The decision to give up your US citizenship or green card is a big one. And it pays to be well informed. Whether you are considering this change for political, tax, or other reasons, it’s important to get your facts straight and do things in the right order.
That’s where we come in. We can help guide you through the process and sort out myth from reality. For example:
MYTH: I gave up my US citizenship or green card for immigration purposes, so I am no longer a US tax resident.
REALITY: Even if you have taken the proper immigration steps, there are additional steps needed to end your US tax residency. Until you do so, you remain a US tax resident. And you remain taxable each year on your worldwide income and subject to foreign asset reporting requirements.
MYTH: If I give up my citizenship (or long-term green card), I can avoid paying US taxes on my appreciated assets.
REALITY: The US has enacted an Exit Tax that prevents US citizens and green card holders from giving up their residency in order to avoid paying US taxes on accumulated wealth. It applies to individuals who meet certain thresholds for annual income net worth. The Exit Tax itself is computed as if you sold all of your worldwide assets on the day before you expatriated. Then, you are taxed on the gains.
MYTH: I don’t have a lot of assets, so I can’t be subject to the US Exit Tax.
REALITY: The Exit Tax also applies to anyone who hasn’t filed complete and accurate US tax returns for the 5 years preceding expatriation. Fortunately, to get ready for expatriation, you can file amended returns to fix your past filings.
How To Determine If You Will Owe Exit Tax
In our video, Exit Tax Part 1, we discuss how you can determine if you’ll owe an Exit Tax based on the IRS’s three-part test.
What To Do If You Will Owe an Exit Tax
Even if you suspect you may owe Exit Tax, there are some tax planning strategies to help reduce or eliminate the tax.
It’s also important that you take the right steps to terminate your US tax residency.
Watch our Exit Tax video Part 2, to understand how to calculate the Exit Tax, forms to file, and some considerations after you’ve gone through the Exit Tax.
The US Exit Tax calculation is not straightforward, especially when pensions are involved. Get professional tax help. We offer tax planning strategies to reduce or eliminate your tax liability. We can also guide you through the multiple steps in the Exit Tax return filing process.
We’ve provided tax support to expatriating individuals for decades—both under old rules for expatriation and under the current regime, which has been in place since 2008.
We can help you with:
- Exit Tax planning
- Optimal timing to expatriate, to avoid or reduce your Exit Tax
- Tax treatment and valuation support for your pensions and other assets
- Tax projections for the year of expatriation, including tax impact of your “deemed sale” at expatriation
- Gifting and restructuring strategies, to bring your income or net worth below Exit Tax thresholds
- Options for amending prior tax returns to bring you back into compliance
- Tax planning to reduce any US income tax exposure after expatriation
- Tax planning to reduce any US estate tax exposure after expatriation
- Exit Tax calculations and return preparation
- Preparation of the U.S. tax return as a “dual status” taxpayer in the year of expatriation
- Preparation of Initial and Annual Expatriation Statement (Form 8854)
- Verification that you are fully compliant with US tax law for the prior 5 years
- Preparation of prior years’ amended returns and certifications, if needed
Need a referral to an experienced immigration attorney familiar with the Exit Tax? We work with many attorneys and can provide a reliable referral.
Why The Wolf Group?
Since 1983, we’ve worked with clients in the United States and abroad on international tax matters. We have a long history of “cleaning up” complex tax returns, reporting foreign assets, and reconstructing financial records.
Check out our extensive team of CPAs, all with vast international tax experience.
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