Most people don’t understand why tax planning and advising are important, and that’s completely understandable! If you’ve lived in the U.S. and paid taxes there without being the owner of multiple businesses or part of the top 1%, your tax situation was likely straightforward—just a basic 1040 every year. Simple and even a bit routine, right?
However, if you’re now a U.S. citizen living abroad, everyday financial decisions (ones you wouldn’t think twice about in the U.S.) can carry significant U.S. tax-related risks in your current country.
Here’s a great example that illustrates this concept, and unfortunately, it’s something that has happened to several people I know:
After living abroad for ten years, Sofia—a U.S. citizen and now also a Swedish citizen—decides she’s fed up with her large, well-known Swedish employer. Sofia knows she can sell her services as a consultant, so she dives into building her own business and brand.
Her Swedish accountant encourages her to open a limited liability company in Sweden, citing several tax advantages. Sofia is happy to oblige, and soon she’s excited to be the owner of a Swedish Aktiebolag (AB).
Unbeknownst to both Sofia and her Swedish accountant, this AB is considered a U.S.-owned foreign corporation (since Sofia is a U.S. citizen), and now Sofia’s U.S. tax return is required to include one of the most complicated and arduous forms the IRS publishes. Even worse, Sofia may face U.S. taxes on her undistributed earnings.
This is where tax planning and advice could have helped Sofia avoid a lot of heartache come tax time. Local accountants outside the U.S. typically don’t understand the U.S. tax quagmire that U.S. citizens must navigate—and who can blame them! As a result, relying solely on their advice can be problematic.
So, don’t be like Sofia! Feel free to reach out to us before making any major financial decisions while living abroad.
To summarize, tax planning and advisory services include:
A discussion of the tax implications of your current or future circumstances, with the goal of eliminating surprises and minimizing tax liability.
