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FAQ

My friend pays US taxes despite residing in Canada for many years. She doesn't earn any money within the US. Why does she have to pay the Americans taxes?
She is far from alone as there are estimated 8 million US Persons (citizens or Green Card holders) who reside outside of the US. The vast majority are not wealthy individuals.She may not distinguish between the obligation to FILE and being assessed a TAX BILL; the first is unavoidable, the second may often not exist.You friend is obliged to FILE reports to two different agencies a) US Federal Income tax to the IRS AND b) Foreign Accounts reporting to FinCEN every year.In most cases, the tax bill to the IRS is zero due to tax treaties to avoid double taxation.However, US taxation is very complex and on a schedule that is usually not in sync with foreign taxation so complying, under threat of severe penalty, is very onerous to the ordinary expatriate.FILING OBLIGATIONS TO IRS AND TO FinCEN (paperwork)Regardless of location of residency, Americans have worldwide lifelong obligation to officially provide worldwide financial information to two separate US Federal entities:to FILE US income tax to the IRS every year (even if your US tax would be zero) andto REPORT on any non-US bank accounts to FinCen if, at any point, your total non-US holdings reached $10k or more. (FATCA)US FEDERAL TAX OFTEN ZERO DUE TO FOREIGN INCOME TREATMENT (rarely, a tax bill)However, the tax due to the IRS may be reduced (even to nil) if you are an official resident of another country and are eligible to either one of two tax regimes:Either Foreign Earned Income Exclusion. You choose not the be subject to US taxes for income under a threshold, prorated for any period physically present in the US in any given year. This amount is currently around $90k maximum. Note that this is best for salaried expatriates as non-earned income (foreign fund investments, foreign capital gain on real estate, foreign pensions ARE NOT eligible for the FEIE!)Or Foreign Tax Credit. This regime allow you to apply the income tax paid to a foreign tax authority as a credit to the calculated US income tax. This is a better choice if most of your income is NOT from salary.If your foreign income tax (in a treaty-linked country) is greater than the calculated US income tax, your US tax is reduced to zero.If your foreign tax is less than the US’, then you have to pay the IRS the difference.Problems/Unfairness for US Expatriates and Dual NationalsUnearned foreign income from foreign investments may be taxed by both the foreign tax authority AND the IRS. Thus, foreign pensions, capital gains and investments may suffer from the cumulative taxation of two countries!Non-US investments such as in collective investment instruments are dissuasively taxed relative to mutual and stock funds in the US. Foreign capital gains are taxed at higher “ordinary income” rates. If one wishes to invest in foreign stocks, it’s best to use a US-based fund investing in ADRs of foreign companies. One can also invest in individual foreign stocks but you would have to deal with the multiplicity of reporting and accounting tasks.It costs to prepare US taxes, sometimes over a thousand dollars depending upon the complexity of your US tax situation. For Americans resident overseas of limited means, the actual cost of complying may be in the hundreds to thousands of dollars - even if the net IRS tax bill is zero!In some countries, access to timely and relevant US tax information and advice is poor.Out of sight, out of mind is NOT an option as the US has forced foreign banks to comply with warrantless financial information reporting arising from FATCA!Accidental “US Persons” are targeted, not just people with a US SS# or passport. Israelis, Indians etc. have received penalty notices only to find out that one parent may have been an American or that they had been born in the US but left as a baby.Sanctions are drastic on foreign banks who don’t comply with acting as screeners for the IRS in identifying US Persons. Americans and their spouses have had their foreign bank accounts blocked until they provide proof that they are not subject to US taxation or compliant with FATCA reporting requirements!Tax evasion is a Federal felony in the US versus an administrative infraction in other countries. The IRS is the best resourced fiscal agency in the world and never forgets.If an American wishes to give up US citizenship, it is not easy or free of cost or fiscally definitive:Your tax compliance status with the IRS must be complete.All your US assets would be subject to an Exit Tax, tantamount to a tax on gifting to a foreigner!If the IRS deems, unilaterally, that you will have renounced your US citizenship mainly for the purpose of avoiding US taxes, it may pursue you for up to 10 years after renunciation!10. Expatriate American taxpayers have little effective political representation. Unlike some countries that have a specific parliamentarian group for expatriate voters, Americans can ONLY vote in the most recent US local district. Thus, their concerns are usually submerged by their former local US communities‡ concerns. Even though the vast majority of expatriate Americans are not wealthy, many are stressed out by the cost and complexity of filing US taxes as well as local taxes, the populist, inaccurate political propaganda that they are wealthy tax cheats. In fact, there are far higher levels of tax “optimization” by US corporation using tax havens than by the millions of ordinary expatriates.
How is a small salary or income (under USD 10,000) of a US citizen after taxes in India treated in the USA?
Waiting for 2021 figures from the IRS, but for 2017:If you are single and under age 65 and your total income - before taking any exclusions (Form 2555 Foreign Earned Income Exclusion) - is less than US $10,400, you are not required to file. If over 65, the figure is $11,950.If married filing separate (to an Indian or other foreign national) the required filing limit is $4050.If married filing jointly, the figure is $20,800.Filing is a separate question as to whether you OWE tax.Note that if you have a bank account there, and at any time it exceeded the value of $10,000 during the year, you must also file a FinCEN 114 FBAR, but that is a separate issue to the tax return.
What is the American expat tax exclusion amount?
The answer is not simple. You should use a tax preparer familiar with the tax needs of expatriate American taxpayers.Even if your US tax is zero, you are legally obliged to file US taxes until your death or until your income level falls below statutory minimum.Expats have INDEPENDENT sets of filing requirements concerning their foreign financial matters; failure to comply makes you liable to high penalties:Income tax declarationForeign financial accounts and instruments reportForeign corporate interestsIncome tax on income earned from foreign activities is treated by one of two alternative regimes:FEIC (Foreign Earned Income Exclusion) If you are a legal resident of a foreign nation where you are taxed, you can opt to exclude up to a threshold maximum of some $90k, PRORATED only for the time you were not in the United States. If you are not a legal resident of the foreign nation, you cannot use this regime unless you were physically present for more than 6 months per calendar year (but most foreign nations would oblige you to be legally resident for that period length, anyway). This exclusion is ONLY FOR EARNED INCOME, not other sources of income like interest, social benefits, dividends, capital gains, gifts, inheritance or trust disbursements.FTC (Foreign Tax Credit) If you are taxed by a foreign government with which there is a double taxation treaty with the USA, you may opt for the regime where you deduct certain taxes paid to foreign governments from your calculated US tax amount.I reiterate, you also have to file “FBAR” reports every year that you total non-US liquid assets exceeded USD10k at any point in the year.
I am a U.S. Citizen working in India, do I have to pay tax to the U.S. Government?
As a basic rule, all U.S. citizens, even those residing outside the United States, are subject to U.S. tax and reporting on their worldwide income. They must annually report all of their income to the IRS, just as they did prior to moving abroad, whether the income is from U.S. sources or foreign sources (for example, income from your employment in India) and whether or not the income is taxed or reported in the new country of residence. This system of citizenship-based taxation (rather than residence-based taxation) is unique to the United States (the only other country that taxes its citizens in this manner is Eritrea).For some further pointers on this topic, please see our recent article on Money 101 regarding common U.S. expat tax myths:http://time.com/money/4298634/ex...That being said, the good news is both U.S. domestic tax law and U.S. tax treaties contain a number of provisions that are designed to prevent “double taxation,” or taxation on the same income in both countries (e.g., the U.S. and the new country of residence). Domestic law provisions include the foreign earned income exclusion (for 2021. you can exclude up to $102,100 of your foreign earned income), the foreign housing exclusion, and the foreign tax credit. These provisions, in many cases, can reduce or even eliminate the U.S. federal income tax that would otherwise be due by you. Keep in mind, however, that even if no U.S. tax is owed, a U.S. tax return still generally must be filed in order to benefit from these provisions, and the failure to do so can result in severe penalties.In order to escape the U.S. tax net, you may consider renouncing your citizenship, but this involves a number of unique tax issues. Please see our recent article on CNBC US Home for an analysis of these issues.http://www.cnbc.com/2016/05/17/e...
Why do some people have to travel abroad and stay there for years and years for business?
You answered your own question. They move to earn a living.There are plenty of good reason to move to a foreign country for ones business or to work in industry.Tax benefits. The IRS considers work in a foreign country as a family burden and allows one to exclude paying taxes on the first $102,000 of income. **The Foreign Earned Income Exclusion (FEIE, using IRS Form 2555) allows you to exclude a certain amount of your FOREIGN EARNED income from US tax. For tax year 2021 (filing in 2021. the exclusion amount is $102,100.US companies often provides FREE housing, a car, first class airfare and plenty of time off.The unique opportunity to work in a foreign country and “see the world” on company money is pretty attractive.In many foreign places living is cheap. One can work for a US company earning $100,000 in China where the average income is $5,200/year. Plus pay no IRS taxes! HmmmOne of my best friends went to Singapore to work in quality control 25 years ago, has worked in Thailand, China, Malaysia and now the Philippines. He said 20 years ago “ in the US I would need to buy my own car, buy my own house and would earn less than $40,000/yr, I will never come back to the US to work”. In Singapore he was earning $70,00, free car and free beautiful home with a pool. In the other countries he earned $90–140,000 with everything free, 6 weeks vacation, plenty of holidays and first class airfare to the US and back.It’s a great gig and many Americans do work in foreign countries from teaching English a couple years to working for NGOs for a few years to working in business/industry for many years. Our government too has plenty of jobs available in countries all over the world.
In which country I can get citizenship easily?
I sell real estate to many Arabs and Iranians for citizenship. I am not going to promote my business on this platform. Don’t worry about it. My experience is that having the citizenship of countries like Macedonia, Bulgaria, Montenegro or Turkey make more sense than Caribbean island passports. They are in Europe and passport owner might live in big cities and has more logistic-travel opportunities . These countries are all modern independent states. The tax system is very advantageous in these type of countries, especially if you have your income coming from your native country. On the other hand , EU countries check everything in detail and conditions to become citizens are tighter and more expensive.For a lot of wealthy people having a second or third passport is important for the ability to travel. Travel benefits and the status that comes along with owning real estate around the world, the programs also allow people to manage their tax burdens. Second citizenship is becoming more than just getting a passport, there are certain advantages towards using second citizenship to create residence in countries where tax burdens would be lower than where you are at the current time.I mostly deal in Turkey. In Turkey, getting a 250,000 usd real estate makes you a citizen . You can even make money out of the real estate because there has been a devaluation in Turkey. You need to wait for 3 years to sell the property though‡ I work for the clients and assist them to get citizenships and also make money for the client. Real estate returns are attractive in Turkey . When they are satisfied they tell their stories to others and this way reputation itself makes money.The process normaly takes 6 months for citizenship however most people become citizens in less than 4 months. The process is efficient.However Macedonia also offers the best of both worlds: the benefits of Europe and visa-free access to the Schengen Area, but none of the problems associated with being a part of the European Union. Located south of Serbia in the Balkans, Macedonia is one of the many business-friendly countries in eastern Europe. Tax rates for both companies and individuals are a flat 10%, and the government is efficient.If you’re willing to start a business and hire local workers, you can become a Macedonian citizen in less than one year. In fact, Macedonia has the least talked about economic citizenship program in the world, targeted specifically at entrepreneurs who can invest at least 400,000 euros into a real business.Similar to Portugal’s Golden Visa program for entrepreneurs, Macedonia requires you to tie up your capital but gives you citizenship in as little as 6-12 months. Macedonia also no longer requires you to live there for six months in most cases.The easiest places to get citizenship except the countries I mentioned is listed below:Dominica: A donation to the National Transformation Fund of $100,000 (£77,113) for a single applicant, or $200,000 (£154,226) for a family of four, or A real estate investment of $200,000 (£154,226).St. Kitts and Nevis ‡ Citizenship from $250,000 -A real estate investment of at least $400,000 (£308,480) held for five years, or-A non-refundable contribution of at least $250,000 (£192,800) to the Sugar Industry Diversifcation Foundation (SIDF) (depending on the number of members in your family).Grenada ‡ Citizenship from $200,000 (£154,226) .-A $200,000 (£154,226) donation to the Grenada National Transformation Fund, or Real estate investment of at least $350,000 (£269,874).Malta ‡ Citizenship from €150,000 (£131,521). A non-refundable contribution of at least €650,000 (£569,925) to National Development and Social Fund, or Investment of at least €350,000 (£306,883) in property, or a property rental contract for at least €16,000 (£14,029), held for five years, or Purchase of €150,000 (£131,521) im government bonds, held for five years.Cyprus (expensive) Real estate investment of €2 million (£1.8 million). A minimum of €500,000 (£438,497) and privately owned residence in Cyprus valued at at least €1.5 million (£1.3 million). Source. Business InsiderWe are still far away from the discovery and colonization of Mars. Therefore the passport below won’t work very well….Source: Youtube;""
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