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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 prworldwide 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 prproof 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.
Do you need to file a state income tax form if you owe no money, have no property in the US, and have lived overseas for 7 years?
How much time do you spend each year in which State(s)?State income tax will be based on either working while physically present in the state, conducting a trade or business in the state, or having residence in the state.The latter will usually have de minimus and threshold rules. Example less than 30 days you can claim non-residency, more than 180 days you are automatically resident, in between will depend on circumstances. Rules are different for each State. Go to their website and find the rules.Are you bona-fide non-resident for federal taxes purposes? (E.g. Filing form 2555)
How can a Canadian resident (dual US-Canadian Citizen) file their first tax return with the IRS under the "Streamlined Foreign offshore procedures"?
The Streamlined procedures are not that complicated, on their face. All you have to do is file 3 years• tax returns, 6 years• Foreign Bank Account Reports (“FBARs”) and a form indicating why you didn’t comply earlier.There are a few complications around eligibility, but even that is not that bad.My blog: The IRS Changes the Streamlined Program for Americans with Foreign AssetsMy later blog: Update o the U.S. ‘Streamlined• Voluntary Disclosure ProgramIRS page: U.S. Taxpayers Residing Outside the United StatesBut it’s not quite so easyThe first real challenge is in filing your returns correctly. It’s important, because they’re going to get more scrutiny than a run-of-the-mill return, and not many people know how to prepare them correctly. US returns for Americans abroad are hard, but they don’t look it.For instance, if you have even a moderate amount of liquid wealth, you’re probably doing extra information reporting.If you sold a house, some of the gain may be taxable, even though it isn’t for Canadian purposes. If you have mutual funds, they are Passive Foreign Investment Companies (“PFICs”). They are taxed in a nasty, unfair way, and they require extra reporting.Stock options are taxed differently.If you own shares in a closely-held corporation, set up a trust or are a beneficiary of a trust, you’ve got extra reporting, and you may be taxed in a way that is, to say the least, counter-intuitive.If you’ve got these kinds of complications, don’t try this at home. Get a professional. It won’t be cheap, but getting it wrong can be very, very expensive.And now that you’re in the system…You need to do your tax planning in duplicate. You have the same issues as any other Canadian, but you want to ensure that you’re not dinged by the United States for doing what Canadians consider “ordinary”.So do you want to get out? Here’s how to do it:My blog: Expatriation - The Tax Aspects of Giving Up U.S. CitizenshipMy peer-reviewed academic paper (in case you have trouble sleeping): Canadian Tax Journal2013, Volume 61, Issue Number 1
Do I have to pay income taxes in the US if I am an American citizen working in Mexico and I pay income taxes there? Do I still have to file in the US?
You always have to file a tax return. Americans are taxed on global income regardless of their residency.Whether you have to pay or not is a different story. The is a Foreign Income Exclusion that you can calculate using Form 2555. There is also a Foreign Tax Credit that you can calculate using Form 1116.You can use either, whichever works better for you. If circumstances work out, you can use both, but not on the same income. For example, if you earn more than the Foreign Income Exclusion, you can use the tax paid to the foreign country on the remaining balance only for Foreign Tax Credit.Basically, you should be able to avoid double taxation, but you are still responsible for reporting it with a tax return. The normal April 15 deadline is automatically extended to June 15 for overseas filers.Also, there is one other form you must fill in, and that is the FBAR, if you have more than $10,000 in combined foreign bank accounts on just a single day during the year. This can be filed online and has a due date of April 15, but late filers have an automatic extension to October 15.Individuals Filing the Report of Foreign Bank and Financial Accounts (FBAR)
Prior to his embassy interview, the embassy will send him an email or letter with a checklist on what to bring to the interview. Have him double check this checklist as the lists are not the same for each embassy. There are embassy specific item requirements.Below is a common list of checklist items accross all embassies.U.S. embassy interview appointment confirmation.DS-160 Non-Immigrant Visa Application (DS-160) Confirmation Page.Unexpired passport valid for six months beyond the intended date of entry into the United States.Four 2? x 2? passport photos of the intending immigrant.Medical report envelope if the medical facility gave to hand carry to the interview.Police clearance from intending immigrant’s country and other countries, if required.Visa application payment receipt.Birth certificateAffidavit of Support (I-134 in most embassies or I-864 if the particular embassy required that one instead).Financial Documents of petitioner (and joint sponsor, if applicable) including either the latest tax year tax return transcript or itemized tax return. You can prthe last 3 years also optionally. Also, include W2, 1099, Form 2555, or other statements showing income received depending on the sponsor’s income situation.If using joint sponsor, the joint sponsor’s proof of US citizenship or lawful permanent residence.Documentation showing that the income is current including recent pay stubs or employment confirmation letter.Military Records of intending immigrant, if applicableCriminal Records of intending immigrant, if ApplicableProof of relationship including photos, chat or call logs.Translations, if any documents are not in English.Other Embassy Specific Requirements listed on specific embassy checklistAgain, READ the actual checklist from the embassy to confirm exactly what is required for the specific embassy. For example, the US embassy in Manila Philippines requires a document called a CENOMAR (Certificate of No Marriage) for the intending immigrant, issued by the Philippine government, that other embassies do not require.His divorce papers would have been required with his I-129F petition, so the embassy will have those.I write free information and articles on the US fiancé and spouse visa processes along with adjusting to new life in the USA on my website and blog. See my website and blog in my biopage.
Why is it that personal protection has become the top reason people buy guns when violent crime has fallen precipitously? (Please see comment for explanation. Not intended as pro or anti gun.)
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