Should I Renounce My U.S. Citizenship?

If you're an American living in Canada, you do have other options to consider to simplify your tax situation and ease the pain. Check out what you can do to make sure there are no surprises at tax time.

The additional tax compliance challenges faced by Americans living abroad have led to many to begin considering whether it still makes sense to keep their U.S. citizenship status. If you have been considering this approach, the permanence of the decision will likely leave you wondering whether it is really the only solution.

You do have another option. Simplify... The U.S. tax system has benefits in place that are designed to protect you from "double taxation." But the system is imperfect and there are certain investments you will want to avoid. Here are a few things you can do to make your continued U.S. tax obligations as painless as possible:

  1. Consolidate your foreign accounts. Having multiple checking and savings accounts only increases your foreign account reporting obligations and the cost of your U.S. tax return.

  2. Avoid mutual funds, unit trusts, and similar investments set up in Canada at all costs. High U.S. taxes on this type of investment will generally prevent you from reaching your financial goals.

  3. Consider closing any TFSAs (Tax Free Savings Accounts) or RESPs (Registered Education Savings Plans). These arrangements do not qualify for the same tax benefits in the U.S. as they do in Canada and will increase the cost of your U.S. tax return.

  4. Maximize the opportunities you have to contribute to Canadian retirement plans. Registered pensions in Canada are protected by a tax treaty with Canada and create a great opportunity for U.S. taxpayers to save for their retirement without the pain that fellow expats in other countries encounter.

  5. Make sure any independent business activities are structured with U.S. tax in mind. With careful planning, painful tax implications can be avoided and tax savings can actually be created.

While you may never be able to avoid the annual tax filing requirement in the U.S. unless you abandon your citizenship, you can at least make sure there are no surprises come tax time. Contact your H&R Block Expat Tax Advisor today.