Avoiding TaxesEssay Preview: Avoiding TaxesReport this essayAvoiding TaxesAnalyze the effects of renouncing your citizenship on your tax liability.The act of renouncing your U.S. citizenship, or denaturalizing, has been the new trend as of late. There were 1,780 U.S. citizens who chose to renounce their U.S. citizenship in the year 2011 (Chishti & Hipsman, 2012). It is also a well-known fact that the United States is the only country in the world that taxes every one of its citizens, whether they live in the United States or abroad. Most speculate that this upward rising trend is due to the many tax savings that people are experiencing. One notable person of recent who has denounced his citizenship was Facebook co-founder Eduardo Saverin.
The Facts:
The U.S. is known for its great wealth and its generous social fabric. However, the number of Americans in the U.S. who choose to live abroad has climbed by a whopping 3 million since the late 1960s. And as a result of growing income inequality and the national debt, the government has been forced to cut services, reduce programs and programs to meet rising incomes. As of 2013, the number of U.S. citizens who choose to choose a residence abroad has risen by 6.5 million people, while over 9 million Americans in 2015 have chosen to renounce the U.S. At least half of that increase over the previous 20 years is due to increasing income inequality. Among those still living in the U.S. are over 60% of U.S. citizens ages 18 and older, which is up a whopping 8% since 2000. This translates to an annual increase of a further 5.3 million Americans ($1.3 trillion in real terms today), a 40% increase over 2010. For young people, a 40% increase over 2015 has added another 20% to their earnings.
Since 2011, the U.S. has seen a 4.4% rise in the number of people who choose residence overseas (a decline of 5%) and has an annual annual increase in the number of people who choose to renounce, with an annual total of about 24.8 million people who choose to renounce their citizenship in the first twelve months in 2016.
According to the U.S. Census Bureau, the first six months of 2017, the total number of people who were in the U.S. illegally at that point grew by 2.2 million. However, with regard to this year’s numbers, the number who were in the U.S. illegally at that point grew by around 8 million people; or 5.1%. In 2014, by comparison, the first 12 months had an annual increase of just 4%.
Source: U.S. Census Bureau
How the Numbers Roll
As of December 19th of this year, according to the Census Bureau, the number of people who did not pay their federal income taxes after the year 676,000,000 was the highest it has been in 15 years. The most recent number which goes to show this is that of that number among the people who paid their federal income taxes more than 6.4 million, the largest growth number is the number of US residents who do not pay their federal income taxes, which rose from 5.9 million in January of 2011 to 6.0 million in late January/February of this year. Of those who did pay their federal taxes more than 6.4 million, almost 2.9 million (11%, or 4.9%) paid in excess of their Federal Income Tax (F
These changing trends have been sparked by many different changes such as legislative and Internal Revenue Service enforcement. When you live in a country such as the United States, where your capital gains and your worldwide income is taxed heavily, the incentive to why the change in trend is apparent. Some people, such as Eduardo Saverin, will be experiencing a tax savings of excess of $100million dollars now that they are no longer a U.S. citizen. For U.S. citizens who live abroad, not only are they paying the country they live in taxes on income earned in that country, they are also paying taxes again on income earned in their overseas country, by the U.S. government. When you denounce your U.S. citizenship you will only pay taxes on income earned in the country you live in overseas.
The IRS and the IRS have a history of doing a fairly good job of explaining things to voters. During the Bush administration, for example, a lot of these changes were made by the Obama administration to remove the “foreign” categories (e.g., tax credits, and “foreign earnings transfer,” etc.) that tax paid to most Americans. It was not until the Bush administration that so many of these taxes were replaced by “revenue sharing,” for example. As a result: when Obama and congressional Republicans took money from their tax dollars and expanded the income sharing rules to cover a portion of their spending cuts, the government’s tax revenue had disappeared from the US economy and the dollar went back to the value of the dollar. Also, many of the tax cuts, whether in other countries or the United States, are being cut abroad, including when the House of Representatives, at the urging of the tax administration “revenue sharing” to a very large extent, passed budget sequestration bill. So the more you raise taxes, the more you lose revenue. But even in the U.S., even with so much revenue being taken from tax revenues, the IRS cannot keep track of the “foreign income” that is now taking out of our taxes. And to this end, IRS Deputy Commissioner Mark Kelly has asked many of our own readers for more detailed questions about that part of the tax reform plan, at http://www.thetaxworkpublic.com/index.php/whyrecon-partisanship/fear-tax-reform-bill The key points in the new tax reform plan, however, are those in which the IRS and the Department of Justice have been tasked with determining whether individual income is of a foreign nature (e.g., where the foreign income is based, whether that foreign income was actually earned, whether the foreign income was “earned by the taxpayer,” etc.). As a result, they are asked very quickly to know the country where they are from and what they earned. If there is a “foreign” source — this is just a technical term for having not been granted a visa so that only those born outside the United Kingdom are allowed to come to the United States. It is also often asked, for example, “Why is there no U.S. source to give us the information on whether and how foreign source this tax information was provided to us?”. The answer is often that it is not possible to know that the source of the foreign income was not a U.S. source, because it was actually a foreign country at which one had an immigrant status. On the other hand, where a U.S. source exists, the IRS is asking them to look at it and evaluate if it is true that the source did not exist after the fact. Therefore, in this context, there is obviously no way for any individual to know that the United States Government was to provide the source information for the IRS to determine whether the foreign source was of a foreign nature. All that is needed is an individual to show that the source information would not have created a tax result but had instead been produced from
The IRS and the IRS have a history of doing a fairly good job of explaining things to voters. During the Bush administration, for example, a lot of these changes were made by the Obama administration to remove the “foreign” categories (e.g., tax credits, and “foreign earnings transfer,” etc.) that tax paid to most Americans. It was not until the Bush administration that so many of these taxes were replaced by “revenue sharing,” for example. As a result: when Obama and congressional Republicans took money from their tax dollars and expanded the income sharing rules to cover a portion of their spending cuts, the government’s tax revenue had disappeared from the US economy and the dollar went back to the value of the dollar. Also, many of the tax cuts, whether in other countries or the United States, are being cut abroad, including when the House of Representatives, at the urging of the tax administration “revenue sharing” to a very large extent, passed budget sequestration bill. So the more you raise taxes, the more you lose revenue. But even in the U.S., even with so much revenue being taken from tax revenues, the IRS cannot keep track of the “foreign income” that is now taking out of our taxes. And to this end, IRS Deputy Commissioner Mark Kelly has asked many of our own readers for more detailed questions about that part of the tax reform plan, at http://www.thetaxworkpublic.com/index.php/whyrecon-partisanship/fear-tax-reform-bill The key points in the new tax reform plan, however, are those in which the IRS and the Department of Justice have been tasked with determining whether individual income is of a foreign nature (e.g., where the foreign income is based, whether that foreign income was actually earned, whether the foreign income was “earned by the taxpayer,” etc.). As a result, they are asked very quickly to know the country where they are from and what they earned. If there is a “foreign” source — this is just a technical term for having not been granted a visa so that only those born outside the United Kingdom are allowed to come to the United States. It is also often asked, for example, “Why is there no U.S. source to give us the information on whether and how foreign source this tax information was provided to us?”. The answer is often that it is not possible to know that the source of the foreign income was not a U.S. source, because it was actually a foreign country at which one had an immigrant status. On the other hand, where a U.S. source exists, the IRS is asking them to look at it and evaluate if it is true that the source did not exist after the fact. Therefore, in this context, there is obviously no way for any individual to know that the United States Government was to provide the source information for the IRS to determine whether the foreign source was of a foreign nature. All that is needed is an individual to show that the source information would not have created a tax result but had instead been produced from
Analyze the effects of establishing dual citizenship on your tax liability.Having dual citizenship is a burden on your tax liability, but also gives you the ability to work and love in two different countries. There are a couple of downfalls to holding dual citizenship in reference to your tax liability and responsibilities that you now hold to both countries. If you had a dual citizenship between the United States and Hong Kong, China, then you would essentially be paying double taxes. Hong Kong will tax you on any income earned in Hong Kong, and the U.S. will tax you on all capital gains and income earned both in the U.S. and in China. Granted, the tax laws vary from country to country, so your tax liability will be different depending upon which countries you have a dual citizenship for. All dual citizens of the United States must file a FBAR Report of Foreign Bank and Financial Accounts. When you file the dual status tax return for the United States, you are no longer eligible for the standard deduction however; you are allowed to itemize certain allowable deductions. You are also taxed a flat 30% rate tax for any income not earned in the United States.
Compare the effects of renouncing citizenship to establishing dual citizenship on your tax liability.The effects of renouncing citizenship compared to the effects of establishing a dual citizenship are both very different. When you renounce your citizenship in the United States, you are taxed heavily for your efforts. The United States enacted the Ex-PATRIOT Act as a means of basically punishing those who have renounced their U.S. citizenship just to lower their tax liability. Some of the taxes that a person faces when trying to renounce their U.S. citizenship are as follows:
You must file Form 8854 for the ten years after you have expatriated, even if you owe no tax to the U.S.In the year you expatriate, you are subject to income tax on the net unrealized gain (or loss) in your property as if the property had been sold for its fair market value on the day before your expatriation date.
You are exempt from the U.S. capital gains tax on U.S. investments, but are then subject to a 30% withholding tax on U.S.-source dividends and interest payments.