Another Reason to Want to Be A Citizen

I've read about that law before. The law only applies to those who have been permanent residents for 8 calendar years (they count a single day in a calendar year as a full year, so it's less than 8 full years). But it also applies to citizens who renounce their citizenship. And there is a $600K exclusion (whether for ex-citizen or ex-PR).
 
True, but the kicker is that they will tax you on something you had acquired before you became a PR. Kinda like a bad divorce - you had a house before you met the girl, marriage, no marital contract, divorce, she gets 1/2 of your house...
 
Actually this law is more of a reason to NOT become a citizen if you are a PR for less than 8 years and plan to leave the US permanently. If you become a citizen and remain a citizen, the US continues to tax you on worldwide income*. If you become a citizen and then renounce it after leaving, you are subject to this special tax.

*yes, there are foreign income exclusions and credits and treaties, but if you are wealthy enough to be subject to this tax (have $600K of capital gains and $2 million net worth or $139K/year taxation), you'll probably be wealthy enough to have to pay some US taxes after the various exemptions.
 
Interesting information. Thanks.

BTW, Is citizenship really worth for people who want to go to other country and settle there for long? I mean, will they have to pay taxes to US even after paying taxes to the foreign government? They may have plans to come back in future but until then do they have to pay taxes to both the governments?

Could someone explain this?
 
In general, US citizens are taxed on their worldwide income. When filing with the IRS, there are exclusions to that income for "foreign income" and for "foreign housing expenses". These limits change every year, but more information can be found here at this IRS link to Publication 54 - Tax Guide for US Citizens and Resident Aliens Living Abroad.

For the 2008 tax year, folks living abroad could exclude $87,600 from their gross income for tax purposes, and approximately $14,000 for housing expenses.
 
cpzinga said:
BTW, Is citizenship really worth for people who want to go to other country and settle there for long? I mean, will they have to pay taxes to US even after paying taxes to the foreign government? They may have plans to come back in future but until then do they have to pay taxes to both the governments?
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Generally, if you are a citizen living overseas and make more money than the amounts listed by NewRunner, and the foreign government taxed you less than the US alone would have taxed you, you'll pay the difference to the US government, unless there are some country-specific tax treaties that would reduce your US taxation. Even if you don't end up owing the US government anything, you still have to file US tax returns and then claim the applicable exemptions and deductions.
 
Thanks NewRunner and jackolantern,

I think that's not bad. I don't think I can earn that amount in India.
 
However, one should be careful about visiting the US, because in order to be eligible for that $87K exclusion, you have to spend less than a certain amount of days per year in the US (I think 30 days, but there may be some other ifs and buts involved).
 
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