Taxes: Maintaining a Cottage Industry

Ah, those lovely U.S. taxes—there’s no way to avoid them, even when living abroad. You can’t even renounce citizenship in order to avoid taxes, as documented in the article, Expatriation Tax. Even if you’re no longer a U.S. citizen, the U.S. reserves the right to require you to pay U.S. taxes if you’re either (A) in non-compliance with filing rules or (B) you’re rich (in which case, you probably won’t be paying anything significant, like other rich Americans). I’m not sure how this is enforced—it would be hard imagine countries allowing the Treasury department S.W.A.T. team to storm a domicile on foreign soil, but far stranger things have happened.

Many countries have an agreement with the U.S. so that ex-pats and/or dual citizens need only actually pay taxes once. That is, ex-pats get a hefty deductible and only have to pay U.S. taxes if they really start making money. Despite the seeming generosity of this, the U.S. is one of the few countries in the world that makes its citizens file tax forms while living abroad. The U.S. tax forms are also incredibly complex and confusing; take the example below, just one example among many.

“Individuals: Enter the amount from Form 1040, line 41 (minus any amount on Form 8914, line 6). If you are a nonresident alien, enter the amount from Form 1040NR, line 38 (minus any amount on Form 8914, line 6). Estates and trusts: Enter your taxable income without the deduction for your exemption”

Even for people that can read above a 10th-grade level and whose mother tongue is English, this is a doozy. Recent reports on Obama’s recent address to the nation on the oil crisis estimated that the speech was at the 10th-grade reading level; many newspapers deemed this comprehension level to be over the heads of “most Americans”. So how are they going to fill out their tax forms? The answer is that they will not.

Unless other countries (like Switzerland), the U.S. government does not provide free software to help fill out taxes or transfer data from one year to the next. Americans are forced to pay for software or pay accountants to fill out their forms for them and voila! A cottage industry is born! It’s easy to imagine H&R Block lobbying furiously against any legislation that simplifies the tax code.