Expatriation is the process of renouncing, your U.S. citizenship or abandoning your long-term residence status. And it is not as simple as just tossing out your little “blue book” (U.S. passport) or letting your green card expire. There are several requirements that you must comply with to expatriate. Once those are completed, you have to let the IRS know you expatriated, this is done by, you guessed it, filing a form. Failure to file the proper forms related to your expatriation will result in your continued taxation as a U.S. citizen or resident alien; i.e. tax on your worldwide income.
Certain circumstances, such as not being tax compliant for a certain number of years, having a net worth over a certain threshold, or having an average annual income tax liability of over a certain amount–will lead to you being classified as a “covered expatriate”. The “covered expatriate” classification carries with it some negative consequences, such as an exit tax and your U.S. heirs being taxed at the highest gift or estate tax rate on any gifts or inheritances received from you. This is why we recommend pre-expatriation planning as a vital step in reducing, and when possible eliminating, the tax consequences of expatriation.
Tax filing for the year of expatriation is extremely complex and requires the knowledge of a tax professional experienced with expatriation. While the complexities of expatriation can be overwhelming, Esquire Group has the expertise to guide you through this process so you won’t be blindsided by post-expatriation complications.
Esquire Group will fully explain the pros and cons of expatriation. We will then help you implement a plan that will reduce or eliminate your exit tax liability, when possible, and complete and file all of the necessary tax forms.