While the U.S. has traditionally been seen as a low-tax jurisdiction for individuals, with its many exemptions and generous deductions, its rules can bite hard for U.S. expatriates.
In the past, “long distance Americans” generally responded by ignoring their U.S. tax obligations, and expat filing rates were notoriously low. Now, a combination of tougher anti-abuse legislation such as the Foreign Account Tax Compliance Act (FATCA) and more aggressive enforcement by the IRS has convinced more Americans living overseas that they must comply with U.S. rules.
So a crash course in U.S. Tax 101 is advised.
In a recent article for BNA Tax Planning International Review, Chris McLemore and Erin Fraser of Butler Snow LLP highlight the following pitfalls for Americans abroad – including dual citizens who may not have a U.S. passport, or persons who acquired U.S. citizenship at birth, but never lived in the U.S. for any period of time.
In sum, McLemore and Fraser advise that as a general matter, U.S. taxpayers should assume that all income from any source is potentially taxable in the U.S. unless a specific exemption applies. Careful advance planning is required to ensure that a taxpayer will be eligible for these exemptions at the time the income crystallises.
Uncle Sam Wants You (To Pay Tax): Income Tax Pitfalls for Americans Living Abroad , by Chris McLemore and Erin Fraser, is published in the March, 2015 issue of BBNA Tax Planning International Review. This is the first article in a series addressing U.S. tax considerations for U.S. expatriates. Their forthcoming articles will address inheritance tax considerations, planning techniques for U.S. expatriates to reduce their U.S. tax exposure, and the expatriation procedure for Americans wishing to renounce their U.S. citizenship.
Technical Tax Editor
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