Tax season is tricky-especially if you are in any way international. It can be tough to navigate the maze to figure out who all you should be paying taxes to. And it’s a pretty important maze to figure out; the penalty can be high if you make a mistake. So how do you determine if you need to look into things like the US expat tax?
What is the US expat tax?
The US expat tax is an expatriation tax, which is a tax that is imposed on individuals who emigrate out and cease to be tax residents of their home countries. A number of countries employ some form of expatriation tax. For instance, Canada imposes a departure tax, Spain employs an exit tax, and South Africa implements an exit tax regime. The expatriation tax is most often based on capital gains, and it prevents an individual from emigrating in order to avoid paying taxes. The US expat tax ( www.EsquireGroup.com/Us-expat-tax ) is applied upon renunciation of citizenship, and it gets applied on top of all other previously paid taxes.
How is the US expat tax different?
Different countries have different taxation regulations, which is part of what makes international business so challenging. The US is one of the only countries in the world that taxes its citizens on worldwide income, regardless of where their residence is. Once a US citizen gives up their citizenship, or emigrates to a new place of permanent residence, the US imposes the US expat tax.
Who has to pay the US expat tax?
The US expat tax isn’t just applied to those who give up their US citizenship. In addition, the tax is applied to lawful permanent residents or green-card holders—those who are long-term but not necessarily permanent residents.
The US expat tax has been modified a number of times, so to find out your specific requirements, check the Expatriation Tax section on the IRS website. However, if you expatriated on or after June 17, 2008 and meet any of the following restrictions, then you are required to pay the US expat tax :
1) You are required to pay the US expat tax if your average annual net income tax for the five years prior to the date of expatriation is more than $151,000 for 2012, $155,000 for 2013, $157,000 for 2014, and $160,000 for 2015.
2) You are required to pay the US expat tax if your net worth on the date of expatriation is $2 million or more.
3) You are required to pay the US expat tax if you fail to certify on Form 8854, which ensures that you have complied with all US federal tax obligations for the 5 years preceding your date of expatriation.
How do you navigate the US expat tax?
The easiest way to ensure you are navigating the US expat taxation system ( www.EsquireGroup.com/About ) correctly is to visit a tax consulting service that has professional experience in dealing with the US expat tax. If you are looking for someone who can help you understand whether or not you are required to pay, and what all needs to be disclosed, then someone who knows the ins and outs of the US expat tax is essential.