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While many filers dread tax season, Americans living abroad face even greater yearly burdens — and people are frustrating enough that some need to ditch their U.S. citizenship.
Roughly 1 in 4 American expatriates is “seriously considering” or “planning” to resign their U.S. citizenship, in line with a survey from Greenback Expat Tax Services.
The burden of filing U.S. taxes is the highest reason expats need to ditch U.S. citizenship, in line with the survey, which polled 3,200 American expats living in 121 countries.
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“You might have people doing what seems to them like very normal things, like saving for retirement, or buying a house,” said David McKeegan, co-founder of Greenback Expat Tax Services. “But if you do it overseas, sometimes you’ll be able to get yourself into a complete lot of trouble.”
American expats must pay annual U.S. income taxes on worldwide earnings, including their salaries, business profits, investment income and more, which involves filing and paying taxes in two countries.
While the U.S. has measures to stop double taxation, akin to the foreign income exclusion and tax credit, many expats still oppose the twin filing requirements because of the time commitment and expense of preparing those returns. What’s more, nearly 80% do not feel they need to must pay U.S. taxes while living abroad, the survey finds.
‘Willful’ reporting violations include stiff penalties
Moreover, some Americans must report foreign accounts to the U.S. Department of the Treasury annually via the Report of Foreign Bank and Financial Accounts, or FBAR, or potentially face stiff penalties.
You need to file the FBAR in case your combined account values surpass $10,000 at any time in the course of the 12 months, no matter whether those accounts produce income.
For instance, if you could have $5,000 in a savings account and $4,750 in an investment account and the investment account jumps to $5,025 for even a single day, you should report those balances.
The penalties for failure to file rely on whether it is a “willful” or “nonwillful” violation. Nonetheless, willful violations include a fee of the greater of $129,210 or 50% of the balance of your account, for every year with a missing form.
“It’s a complete headache for people once they get into trouble,” McKeegan added.
Although there was a pointy drop in Americans dumping their U.S. citizenship in 2021 — 2,426 compared with a record-breaking 6,705 in 2020 — the 2021 numbers could have been lower because of U.S. embassy closures amid the Covid-19 pandemic.
There have been about 9 million U.S. residents living abroad in 2020, in line with estimates from the U.S. Department of State.
“What struck me about this most up-to-date survey was the number of people that feel their concerns are less more likely to be addressed than individuals who live contained in the U.S.,” McKeegan said.
Indeed, 86% of those surveyed feel the U.S. government is less more likely to address their issues than stateside residents, the survey found.