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The Unkown Tax Unknowns

Greenback Tax Services’ 2019 Expat Tax Survey finds that many expats are unaware of how recent IRS tax reforms will affect them

Published on September 2, 2019

The 4-1-1 Logo The 4-1-1: Your Inside Scoop on living the Transatlantic Life

Each year, Greenback Expat Tax Services surveys expats around the world about their opinions on the American taxation system, and each year, the results point heavily toward their dissatisfaction. The recent findings of the 2019 Greenback Expat Tax Survey, which surveyed over 3,100 expats, were not significantly different, as expats are still calling for drastic changes to the taxation system. However, one of the most fascinating findings this year was the fact that many expats don’t understand how the recent American tax reform will affect their financial situation.

Since America is one of only two countries with a citizenship-based taxation system, American citizens who move abroad are bound by American taxation requirements which can be expensive and often complicated. Expats are often unaware of these requirements when they move abroad, but they can still be caught by the IRS and face steep fines for their noncompliance. Some expats may even have their passports revoked. These extreme consequences have dismayed expats for years, but little recourse is available. While many expats vote in order to voice their displeasure, expats do not vote as a bloc, so their votes are dispersed country-wide and fall far down the list of priorities for most law-makers.

Those who are truly fed up with the system often resort to renouncing their citizenship. Citizenship renunciation is quite final and can never be undone – but many expats feel it is the best option. However, in order to do so, expats must be tax-compliant first.

This year’s survey showed that expats are at a tipping point with the burden of expat taxes. One in four (approximately 26%) is considering renouncing their citizenship, 5% more than the previous year’s data. With over nine million expats, if those considering renunciation take action, the IRS will most certainly notice the deficit.

Another surprising finding was that, though the American taxation system is undergoing a major transformation, many expats don’t know what to expect from these changes. Significant modifications occurred this year; for one, 2019 was the first year in which the changes from the tax reform were felt. 54% of expats surveyed did not know if the tax reform would positively or negatively impact their tax bill. Further, 58% were not confident about their understanding of how tax reform would affect them.

Going essentially unnoticed was an optimistic development, which, according to survey results, would have greatly pleased American expats. This was the Tax Fairness for Americans Abroad Act (TFFAAA), of which roughly 74% of expats surveyed were unaware. The TFFAAA, if passed, would have introduced a new tax exclusion so that foreign-sourced income of American expats would not be taxed.

Other findings were overall consistent with recent years’ survey information, including:

• 71% of US expatriates don’t agree with the requirement to file US taxes while living abroad; this increased 4% from 2018.
• 71% of US expatriates don’t agree with the requirement to file US taxes while living abroad; this increased 4% from 2018.
• 89% of expats believe that the US government does not fairly represent them, growing 3% from 2018.
• 49% of expats feel that the repeal of citizenship-based taxation is the best way to help relieve expats of the burden of lifelong taxation.

Unless the US government chooses to address these growing concerns, the rate of citizenship renunciation is likely to continue to grow.

Greenback Tax Services’ CPAs and IRS Enrolled Agents specialize in the preparation of US expat taxes for Americans living abroad, and also offer tax prep for UK tax needs.

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