My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Friday, June 17, 2011

United States Citizens and Green Card holders must file U.S. tax returns

I was not going to write a blog today, however, I read the article entitled “U.S. taxman reaches north” by Barrie McKenna on Tuesday and want to highlight the income tax filing issues for citizens of the United States and Green Card holders, raised in the article.

If you are a U.S. citizen, you are taxed on your worldwide income and you must file a U.S. income tax return each year. This is still the case even if you live in Canada, file a Canadian income tax return and have no ties to the U.S.. The U.S. is one of the only countries in the world that taxes you for the privilege of citizenship rather than residency.

The same holds true for Green Card holders. While you hold a Green Card, you are considered to have the same filing obligations of a U.S. citizen as noted above.

As discussed in McKenna’s article, most people caught by these filing rules will not owe U.S. income tax if they do not have U.S. source income; as you can claim the foreign earned income exclusion and claim foreign income tax credits. However, returns and various reporting forms are still required, even if you do not owe any tax.

What the article does not not mention, is that in many cases you cannot just give up your U.S. citizenship or Green Card and walk away. There are complicated exit tax rules. I would strongly suggest that you engage an accountant familiar with these U.S. rules to advise you of the income tax consequences, before giving up your citizenship or Green Card. You probably also want to discuss the issue with an immigration lawyer.

Finally, if you are required to file a U.S. return, you probably want to voluntarily file before being contacted by the IRS.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.