# Calculation of US tax for US citizens living abroad



## liza87 (5 mo ago)

Hi all.

I have recently became tax compliant through the Streamline process and will also be filing my tax returns for the last 5 years (3 through the Streamline process plus 2) in order to renounce my citizenship. I never knew i had to file a tax return in the US as i have never lived there, but just got a US passport through my mother. I have already requested an appointment at the US Embassy in London to renounce but the wait list is long and I doubt I will get an appointment within the next 6 months. So, here are my questions. 

1. I will likely be relocating to the UAE where there is no income tax. Given that my appointment to renounce my citizenship will unlikely be within this year, I will have to file a tax return for income earned in 2023. Can someone confirm that my understanding is correct as to how my taxes in the US will be calculated? Will I have to calculate the tax based on my earned income and the tax based on the amount of the Foreign Earned Income Exclusion and then the difference is what I would have to pay? Obviously, I am worried that I will end up paying enormous taxes only because of the huge delays in getting an appointment to renounce my citizenship. 

2. I submitted my FBARs, but have never declared to my banks that I am US citizen. Could this now cause me problems with my banks? 

Thank you!


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## 255 (Sep 8, 2018)

@liza87 -- Obviously, we don't know your total income situation, but between the FEIE and the standard deduction, most overseas filers don't owe any tax to the U.S., unless they are exceptionally high earners. You may also be able to claim the foreign housing exclusion (deduction.)

The FEIE for 2022 is programmed to be $112,000 and the standard deductions range from $12,950 (single, married filing separately) to $25,900 (married filing jointly.) They are both indexed for inflation -- I haven't seen any numbers published for 2023 yet, but in this inflationary period, both numbers would surely increase. Worst case you'll also only be a citizen for a partial year, so your U.S. income will be diminutive.

As to your second question, I'd suggest leaving "well enough alone." Your banks are not privy to you FBAR filings and you'll no longer be a U.S. citizen in short order. I see zero potential for problems, especially assuming you weren't born in the U.S. If you were born in the U.S., you probably would have been flagged by now and the banks would have asked for you to fill out a form confirming your U.S. social security number. Cheers, 255

P.S. It appears you haven't filed you past taxes yet. You should be pleasantly surprised, as you'll receive a tax credit for 2020 and 2021 for the COVID "Recovery Tax Credit." In other words, expect a significant refund (about what you'll need to renounce.) There were numerous threads in 2020, 2021 and 2022 and even later on how to file your taxes to claim the benefits.


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## Bevdeforges (Nov 16, 2007)

The streamline program is supposed to square everything for you without the need to file earlier returns. Why would you back file for a full five years. The question is whether or not you are "current" on your US taxes - and if you file under the streamline program you are, by definition. Then of course there is the little matter of the fact that no one ever asks you during the renunciation processing about your tax status (at least no one I know who has renounced has been asked).

If your appointment to renounce is during the first half of 2023, you potentially "should" file a US return for the period of time in 2023 up to the date you renounce (i.e. the date of your appointment). The drill is that you then file an NR return for the period from your date of renouncing to the end of the year - but you can't file either US return (Resident or NR) until after January, 2024. And in any event, something like 40% of all renunciants never bother to file that "final return" anyhow.

Don't worry about anything you have or haven't told your banks. At some point, they may ask all their customers to give them information about their "tax residences." At that point you provide the information they have asked you for, nothing more, nothing less. (So if they don't contact you until after your renunciation is final, you just tell them that, nope, I'm tax resident only in the UK - or in the UAE or wherever.) If they contact you before you have had your appointment at the consulate, give them your US Social Security number and then send them a copy of your CLN (Certificate of Loss of Nationality) once you receive it - along with a W8 BEN form.


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## liza87 (5 mo ago)

255 said:


> @liza87 -- Obviously, we don't know your total income situation, but between the FEIE and the standard deduction, most overseas filers don't owe any tax to the U.S., unless they are exceptionally high earners. You may also be able to claim the foreign housing exclusion (deduction.)
> 
> The FEIE for 2022 is programmed to be $112,000 and the standard deductions range from $12,950 (single, married filing separately) to $25,900 (married filing jointly.) They are both indexed for inflation -- I haven't seen any numbers published for 2023 yet, but in this inflationary period, both numbers would surely increase. Worst case you'll also only be a citizen for a partial year, so your U.S. income will be diminutive.
> 
> ...


Thank you very much. This is greatly reassuring, as I started to panick.. leaving aside my frustration by the huge delay in getting an appointment at the Embassy.

I read online about the Recovery Tax Credit, but my understanding is that give the time elapsed I will unlikely receive the refund. Maybe, this is wrong?


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## liza87 (5 mo ago)

Bevdeforges said:


> The streamline program is supposed to square everything for you without the need to file earlier returns. Why would you back file for a full five years. The question is whether or not you are "current" on your US taxes - and if you file under the streamline program you are, by definition. Then of course there is the little matter of the fact that no one ever asks you during the renunciation processing about your tax status (at least no one I know who has renounced has been asked).
> 
> If your appointment to renounce is during the first half of 2023, you potentially "should" file a US return for the period of time in 2023 up to the date you renounce (i.e. the date of your appointment). The drill is that you then file an NR return for the period from your date of renouncing to the end of the year - but you can't file either US return (Resident or NR) until after January, 2024. And in any event, something like 40% of all renunciants never bother to file that "final return" anyhow.
> 
> Don't worry about anything you have or haven't told your banks. At some point, they may ask all their customers to give them information about their "tax residences." At that point you provide the information they have asked you for, nothing more, nothing less. (So if they don't contact you until after your renunciation is final, you just tell them that, nope, I'm tax resident only in the UK - or in the UAE or wherever.) If they contact you before you have had your appointment at the consulate, give them your US Social Security number and then send them a copy of your CLN (Certificate of Loss of Nationality) once you receive it - along with a W8 BEN form.


Thank you for your reply. It's really reassuring. Can I ask if this NR tax return is the si called "exit tax" depending in whether you are or not a covered expatriate?

Regarding the past years, the tax advisor I contacted told me that I need to file tax returns for the past 5 years in order to renounce. Is this not the case?


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## 255 (Sep 8, 2018)

@liza87 -- Your statement: "I read online about the Recovery Tax Credit, but my understanding is that give the time elapsed I will unlikely receive the refund. Maybe, this is wrong?" Partly right, partly wrong. The three "stimulus payments" were actually advances to a tax credit to be applied to your 2020 & 2021 tax returns. As such, the time has elapsed for "issuing" these advances. However, if you never received the advances, you can still claim the credits for 2020 & 2021. Fortuitously for you, these are also returns you are required to file for the "streamlined" compliance process -- so you should get a direct deposit in your U.S. bank account or a USD government check if you don't have a U.S. bank account, after your returns are processed. Of course, if you are a higher earner where your income is above the FEIE & standard (or itemized) deductions, the credits will directly reduce (or eliminate) any taxes owed and you'll receive reimbursement for balance. Cheers, 255


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## 255 (Sep 8, 2018)

@liza87 -- FYI: Expatriation Tax | Internal Revenue Service . Cheers, 255


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## Bevdeforges (Nov 16, 2007)

liza87 said:


> Can I ask if this NR tax return is the si called "exit tax" depending in whether you are or not a covered expatriate?


No, the NR return is filed using a form 1040 NR and is a non-resident return, where you only report US source income. On the regular 1040 form, you must report all "worldwide income" - from salary, investments, rents, and even "ill gotten gains" (well, that's the theory at least).

For the year in which you actually renounce, you are supposed to file a 1040 covering the period from January 1st to your date of loss of nationality (i.e. the date of your final consulate appointment), and then an NR form as a non-resident, showing only US source revenues from the date of your renunciation to December 31st. The form 8854 is filed with your regular 1040 in that transitional year - and basically shows whether or not you are considered a "covered expatriate" who might be subject to annual filings for the "expatriation tax." If you don't have sufficient income in that final year to warrant filing a 1040, then you file the form 8854 separately to establish your status. That form asks you for the amount of taxes due/paid for the previous 5 years - but if you owed little or nothing on the 3 back years when filing streamlined, you can very easily fill in 0 for the two earliest years. They really don't seem to check much of anything on that form unless the numbers involved are quite large and risk putting you over the threshold for expatriation tax.


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## Harry Moles (11 mo ago)

liza87 said:


> Regarding the past years, the tax advisor I contacted told me that I need to file tax returns for the past 5 years in order to renounce. Is this not the case?


Technically this is not true. You can simply renounce without bothering to file a thing. (I did so earlier this year.) If you want to formally and properly exit the US tax system after renouncing, you need to certify 5 years' compliance on Form 8854. If you don't have any US assets or other ties, you can safely skip the whole tax exit procedure. According to the IRS itself, about 40 percent of those who renounce never file Form 8854, and the IRS has no resources to follow up with anyone. 

Tax advisors make their living filling out tax returns, so of course they are going to tell you that filing is necessary to renounce. Frankly it's a bit of a scam.

If by "got a US passport through my mother" you mean that you were not born in the US and only have citizenship through parentage, I'm sad to say that you could have avoided all this trouble by simply continuing to not disclose your US citizenship to banks, and the IRS would have no clue that you exist. No need to spend money on tax compliance or renunciation. Alas, too late now.


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## liza87 (5 mo ago)

Harry Moles said:


> Technically this is not true. You can simply renounce without bothering to file a thing. (I did so earlier this year.) If you want to formally and properly exit the US tax system after renouncing, you need to certify 5 years' compliance on Form 8854. If you don't have any US assets or other ties, you can safely skip the whole tax exit procedure. According to the IRS itself, about 40 percent of those who renounce never file Form 8854, and the IRS has no resources to follow up with anyone.
> 
> Tax advisors make their living filling out tax returns, so of course they are going to tell you that filing is necessary to renounce. Frankly it's a bit of a scam.
> 
> If by "got a US passport through my mother" you mean that you were not born in the US and only have citizenship through parentage, I'm sad to say that you could have avoided all this trouble by simply continuing to not disclose your US citizenship to banks, and the IRS would have no clue that you exist. No need to spend money on tax compliance or renunciation. Alas, too late now.


Thank you for this. Yes, I was born abroad, never lived in the States and have bo assets there. I wish I knew this before. But, it's indeed to late now. Hopefully, I do receive the benefit which would balance out what I paid to the tax advisors.


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## Harry Moles (11 mo ago)

liza87 said:


> Thank you for this. Yes, I was born abroad, never lived in the States and have bo assets there. I wish I knew this before. But, it's indeed to late now. Hopefully, I do receive the benefit which would balance out what I paid to the tax advisors.


The expat tax business can be pretty awful. This was all completely unnecessary.


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