Sunday, May 15, 2011

Expat Obligations

In last week’s discussion we ventured into the area of expat voting, which got us thinking more deeply about it.


Toni:

According to British electoral laws, voters who have lived outside of the country for more than 15 years automatically lose their right to vote in British elections. If you’ve been popping back and forth in those 15 years, you remain eligible to vote in the last place you were registered.

I’ve now lived in the States for 21 years (gulp) and although I consider myself English through and through, I have no problem with this law. I don’t pay taxes in the country, and although I try to keep up with national politics, I am not as informed as I would be if I were voting there. Plus, I don’t think I should be allowed to stick my nose in on affairs that no longer directly affect me. Some countries require all citizens to vote no matter how long they have been out of the country. An interesting one that.

As an American citizen however, I have to file a US income tax return on my global income forever and ever, no matter where I live. Additionally, it’s against the law to give up your US citizenship in order to avoid those taxes. (I wonder how they’d know, but we won’t go there.) To be fair, through tax treaties with other countries, double taxation can be avoided by allowing credits for foreign income taxes paid while living outside the USA, but you must file a US return to claim these credits. Sounds like a government job creation scheme to me; why can’t they just let you off your taxes if you’re domiciled somewhere else?
 


Mike:

It always surprises native Brits when I tell them I have to file a US tax return on the money I earned in the UK. To tell the truth, it came as a bit of a shock to me, as well, but over the years I have come to accept it as simply one of the privileges of being a US citizen.

First, and foremost, the deduction is designed to be large enough to keep people like me from having to pay anything. It I were a multi-millionaire, I might feel differently (or pay my accountants to build a tax shelter) but as a work-a-day sort of guy, the only disadvantage is the yearly headache of filling out all those forms.

As for advantages, it keeps me in practice for dealing with US Bureaucracies—something you don’t want to take on without basic preparation—and it reminds them that I am here, so when my turn to suckle at the dwindling Social Security teat rolls around, they will, hopefully, recall that I have been dutifully filing my tax returns all these years and not forget to send the few remaining drops I am entitles to my way.

Also, it assures my right to vote; I pay taxes, therefore I vote.

I was taken aback by the fact that Brits are not allowed to vote after being out of the country for 15 years, but in thinking it over, it makes sense. We don’t actually vote in a national election here, we just vote for our local representative and, if that party gets the majority, they get to elect the Prime Minister. If that were the case in the States, I don’t think I would feel qualified to vote. The mayor of the town I used to live in, the head of the county I left behind, the governor of the state I was all too happy to leave have no effect on me over here, and I therefore have no right to vote for them. The President of the US, however, is another matter, and I look forward to my absentee ballot every four years.

So, in my view, the worst thing that could happen is that I start making enough money to go over the deduction amount and have to start paying US taxes on the excess. And if that is the worst that can happen, may it happen soon.




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7 comments:

  1. About they question of how the IRS would determine if you were trying to give up your U.S. citizenship to avoid taxes, what they do is presume it if your income and/or net worth is above a certain amount as shown at the following page of the IRS's website:
    http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html

    What they're mainly concerned about are wealthy people who move to countries with low or no income tax to avoid being taxed on their wealth, and since the U.S. is one of the few countries that taxes on citizenship if you're a USC you have to renounce it. The IRS's counter-measures (currently an exit tax, previously taxing on certain income for up to 10 years after renunciation) kick in only with a fair amount of wealth (provided that you can demonstrate that your net worth and/or income for a certain number of past years does not fall above the thresholds).

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  2. I didn't know that! Its good to learn what happens when you're living in another country. Its something that I have never thought about.
    Maggie X

    Nuts in May

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  3. About they question of how the IRS would determine if you were trying to give up your U.S. citizenship to avoid taxes, what they do is presume it if your income and/or net worth is above a certain amount as shown at the following page of the IRS's website:
    http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html

    What they're mainly concerned about are wealthy people who move to countries with low or no income tax to avoid being taxed on their wealth, and since the U.S. is one of the few countries that taxes on citizenship if you're a USC you have to renounce it. The IRS's counter-measures (currently an exit tax, previously taxing on certain income for up to 10 years after renunciation) kick in only with a fair amount of wealth (provided that you can demonstrate that your net worth and/or income for a certain number of past years does not fall above the thresholds).

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  4. The tax thing is one of the reasons we are not citizens. Not that we are loaded, but we are hopeful! I didn't realize that I had lost my right to vote in the UK, but I agree that after 15 years this is reasonable. So now I actually can't vote anywhere. As a permanent resident I can donate to the campaigns at least, kind of like voting by credit card.

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  5. I became a citizen in part because of tax reasons (just in case anyone official's reading this.) We found out that if anything happened to my husband, as a non US citizen, I would have lost about $240,000 more in tax on a million dollar insurance payout! Gulp!

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  6. What is more the US government has very long arms - now, they are asking all UK banks and financial institutions to report on whether any of their clients are living in the US. So, as British citizens living here, money that we have in the bank in the UK could get taxed in the USA, whether or not it was earned in the US.....

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  7. NVG: wow, that would hurt! It's bad enough paying US tax on UK money I earn here; I guess the US doesn't care what sort of money it is, where it was earned or where you earned it--they want their cut.

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