Tuesday, August 27, 2013

Should You Renounce Your U.S. Citizenship?

More and more U.S. persons living permanently abroad are renouncing their U.S. citizenship due to the high cost of increasing compliance. Click on this link to read the entire article from the Wall Street Journal:


For some people, the best tax strategy is simply to pack up and leave.
That is the lesson from the disclosure that Eduardo Saverin, the 30-year-old billionaire who helped found Facebook, FB -4.11% has renounced his U.S. citizenship to become a resident of Singapore.

You might owe an exit tax. U.S. citizens who expatriate are treated as though they sold all of their property the day before they renounce, even if they will continue to own it and pay property or other taxes.

Capital gains (net of losses) are taxed at the current top rate of 15%, after an exemption of $651,000. The tax on some assets, such as an individual retirement account, will be at ordinary income rates up to 35%, notes Dean Berry, an attorney with Cadwalader, Wickersham & Taft in New York.

The tax applies to U.S. taxpayers whose net worth is greater than $2 million or whose average annual income tax for the past five years is $151,000 (adjusted for inflation).

There are important exemptions; one involves people who have been dual citizens from birth. For more information, see the instructions to IRS form 8854.