Dual citizen and taxes

**neatdesign** · 12-08-2012, 05:35 PM

Originally posted by UnknownXV View Post

My question though, as I am starting to save more money and earn interest is of course, does capital gains tax apply to both countries? From what I can tell, the foreign trade credit does not apply to capital gains, and obviously paying capital gains to both countries would be quite annoying.

I don't know the answers to your questions, but I would start with the IRS's website: Information for U.S. Citizens or Dual Citizens Residing Outside the U.S.

If anyone knows a way to void myself from paying taxes to both countries, that'd be great. I'd rather not have to give up my citizenship.

I wouldn't hold my breath on that.

In simple terms, US citizens must always file federal tax returns based on their worldwide income. Even if you never step foot in the US, as a US citizen you are required to file tax returns if you earn above a certain minimum income amount, regardless of where you earned that income or in what currency it is paid. That doesn't mean you necessary OWE any taxes to the US government, but you must FILE a return.

Depending on your income level, you may be eligible for the Foreign-Earned Income Tax Exclusion, using Form 2555. I suppose that you could limit (or maybe even avoid altogether) paying US federal taxes by limiting how much income you make, but either way you'll still have to file a tax return every year.

My ex-husband is from the UK and emigrated to the States. For several years when we were wading through US immigration, I read a lot of stories about US dual citizens who lived/worked abroad their entire lives and had never filed a US tax return -- they weren't even aware that they had to. Suddenly they were trying to sponsor their non-US citizen spouses (and sometimes dependents) to move to the States, only to encounter major problems because of their failure to file tax returns.

**UnknownXV** · 12-08-2012, 05:57 PM

I didn't know I had to file a return.. I don't owe any taxes, why would I have to file a return. It's absurd. You can't even file electronically since I'm in Canada, how would I even get the forms?

...

I didn't file my US return last year since via common sense I didn't think I would have to. I only made $9,000 last year.

My only hope is that taxes paid in Canada can count as a credit even against any potential capital gains taxes I would owe in the states. Ugh.

Thanks for the help though.

**neatdesign** · 12-09-2012, 07:37 AM

It's because the US is one of only two countries in the world whose tax system is based on citizenship AND residency, not just residency.

Some interesting articles on this subject:
Tax History: Why U.S. Pursues Citizens Overseas
Many Americans Abroad Surprised by Tax Code's Nasty Bite
The double jeopardy of a U.S. citizen

All tax return forms are available for free download online: IRS Forms & Pubs

You might find purchasing tax preparation software to be worth the investment because it takes all the guesswork out of it for you. For the past 15 years I have used both Turbo Tax and H&R Block -- I just get whichever is cheapest. These usually go on sale in January on Amazon.com (not sure about Amazon.ca), if you just check every few days. I can usually grab the software for half-price then.

My ex-husband is a US-UK dual citizen. Since he doesn't reside in the UK, due to British tax laws he doesn't have to pay UK taxes on or report his US income to the British government. If he moved back to the UK, though, he'd have to report his UK income to the US government for the rest of his life, even if he never lived in the US ever again. Whether he'd actually owe any taxes to the US government is another matter.

You should probably look into filing back US tax returns if you've never done so and you met the requirements for it. Although not doing so shouldn't affect your US citizenship, it might cause you problems if there's ever a chance you ever want to live/work in the US or sponsor a relative for US permanent residency. (You just never know.)

I don't really know how capital gains taxes work, but I encourage you to look through the IRS's website. It's actually quite comprehensive and your answer may just be found there. I'd start with the foreign-earned income tax exclusion.

Note: I'm not an accountant and not even remotely close to be any sort of expert when it comes to taxes (hence my use of tax prep software). My comments above (both posts) are based solely on my colloquial knowledge of taxes from my own personal experiences. Anything I say here should only be considered suggestions and not advice!

**UnknownXV** · 12-09-2012, 08:57 AM

Wow, I never knew how aggressive and brutal the US tax code is for dual citizens, bordering on insanity.

From what I can gather, capital gains tax is not included in the foreign credit.

It might be possible to claim the taxes I pay in canada on the capital gains tax as a credit, and since the tax is higher in canada than in the us for now; I wouldn't owe anything in that case. Cross my fingers...

I wonder if they'd expect me to pay taxes on registered plans that are tax deferred or exempt too? Man this is crazy.

I'm actually considering renouncing citizenship.. I mean it would cripple my retirement goals if I have to pay this tax twice.

**siggy_freud** · 12-09-2012, 09:16 AM

Filing in both doesn't mean you'll be paying in both. Your foreign taxes paid credit should make it such that you don't owe anything in the US, unless you did earn funds in the US, in which case it's fair to pay what you owe.

I understand this impacts your goals, but frankly looking to dodge taxes in both countries is immoral in my opinion.

**neatdesign** · 12-09-2012, 10:34 AM

Originally posted by UnknownXV View Post

Wow, I never knew how aggressive and brutal the US tax code is for dual citizens, bordering on insanity.

As far as the US is concerned, you're a US citizen and thus have to follow US laws. It's pretty much relevant to the US government that you also hold Canadian citizenship. The reverse is true for the Canadian government.

This is a situation where the left hand doesn't care what the right hand is doing -- as long as the right hand isn't doing something that's illegal for the left hand to do.

**UnknownXV** · 12-09-2012, 05:26 PM

Originally posted by siggy_freud View Post

Filing in both doesn't mean you'll be paying in both. Your foreign taxes paid credit should make it such that you don't owe anything in the US, unless you did earn funds in the US, in which case it's fair to pay what you owe.

I understand this impacts your goals, but frankly looking to dodge taxes in both countries is immoral in my opinion.

No no, I'm not looking to dodge taxes in both countries, only the country I'm not actually living in. Why should I pay taxes when I won't see any benefit back? It's silly.

And the credit you are referring to does not apply to capital gains tax. So my investment income is open to be looted by both countries.

**siggy_freud** · 12-09-2012, 09:59 PM

Originally posted by UnknownXV View Post

If anyone knows a way to void myself from paying taxes to both countries, that'd be great. I'd rather not have to give up my citizenship.

I was basing my comments off of this from your original post. I suppose if losing citizenship to a country is worth gaining back the 0-15% tax you're paying on the capital gains, then not much can be said in opposition.

**snafu** · 12-09-2012, 10:10 PM

You need to see an accountant who specializes in US/Cnd tax codes. Both Canada and the USA requires you file a return declaring world wide income. There is a reciprocity agreement between our two countries crediting taxes paid in each country and it gets a bit tricky since the rates are so different. Americans get a great many deductions that are not available north of the border. If you're not filing on-line, the forms you need are available at any American consulate. Very important to check hours of operation and make an appointment as they only allow visitors on a very restricted basis. The process takes a bit of mathematics and most important, read the lines correctly.

**UnknownXV** · 12-10-2012, 12:53 AM

Originally posted by siggy_freud View Post

I was basing my comments off of this from your original post. I suppose if losing citizenship to a country is worth gaining back the 0-15% tax you're paying on the capital gains, then not much can be said in opposition.

Yeah the way I worded it, I didn't mean not paying taxes to both countries, as in no taxes at all, I meant not being double taxed.

**snafu** · 12-10-2012, 09:56 AM

You need to see an accountant who specializes in US/Cnd tax codes. Both Canada and the USA requires you file a return declaring world wide income. There is a reciprocity agreement between our two countries crediting taxes paid in each country and it gets a bit tricky since the rates are so different. Americans get a great many deductions that are not available north of the border. If you're not filing on-line, the forms you need are available at any American consulate. Very important to check hours of operation and make an appointment as they only allow visitors on a very restricted basis. The process takes a bit of mathematics and most important, read the lines correctly.

**Mjenn** · 12-10-2012, 01:44 PM

Yes, there are a lot of hoops you need to jump through. But the IRS can work with you. You also now need to declare any bank accounts if you have more than 10,000 dollars total in your accounts. If you do not and have a lot of money saved abroad, you could be heavily penalized. You need to speak to someone who specializes with this type of thing. I spoke briefly with my parents tax attorney when I moved abroad and got the wrong information.

I worked with the American embassy to make sure everything was clear. Capital gains tax means you will need to file a long form... but if you work with a tax accountant that specializes in this, depending on your situation, you may be able to take deductions and other things to eliminate being double taxed.

I am pretty sure you cannot give up citizenship to avoid being taxed or it is not easy to do so. There is some difficult wording there.

**Wino** · 12-10-2012, 02:01 PM

I can only comment from the side of a US citizen living abroad.

Contact the US embassy and they'll have a list of tax consultants who will help you file the proper forms and bring you current on your obligations. Have every scrap of paper with a dollar sign on it that you ever even walked by...

Over here, it costa about $2000 for simple tax filing every year. It sounds like a lot of money, but it beats going to jail.

**UnknownXV** · 12-10-2012, 05:24 PM

There's no way I'm going to pay even $200 to do this. It's annoying to have to do it at all let alone lose out that much of my savings randomly. That's ridiculous. I barely make $16,000 a year and that's already taxed here heavily.

I'm 22, not a 40 year old billionaire trying to hide in another country to avoid massive taxes. I read that since I didn't file once last year I could go to jail for 10 years and be fined 500k. I mean is this a joke?

I don't even have $10,000 yet, so at least I'm not behind on reporting my bank account. I will file my US taxes the coming tax season.

I read I have to include a 1040 form as well, but how do I do that since I am in Canada and don't get US employer forms? Do I still input my income as if I did? God this is confusing.

Thanks for the help though I really appreciate it.

Dual citizen and taxes