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April 15, 2016


Expat tax anxiety: 3 things (among many) that make life difficult

Millions of U.S. taxpayers are scrambling this weekend to get their taxes filed. The filing deadline is April 18 in Texas and most of the rest of the country. (Taxpayers in two New England states get an extra day because of a holiday called Patriot Day.)

If you live abroad, or serve in the military overseas, you get a little extra time to file – until June 15. You don’t even have to ask for an extension. But you still have to pay any taxes you owe by April 18.

In this post, we will take note of three things about taxes that make life difficult for Americans living or working abroad.

Taxing the same income twice

The U.S. is an outlier among the countries of the world in asserting the right to tax the income of its citizens and resident aliens regardless of where it was made.
Virtually every other country only taxes income made there. The U.S., however, tries for a global reach.

Not surprisingly, this leads to concerns about double taxation. For example, Bloomberg recently reported on a 40-year-old tech worker who moved to Germany. The man found work as a freelancer, developing software for German companies.

Germany taxed him on this income and he filed a tax return there. But he also had to pay self-employment tax in the U.S., on his German earnings.

To be sure, there is the foreign tax credit. We discussed that in our March 25 post. But there is also a legitimate concern about double taxation.

Onerous reporting requirements

Implementation of the Foreign Account Tax Compliance Act (FATCA) has made life difficult for expatriates in multiple ways.

It isn’t only that the law adds burdensome and confusing reporting requirements for U.S. taxpayers with offshore accounts or income. FATCA also puts pressure on financial institutions around the world to supply Uncle Sam with information about their American customers.

As a result, many overseas banks don’t want to do business with U.S. taxpayers. If you are one of the 8 million U.S. taxpayers living abroad, this can make it a hassle just to open a bank account.

Passport problems

It has been widely reported that the number of U.S. taxpayers who have renounced their citizenship or permanent resident status has increased to record numbers in recent years.

As we noted in our April 8 post, now Congress has added another passport pain point. Under legislation passed late last year, the IRS can now revoke the passports of U.S. taxpayers with certain levels of tax debt.

Tax Evasion