We received a question from Denise from Canada.
The question is: “I’ve heard a lot of words to describe people who were no longer U.S. citizens – “surrendered”, “relinquished”, “renounced” U.S. citizenship. What is the difference between these three terms?” Read More
Are You An American For Tax Purposes?
The U.S. law has different classifications of who and what is considered to be an American(officially, a U.S. person) for tax purposes and it’s important to check if you fall into any of the categories below, hence obliged to report your worldwide income to Uncle Sam.
The Official Term Is “United States Person” And It Includes:
1. A U.S. citizen by birth:
- You were born in the United States
- You were born outside of the United States with at least 1 parent who is a U.S. citizen*
2. A resident alien of the United States if you meet one of the two tests:
- A Green Card test
- The substantial presence test for the calendar year
As the tax reform debate rages on currently, I do not see much in the proposals changing for US citizens living abroad. As this story unfolds, I think it is a good thing that US citizens/ resident aliens living abroad are not affected. We shall wait and watch. For all the latest news-stay tuned!
As it happens many times for those US citizens who have moved abroad and married someone who is a citizen of their resident country, when times comes to file a tax return, they have to use the “Married Filing Separately” or the “Head of Household” filing status. Both of these may not be as advantageous as the “Married Filing Jointly” filing status tax-wise.
Kudos to Max Reed for his quick analysis on how the proposed U.S. Tax Reform bill may affect Canadian citizens/residents who also hold U.S. citizenship.
Reed’s analysis, which has been widely discussed at the Isaac Brock Society includes provisions that are very damaging to those who are the owners of Canadian Controlled Private Corporations (noting they are also under assault from Messrs. Trudeau and Morneau). The damaging provisions are both prospective and retrospective.
Americans living abroad are still required to file a US tax return, reporting their worldwide income, as well as obey the tax rules in the country where they live.
Many US expat have settled abroad permanently though, and they justifiably wonder why they must continue filing a US tax return every year, even if they don’t pay any US taxes because they claim one or more of the exemptions available to expats, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, when they file.
As a result, many US expats consider renouncing their American citizenship.
This post is a continuation to my recent post: “The Internal Revenue Code does not explicitly define “citizen”, “citizenship” or require “citizenship-based taxation“.
Every country in the world with the exceptions of Eritrea and the United States claim tax jurisdiction based on “residence”. Although the tests for “residence” may differ, “residence based taxation” means that it is possible to sever your tax connection to a country by severing residence.
The nations of Eritrea and the United States impose taxation based Read More
“I relinquished U.S. citizenship many years ago. Could I still have U.S. tax citizenship?”
Attn: Former U.S. Citizens: Are you STILL or have you EVER BEEN a U.S. “Tax Citizen”?
This is a long post. In fact, it is too long for the average reader. Therefore, I wish to summarize the purpose and possible (but not certain conclusion) of the post in a few simple sentences.
If you were born in the United States (and became a U.S. citizen at birth) who moved to Canada and naturalized as a Canadian Citizen prior to June 3, 2004:
1. Without informing the U.S. State Department or applying for a Certificate of Loss of Nationality; and Read More
“The two kinds of U.S. citizenship: Citizenship for “immigration and nationality” and citizenship for “taxation” – Are we taxed because we are citizens or are we citizens because we are taxed?”
The United States of America – One country two citizenships – Introducing the “Tax Citizen”. Dual Citizenship – American style – All Americans are both “Citizens” and “Tax Citizens”. One Country – Two Citizenships.
First Citizenship – Citizenship for Nationality Purposes
Americans have always been proud of their U.S. citizenship. Most U.S. citizens regard their U.S. citizenship as the most valuable thing they have. Most Americans will fight for their citizenship. They will die for their citizenship. They Read More
As goes taxation, so goes society
As Charles Adams argued in his classic book, “For Good and Evil: The Impact of Taxes On The Course Of Civilization“, as go the taxing practices of a nation, so goes the nation. Given that taxes are a certainty, tax laws are a certainty, and those laws speak volumes about the “state of the nation” and the “values of the nation”. Tax laws evolve on an almost daily basis. The changes in tax laws reflect changes in societal values.
In 1924, the Supreme Court of the United States, per Justice McKenna ruled in Cook v. Tait that U.S. “citizenship taxation” was constitutional. Since that time Cook v. Tait has been cited to justify the constitutionality, although not necessarily the propriety, of “citizenship Read More
If you are one of the many US citizens contemplating renouncing your US citizenship, Congress recently sent a fairly clear message that now, as opposed to later, may be the right time to get out of the club. On June 12, 2013, US Senators Jack Reed (D-RI) and Chuck Schumer (D-NY) attempted to add yet another hurdle in the ongoing saga for those individuals looking to renounce their US citizenship in filing an amendment to the immigration reform bill, which attempted to ensure that the US Department of Homeland Security could exclude certain individuals from re-entry into the US forever. The proposed amendment was never voted on in the House and died before reaching the floor. If the proposed amendment had made its way into law, it would have excluded from re-entry not only former US citizens who renounce for tax avoidance purposes (as is the current law), but also renouncing individuals who are considered “Covered Expatriates” under Internal Revenue Code § 877A.
Maybe this is a response to the fact that Americans Renouncing U.S. Citizenship Increased 6 times so far in 2013!
What is most important to take away from this failed passage of legislation is that the issue of renouncing one’s US citizenship is again front and center on Congress’s radar and the only guarantee moving forward is that any potential changes will not make things any easier to get out. Read More