We used to point to the Eastern Block countries as examples of those which did about all they could do to prevent their citizens from emigrating, but there are many ways- some subtle others not so subtle- by which the USA discourages its citizens to choose to live abroad. Here's are some that come quickly to mind: I'm sure the readers can think of others.... Medicare has no extraterritorial benefits: if you want Medicare to cover your medical expenses, you must be treated in the U.S. This makes the treatments more expensive, in most cases, and costs the system more, but it keeps the money at home. The "foreign work" rule: if you are an early retiree, and if you work abroad more than 45 hours per month in work that does not participate in social security back in the states; or, if you have a business abroad- regardless of how much you may actually work in it, and whether or not it produces any income- your social security benefits will be suspended if, as required, you have reported this activity to the SSA. ______________________
Pocodinero asks: Self reporting- such as is required when we file US tax returns, along with other required reports, to IRS and the US Treasury- is the main way; and, Social Security has its own unique set of reporting requirements.
This is why a lot of people "go off the grid". If you can find a way to bring in $100k or more a year in an all cash business, nobody is the wiser, right? It's possible in Cancun PS: Another way they discourage it is requiring you to file taxes for 5 years, even after renouncing your citizenship. Many multi-millionaires have been bailing out on America because of the death taxes.
...and I used to complain about our high taxes in Sweden So, you as US citizens, shall pay taxes even when you are NOT in the country, benefiting from what the tax money does, yet services coming FROM your Govt might be suspended? Guess the wind only blows the way your Govt wants it to blow? Have a friend whom spent 7(!!) years here in Cancun, and upon return to the US, was back-taxed(not sure thats the term?) for all 7 years, even though he didnt use any tax-funded services... He called it "the damn benefit of being an American" and always laughed
Rawkus: Can't speak for the other Americans here, but I don't have to pay US taxes. I understand you only have to pay them if you earn more than $90,000 USD or so a year in foreign income. I do have to file a US tax return every year... I just don't pay anything. Never realized I didn't get SS benefits, though, but that sounds fair enough as I don't pay any US taxes.
G. the foreign earned income exclusion you spoke of applies only to earned income, so all other forms of income would not be subject to the exclusion, and would be taxed in the U.S. for income tax purposes. This could include such things as interest income, capital gains, dividends, rental income, etc., all of which would be taxed in the U.S., no matter where the income was produced. Credits for taxes paid in Mexico, on income produced in Mexico, could partially or totally offset this bill.
You may want to double check that $90K amount. According to this, "The U.S. has not imposed a Diaspora Tax on its citizens. They are free to leave the country as they wish -- unless they happen to earn more than $9,350 abroad, at which point they are subject to significant punishment from the IRS for failing to file a tax return." The American Spectator : New IRS Rule Benefits Only Foreign Dictators not filing US income tax returns may result in severe penalties.
US Citizens are required to file income tax returns in the US no matter what the source or the amount of the income may be. However any income taxes paid in a foreign country may offset any US tax liabilities (therefore you are not double taxed). Therefore if your US tax liability on your income is for example comes to US $100 and you paid that much to a foreign country in taxes you do not owe any taxes in the US. However if in a foreign country you paid only US $50 in income taxes, then you owe still the US $50 in taxes. There is no magic number which is non taxable. You file your tax returns as you would in the US from Jan 1-April 15. Don't expect to get a way with not reporting since the IRS has ways to find your income somehow and you will get hit with heavy fines, penalties, etc. for not filing your taxes as you are supposed to in the US.
I prefer to go to the horse's mouth: http://www.irs.gov/pub/irs-pdf/p54.pdf Foreign Earned Income Exclusion Five Facts about the Foreign Earned Income Exclusion
Can't get away from it, Bruce, given the difficulty in restating almost anything pertaining to taxes. Having income below the filing threshold (such as Mole mentioned) means you don't have to file a U.S. tax return no matter where you live; having income above that amount, even if you live abroad, means you have to file a return (G. mentioned that she does). The foreign earned income exclusion, which excuses income taxes that would otherwise be due on the amount of the exclusion (now, $92,900), must be claimed by filing a return, including Form 2555; failing to do so can cause you to lose the exclusion. The mistake people occasionally make is in thinking they don't have to file a return if their income is below the excluded amounts. I had a friend who filed seven years of returns after he learned about the mistake he was making. [He was getting nearer retirement age and feared IRS would garnish his Social Security checks if they determined he had unpaid taxes (which he would have had, absent his claim of the exclusion, so it was important that he file, and take the exclusion).] Where I think it can get stickier is if they notify you, inquiring about the missing returns, before you've gotten around to filing them. ____________________________
