Cutting ties with the IRS:
Should you renounce your US citizenship to get out of paying taxes?
In some cases, this can make a lot of sense. If you have no plans of returning to live in the US, and can get out of paying US taxes, why not?
Though this decision can't be taken lightly. Reasons why you may not want to renounce:
A slight possibility that you may want to move back to the US sometime, or just want to leave the option open.
After renouncing, you can't go back on your decision. You would need to apply for a green card (if you qualify) like anyone who isn't a US citizen.
You will lose the ability to visit the US at any time, including any future pandemics or wartimes. During COVID, foreigners weren't allowed to enter the US for a long time.
Even if you have citizenship of a country which is part of the visa waiver program, and you don't have to apply for a tourist visa in an embassy/consulate, an ESTA visa can be denied for certain reasons.
If you have close family in the US, you won't want to lose the ability to travel there at any time.
Another point to consider:
For some people, the ability to have access to the US banking system can still be integral to their livelihood. While non-citizens can open US bank accounts, there are many limitations, such as that some institutions don’t allow non-citizens to open an account.
In many cases, you won’t owe the US any tax living abroad, due to the foreign tax credit or foreign income exclusion. So, it may not be worthwhile to renounce just to got around filing the yearly paperwork and paying a tax accountant each year to prepare it.
But some people just want to end this unnecessary burden, if it can just be solved with renunciation.
If a person owns a foreign corporation or has some other complex situation, getting rid of this burden can make much more sense (as well as saving a lot of money on accountant fees).
Just watch out for the exit tax: You will have to pay tax if you have a net worth of $2 million or more on the date of expatriation. This also applies if you had an average annual income tax liability for the five years preceding the expatriation year of over $178,000.
The expatriation exit tax rate is 23.8%. It is calculated as if you had sold all your assets on the day of expatriation. This amount includes the value of real estate, as well.
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