Some may say "Taxation is theft". Whether you agree or disagree with this, the phrase needs to be updated for 2018.
We may be led to believe that taxes are needed to fund our government, our social security, our Medicare, our defense... The reality is that in a world of near 0% interest rates, it seems that the USA has no issue with borrowing money from its future citizenry in order to pay for the junkets of the current office holders. Sure, we generate income from taxes but it is never enough to meet the ever ravenous appetite for spending.
Taxation has become less about money and more about compliance and shackling US citizens. Why do I say this? Because, fellow US people (and I'm not just referring to US citizens, but also Green Card holders), we are cursed to have to file tax returns to the IRS until the day you die. No matter where on this great planet that you may end up.
Yes, that is right. Few seem to understand this but the US government has a "citizenship based" taxation system. But it doesn't stop there. Changes in US tax law now makes it mandatory that Green Card Holders (ie. permanent residents) must also file taxes until the day they die, unless they jump through a series of enormous hoops to either renounce citizenship, or renounce permanent residency. Seems that your dream of retiring in the Bahamas might just come with a leash to the IRS.
The funny thing is that only a few countries in the world have a citizenship based taxation model. Most have a residency based taxation model, meaning that you pay taxes while you reside in that country but if you leave it, then your obligation to pay taxes ceases in your absence. Seems fair; I mean that you are not consuming any of the resources of your home country while you are away. Your name might sit in some database somewhere, but I've never heard of data costing governments a lot of money to hold. So if you are not consuming the roads, the air, the public services, etc. why should you have to continue to pay for them? This seems to be the accepted way of 99.9% of all other nations on this planet, but not the good ol' USA.
You better pay your CPA before you leave, and keep his/her email handy because you will still need to file your taxes. Failure to do so comes with stiff penalties and they just keep getting worse as you start to see the financial and compliance "wall" that the USA has built around you. It seems that physical presence has nothing to do with this wall. It isn't designed to keep anyone out either - it is the "Hotel California" model of the nationstate. Check out any time you like, but you can never leave.
So here's the deal... Let's say you get a job offer to go and work in Dubai for 2 years. Or Switzerland. Or Japan. I mean who would not want to do that. So you get all your VISAs sorted out for your destination, your airline tickets, your accommodation, your job stuff, etc. Maybe you decide to ship a bunch of your belongings to your destination. All done? Now you are excited to head off to your new adventure.
Not so fast. Just as you have to deal with the paperwork of your destination, you need to make sure you are dealing with the paperwork of your origination. There are a ton of things you better be aware of when it comes to overseas travel for US expatriots.
The FBAR (Foreign Bank Accounting Report), or as the IRS would define it: "Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts" is a form that is typically filed with your annual tax returns and discloses any money you have outside of the USA. It is required to file if you collectively have more than $10,000 outside of the USA.
What is defined as "money" here? Well it could be a life insurance policy, bank account balance, crypto-currency (yep, that is coming too.... expect to have to file FBARs on Steem or Bitcoin holdings since they are not residing in the USA - they are in the ether of the Internet), superannuation, overseas stocks & bonds, inheritance, real estate, etc. If the sum total of this exceeds (at any point in the year) $10,000 you gotta file this form. Failure to do so has harsh penalties...
Here's the official info on this if you are interested: https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar
This filing requirement dates way back to the 1970s, but for the past 30 or so years, it has generally been forgotten or ignored. But as more of us live international lives, it is now front and center in the crosshairs of the IRS.
So back about 10 years ago, computers got so smart that the US government forced pretty much all other countries to integrate banking data together so that any US person (yes, that's citizens and green card holders), would be identified and the data of their bank account holdings would be sent back to the IRS.
Welcome to the world of integrated banking. The onus to integrate this data was pushed onto the backs of all other countries banks. You'd think they would balk at the obligation and reject it....
But no. In return, the US would give up all the data on their citizens. Seems that snitches work on both side of the continental divide. Soon a "GATCA" law will be uniformly administered across all banks in all countries where national citizenship or permanent residency will be required to be obtained, so that the right country gets the right intel on their peeps. Welcome to the world of big brother.
If you don't disclose your holdings, and the IRS learns of them, then look out. This is a criminal offence. And remember there is now legislation in place that if the IRS define that you owe them $50K or more in taxes, penalties, fines, interest, etc. they can (and will) cancel your passport. You could be stranded overseas with no way to return other than in handcuffs to the USA.
God forbid you decide to register a company or trading entity overseas. This used to be all the rage. People would register a company in the Cayman Islands, Panama, Belize, Cook Islands, Isle of Man, etc. These tax havens used to be frequented by the rich and famous with their offshore asset holdings, and all their transactions handled through these offshore entities.
Not any more. Sure, you can still register for these but the level of paperwork and compliance just got a whole lot worse. Sure, they sold this as "We gotta bring back the money from the Googles and Apples that have trillions outside of the USA" but the reality is that you got caught up in the crosshairs as well. Seems that computer database systems don't discriminate between the individual and the corporation here, and they want your money back in mother 'Murica.
I hear so many stories from fellow crypto-investors or Steemians that are so proud of their offshore operations, but hardly anyone ever tells them of their compliance obligations that they can never discard.
Sure. But you should budget time & money to cover your compliance costs. More and more young folk want to travel the world, live life as a "digital nomad" in Bali or Thailand or Portugal or Mexico or wherever. And they should. The broadening of one's mind by doing this is a critical part of the human evolution we should all go through.
But few understand their obligations as US citizens or US Permanent residents. This should be fully understood and you should be engaging with professionals to help you. I'm talking CPAs that understand international filings (few do) and more importantly, Tax attorneys who understand International tax obligations.
This is not a sponsored promotion at all. I'm going to tell you who I use for this, and you are welcome to check them out. The good news is that they publish a massive library of videos on YouTube that are free for you to review and they are honest and really nice bunch of people:
And here is their YouTube channel:
You need to get information before you make any stupid decisions - decisions that might on the surface seem decent, reasonable and rational, if you are overseas and need to get a bank account, or start a company, or whatever. But you should be aware what can of worms you are opening with this first. Do it right and avoid the penalties.
The IRS have a ton of them, and they can be really nasty. For example failure to file FBARs is often $10K per year, no statute of limitations exclusion as well. Failure to file FATCA could be $10-20K per year, plus relinquishing 50% of your assets to the IRS. And the business penalties make these look tame. It isn't uncommon to find that someone who has been living overseas for a few years may owe $200K+ in penalties without even realizing it.
Oh and we haven't even covered the potential criminal penalties associated. Remember that I also said that $50K or more in taxes owed and they can cancel your passport? And so many countries have extradition treaties with the USA that you don't want to be swept up by their local police, handcuffed and put on a plane bound back to the USA.
This is why you need an attorney - not a CPA, to represent any "clean up" with the IRS.
Politicians love to make the IRS look bad because to their constituents they are seen as heros. The reality is that we all know that the IRS must exist to fund the same out of control spending of those politicians. So although they continually defund the IRS, or say NO to IRS Budget increases, the IRS is still expected to operate with limited resources.
The cost of funding a tax auditor (human) is high. The level of effort is vast and there are no guarantees that they will find money to extort. So what's the next best way? Well imagine if you were a company that had limited staff. Wouldn't you invest in computers and robots to do all the work so you didn't need more labor? That's exactly what the IRS have done.
You see compliance yields a far higher revenue than audits and you don't need a lot of humans to do it. One database will check you against other databases, and when they find a gap, bingo! Instant windfall. And once this stuff is developed, what does it cost to run each night? Nothing. Zip. Zero. So lot's of income for no cost. Who could say no to that. Well I'm sure you could because you are not on the receiving side of the equation.
I really would prefer to end these blogs on a positive note. With this one, it is purely a warning. Before you decide to internationalize yourself, be knowledgeable of the rules here for US citizens and permanent residents. If you go without knowledge you could end up in a world of hurt.
But despite all of this, you have a personal obligation to "Go where you are treated best". I'm a huge fan of Andrew Henderson from nomadcapitalist.com and I would absolutely recommend you get his book on Amazon. The option of having a 2nd passport these days is becoming less of a nice thing to have, and more of a mandatory thing to have. The fact that we, in the USA, are living in a dystopian world of Big Brother, isn't some fictional movie like "V for Vendetta" anymore. It is a reality. It isn't getting any better either. With each day, we are less and less free. We must all wake up to this and realize the world we are living in, and how we have to adapt and adjust to it. Our own survival is at stake here.
