Tax Accountant for U.S. Expats Who Want to Renounce Their Citizenship
Though potentially costly, the process of expatriating from the U.S. is one that might be worth it for citizens seeking to permanently reside in another country. Because the United States is one of the few countries in the world that taxes based on citizenship instead of place of residence, giving up that citizenship is the only way to avoid all financial obligations to the U.S. government.
If you or someone you know is thinking about giving up U.S. citizenship, know that having an experienced international tax accountant on your side can make the process significantly easier and may even save you money in the long run. To learn more about the benefits of working with the experts at US Tax Help, visit us online or call us at (541) 362-9127 to schedule your first consultation.
How to Renounce Your U.S. Citizenship
Generally, the process of renouncing U.S. citizenship is a simple one requiring only three things from expats: voluntarily committing one of several acts, as defined under Section 349(a) of the Immigration and Nationality Act, with the intent to give up citizenship; paying a mandatory fee of $2,350; and meeting any tax obligation to the Internal Revenue Service, which may include payment of an expatriation tax or “exit tax”.
Most often, the act used by expats to renounce U.S. citizenship involves making a statement of intent to relinquish nationality in front of a U.S. diplomatic or consular officer at a location outside of the United States, after which the Department of State will issue a Certificate of Loss of Nationality. However, this process can take weeks or months, so any expats planning to leave the U.S. behind for good should include this possible delay in their plans.
Financial Issues When Renouncing U.S. Citizenship
While the actual act of renouncing your U.S. citizenship may be relatively straightforward, determining whether you owe a debt to the IRS and what the size of that debt might be is a more complicated process. For most expats, the key factor is whether they qualify as a “covered expatriate” under Internal Revenue Code (IRC) 877A; those who meet this qualification are then subject to an expatriation tax, the value of which can be considerable.
Determining “Covered Expatriate” Status
To determine whether you will be considered a covered expatriate under the law, ask yourself if any of the following criteria apply to you:
- Your total net worth is $2 million or more as of the date on which you plan to expatriate.
- Your average net income tax for the previous five years is over a certain amount, which changes every year to adjust for inflation; in 2020, that amount is $171,000.
- You cannot certify – using IRS Form 8854, Initial and Annual Expatriation Statement – that you are in full compliance with all your U.S. tax obligations for the last five years.
Determining Your Expatriation Tax
If any of the above-mentioned statements are true in your case, you’ll have to pay an exit tax when you expatriate, the extent of which will depend on the total value of your assets. To determine the amount to be paid, a U.S. expat must first take stock of all of their property and other assets, as this total will provide the basis of the tax.
When you expatriate, the IRS will deem all your assets – with a few exceptions – as having been sold at fair market value, then tax you on that gain at federal estate tax rates. In essence, this process works the same as you had died on the day before your expatriation and all your assets were sold and taxed as part of your estate. There is one beneficial adjustment made to the taxable amount, however: the total value of your assets is reduced, before taxation, by an amount adjusted yearly for inflation. In 2020, this amount is $737,000.
There are exceptions and other details that can be used to reduce or avoid tax obligations when expatriating, but these tend to be specific to an individual taxpayer. To learn more about how you can reduce your tax liability when renouncing citizenship, contact US Tax Help today.
IRS Relief for U.S. Expats Renouncing Their Citizenship
While the total tax imposed on U.S. expats can be substantial, there is also relief available to some who might otherwise be subject to this tax. The IRS relief procedures for expatriation only apply to those whose net worth is less than $2 million and whose income tax liability is less than $25,000 for the year in which they expatriated and the preceding five years, but who would be considered covered expatriates because they were not tax-compliant. However, this opportunity is only open to those whose lapse in compliance was non-willful and is not available to long-term permanent residents.
If you are eligible for these procedures, you may be able to not only avoid paying an expatriation tax, but also avoid any penalties that would otherwise be associated with failing to file a tax return on time. For more on these benefits and how you can receive them, talk to a knowledgeable international tax specialist today.
Experienced International Tax Accountants for Expats Renouncing U.S. Citizenship
The decision to move to another country and renounce your U.S. citizenship is not one to be taken lightly, but it may be the best choice in your circumstances. If so, consulting with a skilled international tax accountant from US Tax Help can ensure that you meet all your obligations with minimal stress and expense. Learn more about the services we offer by visiting US Tax Help online or calling (541) 362-9127 today.