Many American expats come face to face with the same question: what is a “US person”? In the world of international finance and taxation, the term “US person” can be quite important. Understanding this designation is crucial for anyone connected to the United States, whether they’re a citizen, resident, or someone with complex financial ties to the US. This guide dives into the definition of a US person, explores the implications for taxes, and provides insights for navigating their financial situation effectively.

Who is a US Person?

The Internal Revenue Service (IRS) defines a US person under two primary categories:

• Citizenship: Any American citizen, regardless of where they reside in the world, is considered a US person for tax purposes. This includes individuals born in the United-States, those who have acquired American citizenship through naturalization, and even minor children of American citizens who haven’t formally renounced their citizenship.
• Residency: Individuals who meet the Substantial Presence Test are considered US residents for tax purposes. This test considers the number of days you physically present in the United-States during a three-year rolling period. Generally, being present for 183 days or more in a year constitutes residency, with exceptions for certain circumstances.

Beyond Citizenship and Residency

However, the definition of a US person extends beyond these two primary categories. Here are some additional considerations:

• Green Card Holders: Individuals with a US Permanent Resident Card (Green Card) are considered US persons for tax purposes.
• Certain Entities: Entities like corporations, partnerships, trusts, and estates established or organized in the United-States are also considered US persons.

What Does Being a US Person Mean?

The most significant implication of being a US person is the worldwide taxation of income. This means that, regardless of where you live or earn your income, you are obligated to file a US tax return and potentially pay taxes to the US government. The United-States has tax treaties with many countries to avoid double taxation for American citizens residing abroad, but these treaties don’t eliminate the obligation to file US tax returns.

Key Tax Filings for US Persons Abroad

• Form 1040: This is the standard US tax return for individuals. US persons abroad may be eligible for various deductions and credits to minimize their tax burden.
• Form FBAR (Foreign Bank Account Report): This form requires US persons to report any financial accounts held outside the US with an aggregate value exceeding $10,000 at any point during the year.
• Form 8938 (Statement of Specified Foreign Financial Assets): This form, often called the “FATCA” form, is required for US persons with certain types of foreign financial assets exceeding specific thresholds.

Making Sure your Investments are US Compliant

If you are an American expat living abroad, don’t forget that your investments and finances have US fiscal implications. While the US has tax treaties with over 60 countries, it’s still important to check that your investments are fiscally compliant. This applies not only to expats but also to “Accidental Americans” who might be unaware of their US tax filing obligations.

Strategies for US Persons Abroad:

Fortunately, there are strategies to navigate the complexities of being a US person abroad:

• Cross-border Financial Advice: Work with a Harrison Brook cross-border advisor to optimize your investment and avoid costly mistakes.
• Tax Planning: Consulting a tax professional specializing in US expatriate taxation can help you develop a tax plan to minimize your tax liability and ensure compliance with US tax laws.
• Financial Reporting Tools: Utilize the Foreign Earned Income Exclusion and the Foreign Housing Exclusion to reduce your taxable income.

Beyond Tax Implications

Being a US person can have implications beyond taxes. These include:

• Voting Rights: US citizens residing abroad retain the right to vote in federal elections.
• Social Security Benefits: You might be eligible for Social Security benefits if you have sufficient work history in the US. You could also be eligible if your spouse is or was a US person.

Peace of Mind with a Harrison Brook Cross-Border Advisor

Understanding what it means to be a US person is crucial for navigating your financial situation effectively, especially if you live or invest abroad. Harrison Brook has done the legwork to find partners and solutions that are adapted to U.S. persons living overseas. The right professionals will help implement the appropriate strategies and ensure you manage your finances efficiently. Harrison Brook is here to help, so don’t hesitate to book a meeting with us.