More Americans Give Up Citizenship As IRS Gets Aggressive Overseas
More Americans Give Up Citizenship As IRS Gets Aggressive Overseas
Dow Jones Newswire ^ | 4-9-2010 | Martin Vaughan
Posted on Friday, April 09, 2010 2:47:25 PM by Rodebrecht
The number of American citizens and green-card holders severing their ties with the U.S. soared in the latter part of 2009, amid looming U.S. tax increases and a more aggressive posture by the Internal Revenue Service towards Americans living overseas.
According to public records, just over 500 people worldwide renounced U.S. citizenship or permanent residency in the fourth quarter of 2009, the most recent period for which data are available. That is more people than have cut ties with the U.S. during all of 2007, and more than double the total expatriations in 2008.
An Ohio-born entrepreneur, now based in Switzerland, told Dow Jones he is considering turning in his U.S. passport. Mounting U.S. tax and reporting requirements are making potential business partners hesitate to do business with him, he said.
(Excerpt) Read more at nasdaq.com …
WARNING: if you give up your citizenship you may face a HUGE immediate tax bill from Uncle Sam. The tax law provides (since June 08) that giving up your citizenship triggers a deemed sale of all your assets and deemed receipt of all deferred compensation (with exceptions). There’s a $2 million net worth or $125k annual tax threshold, and if you don’t meet either of these the provision does not apply to you. Here’s an example: you own a house worth $1M that you paid $200k for way back when. You have stock options that, if cashed in would net $1M. You have a car, etc. The provision applies to you. If you give up your citizenship, on the last day as a citizen you would owe tax on at least $1.8M. That could be more money than you have available.
On the good side, if you’re retiring with a U.S. pension of $200k/year and have savings of $200k and a cheap house, you may not get hit. The amount in a U.S. qualified plan (pension, profit sharing, 401(k)) is not counted, but ONLY if you agree to forever pay U.S. tax on the money coming out. Net result: no tax today, but no tax savings tomorrow.
So if you’re thinking of giving up the citizenship for tax savings, get very good advice first. Otherwise those savings you thought you would have may turn into a huge cost now and no savings in the future. Check http://www.sfoxcpa.com for more information, or e-mail me at steve@sfoxcpa.com
Steve Fox, CPA