regularly by US recruiters asking if I'd be willing to move back to the US. My answer is always no. The opportunity cost of living under the restrictions of work visas in the US and playing the green card queue lottery in a potentially lousy job before your time runs out is just too high.

42 points by stfu 15y ago

We have a truly insane taxation system. In a related story, InfoWars goes on their usual over-hyped tirade over the non-travel law being proposed. Even accounting for the usual hype, it is a serious problem to civil liberties. http://www.infowars.com/irs-travel-ban-revoking-citizenship-by-stealth/ http://www.infowars.com/irs-travel-ban-revoking-citizenship-... (I tried submitting this story but it looks like the domain is on the auto-delete list) I really can't believe the system has gotten as bad as it has.

taligent 15y ago

This is one dumb article. Firstly it's only 1800 people. And secondly of course more people are going to renounce citizenship when the economy is bad versus 2008/9/10 when it was notably better.

zmanji 15y ago
Did you read the article? It relates the increase of people renouncing citizenship with the increased enforcement of IRS and legislation targeting foreign income. This has been a topic of discussion in Canada for some time now where there are many dual citizens. I think that it is insane that even if you have not earned any income in the USA for many years you still need to file a return or face insane penalties.
stellar678 15y ago
What world were you living in where the economy was notably better in 2008/9/10 than it was in 2011? I'll agree that 1800 is a number so small (three orders of magnitude smaller than the number establishing citizenship/permanent residency) that it's hardly worth a glance.
GFKjunior 15y ago
The 'low points' of the economy were in 08-09. The bottom of the market was hit around Feb 09. I use quotes because I personally believe it is still really bad. On another note, does anyone on here have multiple passports? I do and consider it my last resort in case the US becomes a full blown police state.
loverobots 15y ago
the econ turns instantly horrible when you live in, say, South Korea and find out that you may owe a fortune to the IRS, just because your dad was /is a US citizen.
- nknight 15y ago
  If I remember right, there are actually rules about that specific type of situation. If you've never lived in, had any substantial economic links to, or done anything that could be seen as claiming US citizenship, I believe you can renounce your citizenship and received a formal waiver of any tax liability.

aethr 15y ago

I experience this first-hand myself. I am a dual citizen of US and Australian citizenship, living in Melbourne, Australia. Under the tax treaty between Australia and the US, I can declare tax paid to Australia (where I work) and I receive an exemption from paying that amount of tax to the US. With Australia's income tax almost universally higher, this means that I will probably never need to actually pay tax to the US. However, I still have to file tax in both countries every year. This is made more difficult by the fact that the tax year in Australia runs from July to June, with the US running 6 months offset. This makes the paperwork time consuming and difficult to perform, and there are very few accountants in Australia versed in US tax practices, so I can't even go out and hire a professional who can manage both my Australian and US tax lodging. Although I was born and raised in the US and in many ways still think of the US as my homeland, I am on the verge of giving up my US citizenship for exactly this reason.

jcampbell1 15y ago
Don't do it. Learn how to use turbo tax online. It costs $50, and takes about 2 hours. I don't know about your personal situation, but you are likely very far from owing any US taxes. You don't need an accountant. Just do it to the best of your ability. It is pretty simple. Income, AUS taxes paid, foreign account list. TurboTax will tell say you owe nothing, then click the e-file button. Don't trash a US passport over $50 and 2 hours. Once you do it once, it will take about 30 minutes the next year.
- terinjokes 15y ago
  I thought that most of these online solutions bail very early if you don't live in the US.
  - jbarham 15y ago
    FWIW I used H&R Block At Home to file my US tax return after I relocated to Australia and it worked fine. Note that e.g. American teachers at international schools have to file US tax returns so there are accountants out there who understand the issues.

philiphodgen 15y ago

I was the tax lawyer interviewed for this article. I have helped dozens of people terminate their citizenship or green cards. Ask me anything.

GFKjunior 15y ago
Very cool that this article interviewed a hn member. My understanding is that you still have to pay taxes for 10 years after terminating citizenship, is this true?
- philiphodgen 15y ago
  Nope. That was the old system. That went away in 2008. The new system is that you are treated as if all your tax chickens come home to roost at once. All your IRAs etc are treated as distributing. You are treated as selling everything you own. It is a giant mark-to-market event in your life. This applies to "rich" people. This means $2 million net worth and up, or you paid an average of $151k of Fed tax over the previous five years. Under these limits? You are out with paperwork, no tax.
thematt 15y ago
For those that do terminate their citizenship, what is the most common country they choose to live in afterwards? In other words, where is the grass perceived to be greener?
- philiphodgen 15y ago
  Most of my clients end up in high tax countries. Europe. Canada. NZ or Australia. Makes you question the knee-jerk bias, doesn't it?
  - timClicks 15y ago
    How do people tend to find the move after 2-3 years?

wheels 15y ago

Another annoyance: with the latest batch of reporting regulations for accounts of US citizens, many foreign banks won't let US citizens open up investment accounts since it's not worth it to them to deal with the reporting. (Presumably they make exceptions for large accounts, but e.g. in Germany, where I live, most online brokerages don't allow such.)

philiphodgen 15y ago
This is increasingly common. You know the saying "The Internet interprets censorship as damage and routes around it"? Substitute the US tax system for internet. Our politicians and bureaucrats do not understand that it is a very big world. We risk declaring ourselves irrelevant. A large chunk of the world may simply shrug and say "meh who needs you." Exhibit A: China loosened its currency today. You KNOW they are going to pimp it as a reserve currency preferable to the USD.
- HSO 15y ago
  Isn't it funny, when the Chinese don't loosen their currency, it's called mercantilism; when they do, they "pimp [the CNY] as a reserve currency". A case of damned if they do, damned if they don't?
  - philiphodgen 15y ago
    Yeah it is a no-win. Not only for the Chinese government but for all of us--critics will be with us. The Chinese government is taking an action to create its own future. Let's see what happens. I was a boy living in Africa at the tail end of the Empire. I still remember watching the pound sterling slowly drift into irrelevance.
beedogs 15y ago
The reporting requirements are seriously going to be what gets me to renounce. The limit they set -- $10,000 -- is absurdly low, and, honestly, since all of my income and all of my savings are made and held outside of the US, I don't see how it's any of the IRS's goddamned business in the first place.

beagle3 15y ago

I estimate I spend two full work weeks a year on doing my nontrivial US taxes (and that's on top of paying a professional to actually do that -- that's just the "homework" he leaves me with, which he cannot do himself because he doesn't know the country's internal tax codes and language)[1]. This is an additional 4% tax on my time that is counted nowhere. And the tax professional's fees are not actually deductible because I'm in AMT regime. My effective tax rates turns out to be 10% or so above my official bracket all things considered -- in the sense that I cannot avoid paying those 10% (even if they do not go to the government's coffers -- they come out of mine) I have income coming in from another country, which makes things complicated. I have to file there as well; I think it amounts to about 5 hours collected over a year to file (and that includes reporting my US based income to that country). The federal US tax code is 73,000 pages. If you're an average person (you don't have fisheries or hundreds of the other special cases and exemptions), then only 5,000 pages or so are relevant to you (not the same 5,000 to every person - of course). And those 5,000 pages change ever so slightly every year. If you've been doing your taxes by yourself, it is almost guaranteed that you are either overpaying or did something wrong (or both). Even if you are using a professional, the chances are extremely likely you are overpaying and/or wrong. And if you are living in the US, you have state tax codes on top of that. Living in NJ and working in NY? You have two tax codes to work with and reconcile. This is a complementary insane and broken part of the system to what's discussed in other responses to this posts. In most european countries, if you are a salaried worker, you don't ever file anything with the IRS equivalent unless you have a nontrivial, uncommon situation (e.g., working for two employers at the same time _and_ you do not want them to know about each other; or income from abroad). [1] No, I haven't been able to find someone who is qualified enough in both jurisdictions. My situation is complicated, though far from unique -- and no, as the "other way around" shows, a reasonable tax code can make filing trivial even if the situation is not.

jbarham 15y ago

Quite apart from Americans denouncing their citizenship, this absurd tax policy is surely a strong disincentive for many ambitious and successful global entrepreneurs from considering taking out US citizenship or applying for a green card, since many of the same penalties apply. In my case as a Canadian, I worked as a software engineer for 4+ years on work visas in California before relocating to Australia in late 2010. My wife is an Aussie so I have permanent residency in Australia. Although I turned off my US job site profiles, I still get emailed regularly by US recruiters asking if I'd be willing to move back to the US. My answer is always no. The opportunity cost of living under the restrictions of work visas in the US and playing the green card queue lottery in a potentially lousy job before your time runs out is just too high.