Expats Who Think Renouncing US Citizenship Means Tax Gains Might Need to Think Again

Wednesday, May 25, 2016

Although keeping up with US tax requirements while living and working abroad can provide annoyances and challenges, renouncing US citizenship to avoid IRS responsibilities could mean both penalties and a loss of tax credits. From losing the ability to shield much property from US estate tax (down to $60,000 for a non- citizen from the $5.45 million allowed for US citizens) to restrictive limits on giving gifts tax free to US citizens, expats cum non-US citizens lose these significant tax shelters.

What could be worse is the possibility of paying an exit tax, for high earners, or having the IRS comb carefully through your past five years of tax returns. Little things like not having filed a required form can lead to penalties in the thousands, and if you keep US property, but give up your US passport, you could be required to pay capital gains tax on unrealized gain on that property. Considering these factors, maybe meeting compliance on Foreign Earned Income and understanding the Foreign Account Tax Compliance Act sounds a little less painful. Whatever you choose, before you make the leap, review the financial pros and cons with your tax accountant to decide which option makes the most sense for your individual income and portfolio.