Living abroad is a compelling vision for many people. For some, the attraction is a great job that happens to be in an exotic land; for others, it’s simply the romance of joining the tradition of famous expatriates such as Ernest Hemingway, Scott and Zelda Fitzgerald and Gertrude Stein.
But then, reality strikes. Among the concerns of living outside the United States -- making a living and leaving loved ones behind, for example -- are the tax issues that develop if you retain your U.S. citizenship.
If you’ve never lived abroad for an extended period of time, you probably don’t know the United States requires its citizens to continue to pay taxes back home. You are required to file taxes on foreign income even if you pay taxes in the host countries.
“We tax both citizens and residents on the basis of worldwide income,” said John Wilson, an adjunct professor of international taxation in the graduate tax program at the University of Denver.
The United States is one of a handful of countries that require this comprehensive taxation. For residents of Canada, the rules are different.
“In Canada, when you move away, you stop being a tax resident,” Wilson said. “The fact that you’re still a Canadian citizen doesn’t subject you to worldwide taxation.”
The good news is that the Internal Revenue Service offers several breaks to keep the long-distance taxes to a minimum.
"We tax both citizens and residents on the basis of worldwide income."