A majority of dual citizens, expatriates and green card holders find ways to reduce taxes without renouncing American citizenship and permanent residence status. But for others, cutting ties has become the more logical option. They need to avoid additional burdensome changes in U. S. Laws.
A recent change in tax requirements has caused a spike in Americans giving up their nationality and residence status. This difficult decision has been undertaken despite the onerous paperwork required and the psychological pain of the decision. It has been noticed that in 2010 the number of individuals renouncing nationality was eight times higher than the number in 2008.
To understand why this is the case, it must first be realized no other industrialized nation taxes foreign income. But tax evasion by wealthy individuals has made the Federal government more restrictive about overseas income. The Foreign Accounts Tax Compliance Act approved in 2010 is a reflection of this concern. Law abiding people with greater foreign ties have been adversely impacted. For them it was the last straw. These Americans have not benefited from services and have no plans to reside in the country.
Under the new law, financial institutions in other countries have to report to the IRS when financial accounts are held by US persons. Green card holders are also affected. Americans, and green card holders, who have to already pay double taxation, are increasingly reevaluating their ties. Since the number is still relatively small, the government is not overly concerned about the reaction.
The new law has increased administrative requirements. Not surprisingly financial organizations have preferred to ostracize these individuals. Spouses who are foreign nationals have voiced their dislike of sharing personal information. Although a certain amount of foreign income is not taxable, earnings in expensive countries typically surpass this sum. This taxation is in addition to the weighty requirements of the place of residence.
There are severe penalties for noncompliance. The risk is high as the rules are multi-layered and complex. Numerous factors have to be considered. For example, an expatriating person with a net worth of 3 million USD or above, or a certain liability in the preceding 5 years, is regarded as a covered expatriate. This person must pay an Exit Tax. The required payment will include unrealized gains on worldwide assets and assumes assets are sold on the day prior to expatriation.
Future pension and deferred compensation disbursements will be subject to a withholding at a rate of 30 percent. Should covered individuals pass any assets or gifts to U. S. Persons, the beneficiaries will be taxed. The rate will be equivalent to the highest rate at the time of transfer. The current rate is 45 percent. The consequences give many pause in following through with such intentions.
Before expatriation, expats are required to give the IRS advance notice. They are expected to prove they have no outstanding liabilities. If that is not possible, they will be deemed to be covered expatriates. Planning may help ease their burden. Such hurdles have put off most people. For them it is better reduce taxes without renouncing American citizenship or their permanent resident immigrant status.
A recent change in tax requirements has caused a spike in Americans giving up their nationality and residence status. This difficult decision has been undertaken despite the onerous paperwork required and the psychological pain of the decision. It has been noticed that in 2010 the number of individuals renouncing nationality was eight times higher than the number in 2008.
To understand why this is the case, it must first be realized no other industrialized nation taxes foreign income. But tax evasion by wealthy individuals has made the Federal government more restrictive about overseas income. The Foreign Accounts Tax Compliance Act approved in 2010 is a reflection of this concern. Law abiding people with greater foreign ties have been adversely impacted. For them it was the last straw. These Americans have not benefited from services and have no plans to reside in the country.
Under the new law, financial institutions in other countries have to report to the IRS when financial accounts are held by US persons. Green card holders are also affected. Americans, and green card holders, who have to already pay double taxation, are increasingly reevaluating their ties. Since the number is still relatively small, the government is not overly concerned about the reaction.
The new law has increased administrative requirements. Not surprisingly financial organizations have preferred to ostracize these individuals. Spouses who are foreign nationals have voiced their dislike of sharing personal information. Although a certain amount of foreign income is not taxable, earnings in expensive countries typically surpass this sum. This taxation is in addition to the weighty requirements of the place of residence.
There are severe penalties for noncompliance. The risk is high as the rules are multi-layered and complex. Numerous factors have to be considered. For example, an expatriating person with a net worth of 3 million USD or above, or a certain liability in the preceding 5 years, is regarded as a covered expatriate. This person must pay an Exit Tax. The required payment will include unrealized gains on worldwide assets and assumes assets are sold on the day prior to expatriation.
Future pension and deferred compensation disbursements will be subject to a withholding at a rate of 30 percent. Should covered individuals pass any assets or gifts to U. S. Persons, the beneficiaries will be taxed. The rate will be equivalent to the highest rate at the time of transfer. The current rate is 45 percent. The consequences give many pause in following through with such intentions.
Before expatriation, expats are required to give the IRS advance notice. They are expected to prove they have no outstanding liabilities. If that is not possible, they will be deemed to be covered expatriates. Planning may help ease their burden. Such hurdles have put off most people. For them it is better reduce taxes without renouncing American citizenship or their permanent resident immigrant status.
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