By Lynn M. Eller, CPA, APCIT, PFS
For a variety of reasons, many Americans living overseas contemplate relinquishing their citizenship. This process has a number of ramifications that warrant serious consideration.
This article will focus on the tax impact of renouncing US citizenship — the US Exit Tax.
The US Exit Tax imposed on certain expatriates can be expensive, but careful planning can help to minimize or avoid the tax altogether.
What Is the US Exit Tax?
The primary component of the US Exit Tax that can hit hard is the mark-to-market tax on unrealized gains. Most all of the property of the expat is deemed sold on the day before exit. The deemed gain in excess of an exclusion amount is subject to income tax. The inflation-adjusted exclusion is $821,000 in 2023.
How to Minimize or Avoid the US Exit Tax
Some expats may be able to minimize or avoid the exit tax by:
Regardless of the strategies above, compliance is always required. The IRS provides various relief procedures to catch up tax filings. One such relief that is commonly used is the Streamline Foreign Offshore Procedures. If eligible for these procedures, there will be no penalties or interest for late filing and paying tax.
Whether you are an employee or a retiree, managing your finances and the associated tax implications from abroad can be complicated
Minimize tax consequences and make well-informed decisions by consulting with a tax expert who understands the complexities and can provide options and insightful solutions.
From advice about where to set up a bank account to deciding whether or not to expatriate, with PBMares, you’ll find the guidance you need. Contact us today.