Attention, Americans: Take the champagne off ice; cancel the catering. Today, April 18, is not a holiday to be celebrated, but an important deadline to be observed. It is Tax Day.
The Cayman Islands may be known as a “tax free” jurisdiction, but our local laws do not indemnify American taxpayers against American tax laws.
In other words, if you owe Uncle Sam money, you need to pay up, no matter where you live. And if you, like many American workers in Cayman, do not owe any actual taxes (thanks to the “Foreign Earned Income Exclusion,” currently standing at US$101,300 for qualifying persons), it is still imperative that you file your tax return accurately, honestly and on time.
For those Americans who haven’t been planning for Tax Day throughout the year, you can expect to spend some 13 hours in total preparing your tax return. That’s the “estimated average taxpayer burden for individuals,” according to the U.S. Internal Revenue Service. However, if you’ve put in the record-keeping and tax-planning work up front, then the average taxpayer should spend some 3-4 hours actually completing and submitting the form.
While the tax preparation burden varies widely according to an individual’s circumstances, we mention the above to demonstrate the fundamental idea that the more complex and convoluted a tax system is, the more it costs (in terms of time and money) simply to abide by the letter of the law.
(To gauge the income tax’s cumulative impact on wasted time, multiply the average tax prep time of 13 hours by the more than 150 million tax returns expected to be filed in 2016. That equates to nearly 225,000 years of time squandered on filling out federal paperwork.)
As if Tax Day isn’t bad enough on its own, remember that today is also the deadline for filing Reports of Foreign Bank and Financial Accounts (FBAR), which applies to Americans with one or more overseas bank account (say, at Cayman National or Bank of Butterfield), if the aggregate value of that account or accounts exceeded US$10,000 at any time during the calendar year. Rather than the IRS, the filing of FBARs is handled by the U.S. Department of the Treasury.
If your pulse is racing, before you start sifting through your mail for financial statements and delving through drawers looking for a calculator, take a deep breath and relax. While today, April 18, is the official deadline for tax returns and FBARs, the U.S. government grants automatic extensions to overseas residents – so for Americans residing in Cayman, the “actual” deadline for filing tax returns is June 15 (an additional extension until Oct. 15 can be applied for), and the deadline to submit FBARs isn’t until Oct. 15.
While those reprieves may come as a welcome relief to individual taxpayers, to us it is further evidence of dysfunction within the U.S. tax system itself. The system is so burdensome and unreasonable that even U.S. officials are aware of it.
Here in Cayman (“tax free” reputation aside), we have our own issues with taxation. With no local taxes on income or property, much of our government’s revenue is derived from a host of fees (for government “services” such as permits) and duties (for example, the standard 22 percent rate for imported goods) – in other words, from taxes based on “consumption.”
Because we do not file income tax returns in Cayman, there is no single official Tax Day. Looking at it another way, the government takes its tithe on just about every monetary transaction Cayman residents undertake, so from this perspective, we can say that Tax Day in Cayman is “every day.”