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Andy Brice
Successful Software

Doug Nebeker ("Doug")

Jonathan Matthews
Creator of DeepTrawl, CloudTrawl, and LeapDoc

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BreezeTree Software

Bob Walsh
host, Startup Success Podcast author of The Web Startup Success Guide and Micro-ISV: From Vision To Reality

Patrick McKenzie
Bingo Card Creator

US Tax and Non Residency

Can a Yank, I mean a US citizen, help me with a tax question?

If you're a US citizen, how much time do you need to spend out of the country before you achieve non-resident status and stop paying income tax?

I know many countries in Europe operate on a 91 day rule - can't find anything identifying for US folk.
Tim Haughton Send private email
Friday, August 08, 2008
You must spend at least 330 days in a foreign country or countries in a 12 month block.

It can be pro-rated so that if from 1 mar 08 to 28 feb 09 you were out for 330 days, including all of Jan/Feb 09, then you will be able to get 2/12 of the exclusion for 09.

The exclusion amount is $85,700 last year so in the above situation, the first $14283 of earned income would not be subject to Federal tax, but might still be subject to the state tax where you last lived.
US Expat
Friday, August 08, 2008
Thanks USExpat.

Wow, that's pretty aggressive taxing.
Tim Haughton Send private email
Friday, August 08, 2008
US expats never achieve non-resident status and stop being liable to income tax, unlike Europe and almost every other country.

The 330 day limit applies to eligibility for the foreign earned income exclusion. You can take foreign tax credits to avoid double taxation but US citizens must always file tax returns and are always liable to tax on all worldwide income. The system is quite different from European countries where you don't need to file tax returns after a certain length of time overseas.

The rules are summarized in IRS Publication 54 (2007), Tax Guide for U.S. Citizens and Resident Aliens Abroad
Friday, August 08, 2008
And it is 330 days in a foreign country, not "out of the US" so in international waters, you are not in a foreign country. Plus you lose the days you arrive/depart from the US.

Unearned income is never excluded.

The whole system is very different and can lead to weird situations... I know a US citizen who is taxed, but has never lived in the US. He was born abroad to US parents, and now pays tax to a country he has never lived in and never plans to. The country he was born in does not give citizenship by birth if one has foreign parents so he has no other citizenship.

And he can't vote because he is not resident in any US state.
US Expat
Friday, August 08, 2008
That, is a most peculiar state of affairs.
Tim Haughton Send private email
Friday, August 08, 2008
There are actually quite a number of US Expats in this boat - thousands at least who were born abroad or left when they were very young. There are even Americans who have never been to America.... they get to pay tax too... and social security, which if they stay abroad, might never be able to collect on.
US Expat
Friday, August 08, 2008
Utterly weird. I've had a dig, and it seems you can recind your US citizenship at a US consulate. And you also need to notify the Department of Homeland Security, who may or may not declare you to be an enemy combatant, strip you of all human rights and ship you to Gitmo indefinitely without trial.

This is interesting:


It does state that

"the fact that a person has renounced U.S. citizenship may have no effect whatsoever on his or her U.S. tax or military service obligations"

That alone is a very scary prospect. Even if you're no longer a US citizen, they could still tax and draft you?

That cannot possibly be right. Or legal.
Tim Haughton Send private email
Friday, August 08, 2008
How about the guy in Venezuela? He tried to rescind his citizenship, and the IRS denied him because they said his main reason was to avoid taxes. Like duh, double taxation kind of sucks.

US Citizenship is like being in the mafia. There's no getting out. And plenty of enforcers/knee breakers.

-Ryan (also an expat)
(User deleted) Send private email
Friday, August 08, 2008
The IRS will tax you for 10 years after giving up US citizenship... absolutely a mafia game.

It is absurd that one can have never been to the US, but still be paying tax there on one's worldwide income.
US Expat
Friday, August 08, 2008
So then, if you've tried to rescind your citizenship and been told that your wishes won't be honored, what happens if you simply don't write checks to the U.S. gov't? Presumably if you don't live in the U.S. and have documents to back up your attempts to renounce citizenship, you can't be extradited, etc. and are safe (assuming you don't try to re-enter the U.S.). Or am I missing something?
BrotherBeal Send private email
Friday, August 08, 2008
Nope, that's right - just can't go back to the US again.
US Expat
Friday, August 08, 2008
>> and it seems you can recind your US citizenship at a US consulate.

These rules are changing - a recent article in the Economist talked about the IRS applying essentially an estate tax when an expat tries to give up their citizenship in this sort of scenario. It's part of the ridiculously named "Heroes Earnings Assistance and Relief Tax" (HEART) act.


The article argues that the new rules could encourage young Americans with promising future earnings to jump-ship early, before they generate a large amount of wealth, reducing the taxes collected.
Mr. Blah
Friday, August 08, 2008
Wow, for a place that goes on about freedom, the reality is somewhat different for it's own citizens.  You're free to do anything, except to be free of your Government, even if you've never voted for or agreed with them or even set foot in the country. 

For the record, as an Australian citizen, I can earn income in foreign countries and pay no Australian tax on it, even if I repatriate the income.  This is assuming the income is earnt (and declared) in a country with a taxation agreement with Australia.  The only drawback is that any earnings in Australia (in the same tax year) are taxed at the highest marginal rate that applies.

I remember working in the USA and showing citizens there my taxation details for working in Australia.  They were astounded that I paid less tax than they did (California), but for my tax money I got free public healthcare and schooling, plus income assistance at university level.  And this was before Australia aggressively reduced the top marginal rates and raised the thresholds.

I'm just shocked at this.  I guess it's because it affects very few voters in the USA, given that the majority would never earn a cent in income from other countries.
Bruce Chapman Send private email
Sunday, August 10, 2008
>>Presumably if you don't live in the U.S. and have documents to back up your attempts to renounce citizenship, you can't be extradited<<

I wouldnt be too sure about that mate. The USA already extradites non US citizens from other countries in relation to crimes they commit under US law though they might never have physically visited the USA.

Two examples that come to mind (software piracy and hacking):

Hew Raymond Griffiths:

Gary McKinnon:

Extradition and potentially 60 years in a FPMITA prison plus $2m in fines. Pretty harsh stuff for a perl script that hunts out default passwords from a home modem!

You would need to see a lawyer to find out whether they can do it for not paying tax as an ex-citizen but even if they cant today the law could be changed to allow for it tomorrow.
Kthx Bai
Monday, August 11, 2008
Ask not what your country can do for you, ask what you can do for your country.

There are lots of people who theoretically have duel citizenship (because they were born here but then their parents moved back to their home country when they were a child) who can never set foot again in the U.S. because they owe the U.S. taxes on their lifetime of income.

As long as you don't come back here, and you're just a regular person and not a billionaire, the U.S. will not extradite you for taxes, don't worry.

You do get foreign tax credits for all foreign INCOME taxes paid (but not non-income taxes), so if your income is from a country with a higher income tax rate than the U.S., then you don't owe any additional U.S. tax.
Grumpy .NET programmer
Monday, August 11, 2008

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