The prospect of a second term for President Donald Trump inspired many celebrities to once again threaten they’ll leave America – (mysteriously, they didn’t make good on their threats the first time around).
Perhaps they dodged a bullet. Major media outlets have called the US election in favor of Joe Biden.
President Trump will undoubtedly contest the results – it could be many weeks before the courts weigh in and the matter is final.
The prospect of a Biden presidency will cause many to seriously consider leaving America for greener pastures.
Whether you’re considering leaving America for political reasons or to simply improve your life, it’s important to avoid a rude awakening.
Here are many of the difficulties face by Americans living abroad.
Citizenship Based Taxation
America and Eritrea are the only two countries on Earth that tax people based on their citizenship rather than their physical location.
As a result, US citizens are taxed when they move abroad… even to jurisdictions with no income tax like the Caymans, Bermuda, or the United Arab Emirates.
There are some strategies like the Foreign Earned Income Exclusion (FEIE) that can help Americans living abroad save on taxes – an individual can earn $107,600 (married couples can earn $215,200) and pay $0 in income taxes.
Our US Digital Nomad Solution can help certain Americans claim the FEIE and legally stop paying FICA (Social Security and Medicare) taxes.
But if you’re earning millions in income, like many Hollywood celebrities, moving abroad will not radically change your tax obligations.
FBAR & FATCA
The Foreign Bank Account Report (FBAR) and the Foreign Account Tax Compliance Act (FATCA) require certain US persons with foreign financial activities to cough up detailed and sensitive information to the US Treasury Department.
Ostensibly, these programs were passed to catch tax cheats.
But they have failed to expose widespread tax evasion…. primarily, because it doesn’t exist.
Both the FBAR and FATCA inflict significant emotional and financial costs on any American with foreign financial activities. Naturally, this impacts many Americans living abroad.
Penalties for non-compliance are onerous.
For example, the penalty for non-willful failure to file an FBAR can be $10,000 per violation. If it is determined that you purposely failed to file, the penalty can be the greater of $100,000 or 50% of the balance of the account at the time of the violation.
Many Americans living abroad struggle to afford the professional assistance required to stay in compliance.
A growing number of US citizens who grew up in America are familiar with FBAR & FATCA requirements before moving elsewhere. But these requirements come as a surprise to many so-called “Accidental Americans.”
Our Concierge Tax Service can help you with your tax preparation and FBAR/FATCA compliance.
Blacklisted As Business Partners
When Americans do business with one another, it’s automatically accepted that the venture will be subject to the US tax system.
The same is not true when you are an American living abroad.
Many international entrepreneurs and investors refuse to do business with Americans for fear of becoming trapped in the US tax system.
Americans living abroad regularly lose out on business opportunities.
Expatriation (the act of forfeiting US citizenship) is the only way for Americans to remove themselves from the US tax system.
As an expatriate myself, I am sympathetic to anyone who is contemplating doing so.
Whether you are an Accidental American looking to capitalize on the new relief program, or a wealthy American looking to improve your life, I can help you plan your expatriation.