If you are a US passport holder who lives and works overseas, tax season is probably one of your least favorite times of year. Filing taxes while living abroad can be quite the hassle, and the IRS has done very little to make it any easier on expatriates. When you earn money abroad, you not only need to pay taxes in the country where you reside, you also owe taxes to the US government. Worst of all, if you fail to pay your US taxes while living abroad, you could lose your passport.
About eight million Americans currently live abroad, and they get a few extra months to file their taxes each year. In most cases, citizens only have to pay US taxes on foreign earnings over the first hundred thousand dollars. They also get to deduct some of the taxes they pay to local governments, which are usually higher than US taxes, particularly in Western Europe.
For those people who are affected, however, things are getting even trickier. The IRS is now requiring that expatriates not just report their foreign income, but also report additional information on savings and investments.
If you’ve ever been confused about what exactly you needed to report in your taxes, imagine just how much more complicated your life would be if you earned money and had a savings account in another country. Typically, US tax returns for Americans living in Britain are 40 to 50 pages long!
New Crack Down Measure by IRS
The scariest part is that the IRS and the State Department are now implementing a measure that has been approved by Congress that will revoke the passports of American expatriates who owe too much in back taxes. This means that if you fail to report some of your foreign income, whether on purpose or simply because you didn’t know you needed to, you could get stranded in a foreign country.
Needless to say, a lot of expatriates are very upset about this new provision. One man who runs a tax service for expatriates said that many of the people he works with feel like criminals for doing very normal things. Others who aren’t even affected by some of the most stringent US tax laws live in fear that they are making a mistake on their taxes and might suffer dire consequences.
While the IRS does find its fair share of rich tax evaders living abroad, it’s quite unfortunate that so many normal people trying to make a life for themselves are subject to these tough and intimidating laws.
Let’s hope that they all know a good accountant!