WSJ Says – Nearly One-Third of Expats Confused by U.S. Tax Filing Requirements?

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The difference between news and advertisement/self-promotion can sometimes be confusing.  In this sense, I am not sure the report in the WSJ is very helpful, thoughtful or accurate.  It consists largely of a survey conducted by H&R Block, which has its own bias and looks more like an advertisement.

Nevertheless, the following tidbit of information from this H&R Block survey may be of interest:

  • The survey found that a majority of expats seek assistance. And when they do, more than three-quarters of the time — 78 percent — they seek the help of a U.S.-based tax preparer. The survey also found that more than 4 out of 10 expats file in March or April — a full two to three months before the filing deadline of June 15.

I question whether the majority of citizens residing overseas do seek assistance?  I also doubt whether the vast majority of those, 78%, actually seek a U.S. based tax return preparer?

Filing U.S. income tax returns (along with the tax returns in the country of residence) is one of the most frustrating experiences that USCs and LPRs living overseas have for several reasons:

  1. There are rarely good and efficient U.S. international tax return preparers who understand the specific tax rules in the various countries and specific locations where USCs and LPRs live.  See, USCs and LPRs Living Outside the U.S. – Key Tax and BSA Forms
  2. How many USCs even know they have to file U.S. income tax returns?
  3. Any USC living outside the U.S. will be required to file a U.S. federal income tax return for the year 2013 if any of the following gross income thresholds (depending upon the filing category) are met:
Filing Status Age at December 31, 2013 Gross Income
Single Under 65 $10,000
65 or older $11,500
Married Filing Jointly Under 65 (both) $20,000
65 or older (both) $22,400
Under 65 (one) $21,200
Married Filing Separately Any $6,100
Head of Household Under 65 $12,850
65 or older $14,350
Qualifying Widow(er) Under 65 $16,100
65 or older $17,300

This filing requirement not only applies to United States Citizens, but also to Lawful Permanent Residents (“LPRS”) who live in a country that has no U.S. income tax treaty with the U.S.

The Taxpayer Advocate has been a vocal critic in several reports about the complexities of the tax law, Title 26:

1. The Current Tax Code Imposes Huge Compliance Burdens on Individual Taxpayers and Businesses.

Consider the following:
■■ According to a TAS analysis of IRS data, individuals and businesses spend about 6.1 billion hours a year complying with the filing requirements of the Internal Revenue Code. And that figure does not include the millions of additional hours that taxpayers must spend when they are required to respond to IRS notices or audits.
■■ If tax compliance were an industry, it would be one of the largest in the United States. To consume 6.1 billion hours, the “tax industry” requires the equivalent of more than three million full-time workers.
■■ Compliance costs are huge both in absolute terms and relative to the amount of tax revenue collected. Based on Bureau of Labor Statistics data on the hourly cost of an employee, TAS estimates that the costs of complying with the individual and corporate income tax requirements for 2010 amounted to $168 billion — or a staggering 15 percent of aggregate income tax receipts. TAS Report Complexity of Tax Law - Graphic
■■ According to a tally compiled by a leading publisher of tax information, there have been approximately 4,680 changes to the tax code since 2001, an average of more than one a day.
■■ The tax code has grown so long that it has become challenging even to figure out how long it is. A search of the Code conducted using the “word count” feature in Microsoft Word turned up nearly four million words.
■■ Individual taxpayers find return preparation so overwhelming that about 59 percent now pay preparers to do it for them.12 Among unincorporated business taxpayers, the figure rises to about 71 percent.13 An additional 30 percent of individual taxpayers use tax software to help them prepare their returns,14 with leading software packages costing $50 or more. For 2007, IRS researchers estimated that the monetary compliance burden of the median individual taxpayer (as measured by income) was $258.



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