OPINION
President Donald Trump has taken up the cause of the 9 million Americans living overseas, promising to end the double taxation of Americans abroad. Bravo!
Americans abroad have been waiting for this development for decades. Donald Trump's second presidency made it possible.
The U.S. is one of the few countries that tax the foreign earned income of their nonresident citizens. All other industrialized nations, including the U.K., France, Australia, and Japan allow their expatriate citizens to disregard foreign income from abroad and require no reporting.
"This is a uniquely American practice and is harmful to U.S. citizens abroad, their American employers, and American exports. President Trump's support is welcome," said John Richardson, a Toronto-based lawyer who assists Americans in Canada.
Americans abroad are a vital part of the American export supply chain.
They have a cultural preference for U.S. goods and services and are natural cheerleaders for American exports. Unfortunately, the burdens imposed by the U.S. tax code have made it so expensive for U.S. multinational companies to hire Americans overseas that they prefer to hire local nationals, who do not have the same tax-compliance and reporting requirements.
As a result, Americas overseas tend to be owners of small- and medium-sized businesses or independent contractors living abroad.
Unfortunately for them, the U.S. tax code is an annual nightmare.
American tax returns often require preparation in both local currency and U.S. dollars. Different sources of income require separate forms, and taxes rates are unique for each category.
Some forms, the government estimates, take up to 40 hours to complete, and that excludes time to learn the relevant laws and understand the form instructions (that takes years).
"It does take years to understand the U.S. tax code for expats," offered CPA Kenneth Guilfoyle in Tokyo. "My whole 30+-year career, in fact."
Consequently, most American expats are forced to hire very expensive international accounting specialists.
For a normal, wage-earning taxpayer, a return can easily cost $2,500 to $5,000. For a small business owner, a 100 pages tax return is not unusual and can cost $10,000 to $20,000 annually.
More complex returns can be much bigger.
"I'm also a member of the American diaspora; and, on average, my own U.S. tax return is well over 100 pages," said Guilfoyle. "For some of my clients, an individual U.S. tax return can number well over 1,000 pages and take as much as one month to prepare."
Compliance costs are not the only issue for U.S. expats. Thanks to the Foreign Account Tax Compliance Act — a Barack Obama legacy — just opening a bank account can be an ordeal, because foreign banks are now forced by the American government to report all transactions by U.S. citizens abroad.
For many foreign banks, it's not worth it to have American customers, and they've stopped accepting them. Now, American investments are often unwelcome, as accepting American money comes with an enormous tangle of U.S. law and documentation.
Most expats have a story of being dumped by a bank, investment firm, partnership, or corporation.
There are also baffling rules for Americans overseas for investing, receiving loans, or buying insurance.
Complex Report of Foreign Bank and Financial Accounts rules require all bank accounts, including highest balances, to be disclosed annually. Penalty of noncompliance is confiscation of 50% of the money within and, potentially, years of imprisonment.
If all this were not enough, even double taxation occurs in cases of American-owned businesses.
"For U.S. citizens with a small business here in Canada, the GILTI [Global Intangible Low-Taxed Income] rules create a presumption of double taxation," said John Richardson in Toronto.
President Trump's decisive victory means Americans abroad now have an opportunity to join the rest of the industrialized world and end this injustice.
We now have a chance to gain a fair tax policy for U.S. expats — one that matches the rest of the world and ends double taxation on Americans abroad. Americas living abroad would be treated the same as other countries, to be taxed as only residents of the country where they actually live.
Republicans Overseas, a nonprofit organization dedicating to supporting U.S. expats, has recently announced a new proposal for Residency Based Taxation. This proposal would simplify American expatriate tax by excluding U.S. taxes and reporting requirements on income earned abroad but still tax their U.S.-sourced income.
This would remove most of the tax complexity for the U.S. citizen overseas. It would also create more opportunities for Americans to work and live overseas and help grow American businesses internationally.
Thanks to President Trump's leadership, Americans overseas may soon receive the tax relief they have long wanted.
Tony Rodriguez is vice president (Asia) of Republicans Overseas. James Carter is a principal with Navigators Global. He previously headed then-President-elect Donald Trump's tax team during the 2016-17 transition and served as a deputy assistant secretary of the treasury for President George W. Bush.
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