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us taxes owed if somebody has lived almost entire adult life abroad?
If a person born in the US has lived 30 years in a foreign country, never filing income tax returns because left US young and before ever making enough $ to owe anything, Then say the person ended up doing really well financially in the last 5 or so of those 30 years, as an entrpreneur, and naturalized citizen in the foreign country, do they really owe the US capital gains/income tax on the money? By what justification? Even if they never have or will receive social security, medicare, unemployment, or any such benefits?
I just heard about this being the law, and find it hard to believe it would apply to somebody with the set of circumstances described here. Thank you
4 Answers
- StephenWeinsteinLv 71 decade ago
Yes. And they owe a lot of penalties for not paying it sooner. And they owe a lot of penalties for not filing.
The justification is (1) the U.S. Constitution says "all persons born.... in the United States" are citizens, (2) the Internal Revenue Code says all U.S. citizens making at least a certain amount must file, and (3) the Internal Revenue Code says anyone who must file must also pay.
Whether the person receives any benefit has absolutely nothing to do with it, and is not even a factor in whether they must file or pay. The only relevant criteria to your question are that the person was born in the U.S. and made money.
- Bostonian In MOLv 71 decade ago
Stephen has nailed it.
US citizens (and lawful permanent residents) are subject to US tax laws regardless of where they live or work. There are a number of ways to minimize that tax liability (Foreign Earned Income Exclusion and Foreign Tax Credit) but a timely return MUST be filed to claim that treatment. In general US citizens living in foreign countries will pay the greater of the US tax or the tax of the country where they reside. Most modern industrialized nations have higher taxes than the US does so most citizens residing in those countries don't pay any US taxes but the filing requirement never goes away.
Being naturalized in a foreign country does not absolve you of the requirement to file US returns and pay US taxes in and of itself. You must also formally renounce your US citizenship (or be stripped of it by due process) in order to be free of US taxation. However if the US determines that the principal reason for surrendering your citizenship was to avoid US taxes you can still be subject to US taxation for 10 years after surrendering your citizenship.
See IRS Pub 54 http://www.irs.gov/pub/irs-pdf/p54.pdf for information on the Foreign Earned Income Credit (capital gains are not earned income, by the way) and IRS Pub 514 http://www.irs.gov/pub/irs-pdf/p514.pdf for information on the Foreign Tax Credit.
The fact that they may never receive certain benefits of citizens, such as Social Security, is irrelevant. But note that if the person is self-employed overseas they are still subject to US self-employment taxes regardless of any other tax concessions involved and with 10 years of paid-in credits would be eligible for US Social Security benefits. (Medicare does not provide coverage outside of the US but that does not get them off the hook for the Medicare portion of the SE taxes.)
- troLv 71 decade ago
US citizens are taxed on world wide income
there are some exclusions and residency abroad is one of them, very likely you possibly have been exempt due to the time you have lived abroad but you really need to discuss this with professional tax person
if you are naturalized in the foreign country, why don't your renounce your US citizenship and be done with it?
- ?Lv 44 years ago
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