Dual Citizenship and U.S. Tax Torture


Sydney, Monday

I try not to get angry and frustrated over the way the U.S. taxes citizens who live abroad.  I’m not always successful.

No-one likes paying taxes, but most of us do pay them and I think most of us pay them honestly.  We try to maximise whatever legal tax advantages we have.  Then, even though we often grumble about it,
we pay.

In a previous post, Dual Citizenship and the ‘M’ Word (Money)I wrote about paying taxes to both Australia and the U.S.  They operate on different financial years, so every six months, I must pay tax to one country or the other.

Soaring Expat Taxes

Last April, the International Herald Tribune wrote about the increasing tax burden on U.S. ex-pats.  I don’t mind paying taxes when I think they’re fair.  To me, a basic element of fairness would be:  if you earn income in country X, you pay tax on that income to country X.

This is not the case with the U.S.  As described in the Economist 14 June 2008, “that expats want to leave (i.e., relinquish U.S. citizenship) is evidence of America’s odd tax system.  Along with North Korea and a few other countries, Americans are taxed based on their citizenship, rather than where they live.”

I don’t want to give up my U.S. citizenship to avoid U.S. taxes (or for any other reason).  I do want to feel that what I’m paying in taxes, to any country, is reasonably fair.

The Cost of U.S. Citizenship

I would call the U.S. tax system more than odd.  I’d call it unfair.

Even if all of your income is earned outside the U.S., you must still pay tax on that income to the U.S., after it’s taxed in the country where it’s earned, based on their laws.  There are threshold exclusion amounts, but the bottom line is you must pay tax to the U.S. even if none of your income was earned in the U.S.

When I visit the U.S., I am to all intents and purposes a tourist.  We hire a car, stay in hotels, and eat out.

The Serenity Prayer

Aside from the practical issue of making time to do one’s tax return (and paying whatever amount may still be due), paying taxes for me raises emotional issues about personal responsibility, loyalty, and allegiance to one’s country or countries of choice.

Clive says he doesn’t know of any other country that charges a large annual fee to be a citizen.

I figure the best I can do is remember the serenity prayer, keep telling myself to accept the things I cannot change, and get on with doing my U.S. taxes.

Grrr.  Good luck and bon courage to my fellow American expats as we all do our U.S. taxes, wherever we may be.

8 Responses

  1. I’ve got to handle this task as well. It’s on my to do list for this week and I’m not looking forward to it.

    Nice post though and I appreciate the links to the articles.

  2. Seems very unfair indeed…not good 😦

  3. Pretty unbelievable! I always laugh when people tell me they own their house “free and clear”. I remind them that they don’t own anything; they lease the land from the government. Try not paying your property taxes and you will find out quickly who really owns your house.
    Carolyn, do you get to deduct your trips to the US from your taxesthen, even if they are pleasure trips? Can you file your taxes and write that you didn’t earn any money? (Would the Gestapo [sorry the IRS)]find out?).

  4. Wow! This is really interesting. Lots to think about before we decide to move to Oz (if even for a short time).

  5. My He-weasel does the taxes and if it best that way as I would be in a constant outrage about how much tax we have to pay and where that money is going. Keep saying the Serentity prayer et bon chance!!

  6. Makes me glad that I have practically no income here since I’m retired. It just doesn’t seem fair.

  7. Hi Carolyn,

    I’m not quite sure if I understand completely- but here is my comments–
    I file my taxes every year to the U.S. but I don’t pay taxes to the U.S. I live in France and pay taxes to France. If you are an American citizen who lives in France and works in France, you have to pay taxes to the U.S. IF you make at least $85,000 U.S. or more. Well, I don’t. So, that is why I don’t pay taxes to the U.S. but I am still required by law to declare/file my taxes every year. I even have an extended deadline to file- in June… if I live in France. That’s nice of them! Anyhow… I wish I didn’t even have to FILE in the U.S. since I no longer live there or have to pay taxes… I am not a homeowner in the States, so I realize that may be different, though..too… Like having to pay state taxes and other stuff… Take care… Leesa

  8. Thanks for your comments, everyone. Anne and Linda, it does seem soooo unfair!

    Elizabeth (and all expats), good luck getting these done! Nadege, great points as usual and I agree about ‘owning free and clear’ vs. property taxes (which Ausralia has, too, and are definitely not free!). I don’t think I can deduct my U.S. trips (sadly) and have always reported accurately from Oz … Jumbleberryjam, yes it might be a factor with your hubby’s work, but of course it’s still worth it to be in Australia 🙂

    Belette, lovely you have your hubby to take care of this to help avoid outrage (perfect word). Leesa, great point re I think the date is indeed June 15 for all of us, but I always have April 15 in my mind.

    Cheers all.

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