Taxes When Living Aboard

[BlackTiger]

The downside of being a U.S. Citizen is taxes. In the case of U.S. Citizens, taxes and death is 100% certain. I am escaping the mainland to avoid another tax. I do not need a $150 health bill every month or a fat penalty tax from the IRS. And I would like to avoid paying any local/state taxes. Paying the federal government is bad enough for me... We're looking at 28 to 33% of my income. I would like to someday give up my citizenship. But it seems like the U.S. doesn't want people escaping them. Recently, they upped the fee to resign citizenship to nearly $2,300?!? Wasn't it less than $500 at one time or even FREE? I am gaining income from the internet. I happen to get it from google inc., which means I have to pay taxes to the federal government.

[jmschmidt]

Sorry Black Tiger but if you are a US citizen or a "US Tax Person" as defined in the Internal Revenue Code you are responsible to file a US federal income tax return yearly and report all you income from every source and from every location worldwide. It may escape some or all taxation depending on where it was earned, the amount and under what circumstances. Renouncing citizenship will not avoid this obligation since you will still be a US Tax Person for at least ten years in most circumstances. About the best that can be done when living outside the US is avoid any state income taxes by establishing a residence in a no-income-tax state like Washington, Nevada or Wyoming (which are close to Idaho), change your address (no a PO box won't cut it), get a drivers license, join a club or church, open a bank account, register to vote, even get a job for a while, ... you get the picture. There are about 30 items that state tax enforcers from your old state may look at to judge that you are really a resident of another state. No one, or eve 6 or 8 of these items will seal the deal. So don't leave so much as a trace of yourself in your original state. If you then leave the country at least you should be safe from the state tax collectors. But don't try to shine on the IRS.

[BlackTiger]

jmschmidt

I am actually in the process of moving to the United State Virgin Islands. Living there will exempt me from paying any state taxes and requirements of having health insurance. According to my tax advisor, all I will be paying is Federal.
Edit: My business will be registered in the state of wyoming, which does not require corporate taxes.

In regards to renouncing my citizenship and having responsibility of paying federal income tax, I wasn't quite clear. You're right. Even non U.S. citizens who create income from within the U.S. are obligated to pay taxes. But renouncing citizenship and earning a living outside the U.S. should not obligate you to paying the U.S. government taxes, that would be absurd. If that is true, than

[jmschmidt]

Sorry again Black Tiger but a US citizen who renounces his US citizenship is considered a US Tax Person for ten years after renunciation. There are exceptions to that which are considered by the IRS on a case by case situation. Example: A parent or close relative becomes ill in your country of origin and has absolutely nobody (and I mean freaking body) to care for them and no means to support themselves. If you can prove this to the IRS by documentary evidence you may, I say may, be able to renounce without the ten-year thing hanging over your head. In this case you would also have to sign an agreement that you are absolutely not taking this action to avoid US taxes. Good luck with that. Even a US Green Card holder is on the hook for US taxes for ten years even if they turn in there Green Card and move back to their home country. Exception: A Green Card Holder may turn in their Green Card no harm, no foul, and no ten-year tax obligation, if done within two years of receiving the card. This may be absurd but it is the law. I have first-hand experience at this. Send me a private message if you would like more information.

[BlackTiger]

jmschmidt

I am reading news stories of the filthy rich renouncing u.s. citizenship to avoid paying taxes. Maybe I read it wrong. Either way, I have no plans to renouncing my citizenship unless I strike it rich (millionaire rich).

I'd ask for proof, but I'm sure what you are saying is true.
So all U.S. Citizens are, depending on your definition, a slave to the system (my point of view). Sad to hear that I have to pay to live on this planet if I want to contribute to humanity in some way. I guess that's life.

[sailorchic34]

I should note that I did not file income tax forms last year as my income was less then $600 for the year. When i do file, I file with a PO box address as I have no physical address. That is allowed by the IRS, "IF" you have no physical address. The IRS after all really wants your money. Even my drivers license lists the PO box. Makes it a little tricky getting a bank account though.

This year I will file income tax forms as my income was over $600. Though it's still less the $10k (way less) so will not pay taxes.

[a64pilot]

SC,
I though folks with not much income were sort of in a negative tax bracket.
By that I mean that they get back more than they paid with earned income credit etc., and by not filing, you are cutting yourself out of that, am I wrong?

[sailorchic34]

Originally Posted by a64pilot

SC,
I though folks with not much income were sort of in a negative tax bracket.
By that I mean that they get back more than they paid with earned income credit etc., and by not filing, you are cutting yourself out of that, am I wrong?

Ah the EITC, Oddly you have to have a young child to get any real money and you have to have income to qualify. No income, no tax credit. I looked into it and it's not that much (<$100) if your low income without children.

[Julie Mor]

Originally Posted by BlackTiger

I am reading news stories of the filthy rich renouncing u.s. citizenship to avoid paying taxes. Maybe I read it wrong.

Maybe you're thinking of tax havens and the Cayman Islands. They still keep their citizenship. They just pay their accountants to make sure they get to reduce their tax burden. Oh, and maybe a campaign contribution here and there.

[BandB]

Originally Posted by Julie Mor

Maybe you're thinking of tax havens and the Cayman Islands. They still keep their citizenship. They just pay their accountants to make sure they get to reduce their tax burden. Oh, and maybe a campaign contribution here and there.

Actually about 3,000 people a year renounce US citizenship and many of those are wealthy. For those who are wealthy, they pay a sizable exit tax on any assets that have appreciated and not yet been subject to tax. It's essentially a capital gains tax. Now one of the reasons many renounce is fear of liability on foreign accounts they hold. Clamp down and prosecution of those hiding money in swiss accounts has precipitated some. The entire situation is very complex. Some also renounce in anticipation of aging and to avoid their estates being subject to high estate taxes. All one considering it can do is have an expert do a thorough evaluation.

[Crosis]

There was an article in the news a few weeks ago that said the State Department is denying petitions to renounce citizenship if they think its to avoid taxes. I am not sure but IMHO it sounds like a human rights violation to forbid someone from renouncing what they never asked to have in the first place. It all comes down to money. The IRS is a terrible agency and the USA will do anything to get your cash.

[BlackTiger]

Originally Posted by Crosis

There was an article in the news a few weeks ago that said the State Department is denying petitions to renounce citizenship if they think its to avoid taxes. I am not sure but IMHO it sounds like a human rights violation to forbid someone from renouncing what they never asked to have in the first place. It all comes down to money. The IRS is a terrible agency and the USA will do anything to get your cash.

Yeah, that is terrible... pursuit to happiness is dead. Sorry, but 50% of everything you made this year goes to paying off the never ending 17 trillion dollar debt, not including the $300 trillion in bad wall street investments that every u.s. citizen is on the hook for.

@julie mor

No I know about that, ha-ha.

I believe, since July of this year (a law), the wealthy can no longer hide their assets in banks. The U.S. Government is making deals with other countries to allow us to freeze bank accounts to take what they want. I didn't really read up on it too much, so I won't say much more about the topic.

[Pelagic]

The USA is a strange tax animal founded on the same aggressive politics that spawned McCarthyism.
Where else can someone like Warren Buffet pledge to give away the majority of his wealth (over $2billion this year)...... Yet be castigated for tax evasion during an election year.

[belizesailor]

Originally Posted by Pelagic

The USA is a strange tax animal founded on the same aggressive politics that spawned McCarthyism.
Where else can someone like Warren Buffet pledge to give away the majority of his wealth (over $2billion this year)...... Yet be castigated for tax evasion during an election year.

...and Buffet is in favor of tax reform to make taxation more equitable.

[Pelagic]

Originally Posted by belizesailor

...and Buffet is in favor of tax reform to make taxation more equitable.

I think that is where everyone gets confused.
What does "equitable" mean when you are paying land taxes and others anchored in a nice cove on a $500k yacht pay nothing.

Perspective is a strange bedfellow.