Prior to moving, everyone from our accounting friends, to the UK Government, prepared us for terror regarding being US citizen abroad.
We received countless articles warning us about double-taxing, paying our taxes later and general traumatic Reddit post about someone abandoning their US citizenship to avoid tax penalties.
I spent the first 6 months holding on to every scrap of paper ever. I documented every transaction, pension paperwork and everything I could to avoid the ire of the US government.
And then we filed in April.
Firstly, I’m not going to pretend like filing abroad is completely pain-free. You can hire an accountant, but if you were doing your own taxes before and are smart enough to know how to Google and how to navigate issues – I recommend just using Turbotax or other services. BUT, and this is a huge part of it – You are taking a few liabilities by doing this:
- For one, you are risking your Turbotax contact not being aware of guidelines for P60’s (Which is similar to our W-4).
- You are also risking complications with checking out. There are multiple complicated steps because you have to pay to file with your American bank card (Which cannot have a foreign address attached to it).
- Finally, if you have exclusions, itemising and other complicated tax levels, if you aren’t used to doing this yourself; you’ll be in a world of pain.
We don’t itemise. We only have 2 tax credits, which after next year, is our last time we ever get to claim it. For us, taxes are not difficult. That does not mean, if we ever buy a house, a new car, have a kid, etc. It won’t become the worse situation ever. It just means, you need to know what you are doing and are comfortable with to complete this.
The actual filing of taxes is a breeze.
The biggest factor you have to consider with taxes is the worst – How much do you make?
Remember that post above regarding people abandoning their US citizenship? That was due to an American tax law requiring you to pay taxes to the United States when you make over $90k per year, or $120k as a married couple. This doesn’t affect me right now, because I’d be lucky to make $60k right now, nevertheless $100,800; but with the UK exchange rate, all I would need to make would be £77k, which I could easily do later in my career, with what I do.
This causes enough displeasure amongst expats that in a survey by Greenback Expat Tax Services, that “70 percent of the survey respondents indicated they don’t believe Americans living abroad should have to file U.S. taxes.”
And I agree with them.
In the States, we like to tie being a tax payer to being a citizen. We lambast individuals who do not make enough money to be taxed as being not-worthy of rights. So if I, as an American abroad, stated I didn’t believe I should pay taxes, then I would, by those people, be putting my voting rights on a chopping block.
Whereas I disagree with those beliefs (Based on billions of other facts and reasons on why income tax does not equal citizenship); I can understand the other rationale for why we should be paying taxes.
The idea is if you make over a certain amount; above average income, you should be contributing financially to the states. As one of those people who make over average (but not enough to be internationally taxed) that puts me in a position to complain over these reasons:
- I don’t need school taxes, my kids live in another country.
- I don’t need road/state taxes, I don’t live here.
- I don’t need to pay for social security since I can’t claim it abroad.
Through these, for the first two – you sound like a dick and are acting the same way as people who want to take their taxes and give them to private school because fuck poor people. The last one though, isn’t even true. You can be paid your social security while abroad, however, the US government will compare it against your current country’s retirement plans and deduct what they deem you don’t need.
The FEIE is the law that determines the inclusions. The big take aways are to see who this impacts. These laws exist to prevent wealthy individuals from hiding their money overseas. This is something the US has been keen on cracking down on for years, to prevent money from being harboured in European banks, without proper taxation. This, among the foreign banking act, required them to disclose how much they made and where. If they did not pay taxes and were reported by foreign governments (which they were) they could be barred re-entry into the United States.
Except this hits people who aren’t super wealthy.
To clarify – I’d be an asshole if I didn’t state the £100k is a ton of money. To those in the middle class, it doesn’t feel like a lot, but to most people, in households where they only make $45k for a family of 4 – that’s a ridiculous amount of money.
So, I’m not trying to preach and say that just because I’m hoping to someday hit $100k, that I deserve to not pay taxes. If that was the case:
- What an asshole
- I expect pitchforks
However, we need to ask – If the goal was to crack down on wealthy people doing this, why hit those who make $100k? There are probably a ton of reasons which were given by politicians and lobbyist for why that number was selected. However, using common sense and looking at the outcome, is making educated individuals who make upper middle-class money, abandon their citizenship to stop paying taxes.
They are giving up their right as an American, and the right to vote, to avoid being doubled tax.
We are the only major industrialised country in the world who ask their citizens to do this.
I do not mean to go tinfoil on this – but maybe they set it up that way, with the goal that voting members would give that up – Whereas the wealthiest individuals – would hold onto to it, because they have enough money to see staying American as a higher value than income.