Tax Time for U.S. Persons

It was fun while it lasted but now it's time to put away the chocolate bunnies and start tackling the taxes.

We "U.S. Persons" (U.S. citizens, Green Card Holders) have not just one but two tax declarations to make:  one in our country of residence and the other to the U.S. government. We are required to declare everything we own (bank accounts, property investments) and everything we made even if we didn't make one dime of that money or have any assets in the U.S.  That is my situation - not one penny (or centime if you prefer) that I have in my host country (France) came from a U.S. source.  Doesn't matter, as a U.S. Person, I still have to file in the U.S. and pay taxes there even though my money did not come from the U.S., I have not lived or worked in the U.S. for many years and I do not benefit from any services provided by the U.S. government.  But these are the rules, folks, and I comply.

I will admit, however,  that I'm not happy about it.  Why?  Well, first of all it seems to defy basic fairness. I pay a lot of taxes already in my host country and that pays for the services I use:  healthcare, roads, public education, the army that defends me and my family here.  Given that I think the French government does a splendid job of delivering these services I have no complaints about the taxes I pay here, though they are probably higher then what I would pay in the U.S.  You get what you pay for.  Any money I send to the U.S. in taxes, however, is pure profit for the American government and represents a wealth transfer from France to the U.S.  Frankly I would feel a lot better about paying my U.S. taxes on top of the French ones if I had some concrete services here from the U.S. government.  Services tailored to the American Diaspora that, if nothing else, would soothe me psychologically.  See, my country still cares about me as a citizen and won't throw me to the wolves just because I live abroad.  Alas, there is nothing and I'm still trying to make my peace with that.

Another issue related to fairness is reports I'm getting from family and friends in the U.S. about their U.S. taxes.  I received a mail recently from a family member in the U.S. who was astonished because, after doing his U.S. taxes, he discovered that not only is he not paying any Federal taxes he is getting a 4000 USD bonus.    Now I do not begrudge this person his windfall but it did make me think.  Let's see, I'll be paying around 2000 USD this year.  Between the taxes I pay and the subsidy he's receiving, the U.S. government will be 2000 USD in the hole.  How in the heck are they planning to balance the Federal budget with a system like that?  I'm sure the situation is much more complicated than I'm making it out to be but, from my perspective, a tax system that allows nearly 50% of the people to avoid paying any taxes at all (or even get a subsidy) while struggling to manage a whopping budget deficit, isn't sustainable.  And somehow I just don't think chasing all those English teachers, translators, computer programmers and middle managers working abroad is going to make much difference in the end.

Nevertheless, this seems to be the plan these days so those of us who live abroad and have a U.S. connection must either comply or renounce.  A lot of people are renouncing and I have enormous sympathy for them and I am not about to second guess or judge their decision because I do understand where they are coming from.  For those who are trying desperately to comply with the U.S. tax and reporting requirements I'd like to offer a few suggestions for those still trying to figure out how.

Believe me, it's not easy.  I've already encountered my first barrier to compliance.  Since all my money and assets are here in France and the tax due dates are different here, I still haven't received all the information from my banks in order to start filling out tax forms.  There is no way I can meet the U.S. deadline of April 17 so I've had to file for an extension.  I will still have to pay an estimated tax on that date to avoid penalties but now I have until October 15 to actually file.

So my first suggestion for those of you who have just woken up to the U.S. tax and reporting requirements is:   do not panic and simply file for an extension.  Taxes for U.S. persons can be very complex and you don't want to be hasty and file "n'importe quoi."

My second suggestion is to get this book, Your U.S. Expat Taxes Simplified by David McKeegan.  It's a very good overview of how the U.S. tax system works for U.S. persons abroad.  If you are someone with a very simple situation (American au pair working in France with no other assets or income) this might be sufficient for you to be able to do your taxes yourself.  For everyone else, this will give you enough basic information to go out and start looking for a professional.

My third suggestion is to speak at least once with a professional U.S. tax preparer.  The U.S. tax code is a mighty beast and it is applied in strange and mysterious ways to people living outside the U.S. If you live in a city abroad with an IRS office (Paris, London, Frankfurt or Beijing) they can be very helpful in a limited way and sometimes they organize tax seminars with organizations like the AARO.  However, it's not enough because your situation is particular to you and only a competent professional can give you advice that is pertinent to you. These people are not cheap but, if you want to comply,  this is the only way I know of to do it.

Bonne chance!