Taxation in the United States
 Paying
taxes are not something Americans look forward to. Taxes are pretty much
encountered on a daily basis. When something is purchased or service provided
there is usually a tax with the exception of few goods. Sometimes even bills
show some type of tax at the end of the statement. Paychecks have many
deductions including income taxes. Money invested that yields returns also have
taxes. Those owning property also have to pay taxes. Then there are the annual
taxes that may need to be filed. Rarely does the tax rate drop and if it does it
may not be significant. Paying taxes is part of the American lifestyle. Those
trying to evade paying taxes, for example income taxes, may face charges and
possibly even jail time. For those living in the United States paying taxes is
basically a requirement. But what happens when
American citizens leave the United
States for an extended period of time or even leave the country permanently? For
the most part, in most major countries when a citizen leaves they are not
required to pay taxes on capital gains and income in their homeland. Being away
for an extended period of time from their homeland or even giving up citizenship
“frees” them from the requirement of having to pay taxes on capital gains and
income. Not so in the United States where U.S. citizens and long-term residents
are governed by different tax laws. This also applies to individuals who became
American citizens by “accident.” Their parents were not U.S. citizens and the
child just happened to be born in the U.S. yet the U.S. citizen child did not
ever return to live in the United States later on in life. Additional people
affected by this tax law are non-U.S. citizens who have lived in the U.S. for a
period of eight years out of a fifteen year period.
It does not matter where an American citizen lives in the world they are still
subject to U.S. federal taxes. How long they have been away from the United
States is not important because according to the U.S. government they may still
have tax obligations. There are some options to those who are subject to
American tax laws but no longer reside in the country. However some may consider
these options extreme and it may not completely rid them of their tax
responsibilities. One option is to renounce their
American citizenship and
passport which can be done by obtaining another
country’s passport. One passport ends up being swapped for another which may not
be a big deal for some but for others it is a big deal. Especially when taking
into consideration how others in foreign countries usually do not have to give
up citizenship and their passport to be granted tax exemptions in their
homeland. Supposing an individual gives up their long-term U.S. residence or
U.S. citizenship there is still a catch. If the individual’s average income tax
liability surpasses $136,000 five years after expatriating or if net worth is
greater than $2 million, then the expatriate is still subject to an alternative
tax. The tax applies for a period of ten years and the taxation rate is similar
to that paid by Americans. It is important to note that the tax policy mainly
applies to income from U.S. sources. Due to this final requirement many
expatriates are able to avoid paying American taxes by making sure their income
comes from a non-U.S. source. However for some this may not be possible and they
will have no choice but to pay U.S. taxes.
There are limited ways of escaping taxes while living in the United States and
outside of it as an American citizen or expatriate. Tax revenue is important to
a country due to the substantial amount that can be generated. Congress would
like to introduce an exit tax on long-term residents and former U.S. citizens.
Under the proposed bill these individuals would still be subjected to the U.S.
tax system as previously mentioned. However, the individuals with a worldwide
estate greater than US$600,000 would be required to pay an exit tax. Taxes would
apply to the unrealized gains of these assets and would have to be paid within
90 days of expatriation. Another part of the bill would affect expatriates with
an IRA or similar pension plan. They would be required to pay a 30% withholding
tax on unrealized gains. To avoid paying taxes on assets some may opt to give
away their assets to family or friends present in the United States. Even though
these assets would still be considered gifts or bequests they would be taxed at
30%. If the bill gets signed into law, former U.S. citizens and long-term
residents would probably find themselves paying more taxes. They could choose to
pay or not to pay their U.S. taxes but not doing so would be detrimental.
Deferring taxes by posting a bond with the U.S. Treasury can be just as bad as
not paying the taxes owed. As a result, the U.S. government may not allow the
expatriate to return to the United States on a permanent basis. The U.S. would
essentially become off limits even for visiting purposes.
Related Articles:
|
Back to Immigration Articles