If Income Taxes Increase, Will Rich People Leave the USA?

Ever since this country was founded, Americans have hated paying taxes. So it should come as no surprise then that many rich American citizens are considering leaving the country and renounce their citizenship to avoid paying those taxes.

The Abroad Tax Issue

The United States is one of the few countries world-wide to tax its citizens on income earned, even if they earned it out of the country. For example, you could work in France for an entire year and still owe income taxes in the U.S. based on how much you earned. This issue has been a leading cause of more and more Americans renouncing their citizenship.

In 2011, almost 1,800 Americans gave back their green cards and renounced U.S. citizenship. This was nearly eight times more than in 2008 and more than 2007, 2008 and 2009 combined according to IRS statistics.

Many Filing Abroad Issues

While the last several years have experienced an increase in the ease of filing taxes from more resources to increased software options, overseas taxpayers still have many issues they must contend with. A report released by the National Taxpayer Advocate’s Office, an arm of the IRS, said that heavy paperwork, few online filing options and language issues hamper these taxpayers.

Other issues that weigh on overseas taxpayers are two old requirements: Reporting foreign bank and financial accounts. This might not seem like much, but if you have joint accounts you need to list all assets in them. This means if you are married to a foreign national, you are required to list all of your joint assets to the IRS.

According to many tax lawyers, tax questions arising from listing bank account assets are a big reason that many U.S. citizens renounce their citizenship.

Abroad Taxpayers Recourse

There are currently about 6.3 million U.S. citizens living abroad who pay taxes on incomes earned overseas. When they have had enough of paying taxes to a country they don’t live in, they are left really with only one option: Renounce their U.S. citizenship.

This problem has caused many sleepless nights for U.S. citizens living abroad as they wrestle with tax problems and keeping their citizenship. Many of these overseas citizens have been faced with large fines and thousands in back taxes attributed to lack of information related to tax regulations.

While Congress has gotten involved and is researching ways to reduce red tape and undue burden on taxpayers, it isn’t likely to be a rapid change. For now, paying taxes overseas can become a gigantic headache requiring the services of CPAs and tax attorneys.

If you find yourself in this situation it is advised that you speak with an experienced tax attorney.

Author Jason Lancaster writes several different tax-related articles for Olson Tax Consulting, a Denver tax attorney who works with businesses and families to help resolve tax issues.

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