If you’ve been thinking of leaving the United States, you want to be sure that you understand every aspect of your options. Whether those aspects are good or bad, moving to places like Canada is something many people consider these days. However, before you up and renounce your U.S. citizenship or terminate your long-term U.S. residency, you need to ensure that you understand the costs involved and avoid any surprises.
We have made it our job to intimately understand the complicated process of figuring out your expatriating costs and the exit taxes associated with that life decision here at Maggi Tax. This way, you can better understand your options no matter what you choose to do.
Today, we wanted to take a moment to outline the unexpected consequences of expatriating and what exactly they are.
While some people who choose to expatriate can be exempt from exit taxes, many are not. The unexpected tax consequences apply to anyone that is a ‘covered expatriate.’ But what exactly qualifies you as a covered expatriate?
You fall into this category if:
- Your average annual net income tax for the previous five years is greater than $162,000
- Your net worth on the date you file for expatriation is $2 Million or more.
- You have not met all your United States tax requirements for the previous five years, and you do not file Form 8854, which is the Initial and Annual Expatriation Statement.
What Does All of This Mean?
It translates to the fact that you want to have a tax pro like Maggi Tax do an evaluation and provide a comprehensive determination on your expatriation status before moving forward with the process.
If you are only a covered expatriate because you have not correctly filed your income taxes over the past five years, the pros at Maggi Tax can help do a catch-up filing with the IRS before you expatriate.
What About the Exit Tax?
The fact of the matter is, no matter if you are a covered expatriate or not, there is an exit tax for everyone that chooses to expatriate. The amount of your exit tax is determined on a mark-to-market basis. What does that mean, you ask?
This means that the worldwide assets of a covered expatriate are deemed sold for fair market value on the day before the expatriation date. As a result, your capital gains are reduced by capital losses from that sale. And the net capital gains in excess of $699,000 from that sale of assets are included in your income in the year of expatriation, and your exit tax is calculated.
Remember that if you’re choosing to expatriate and move to Canada, that the year you pay your exit taxes in the United States, you will also be taxed on your income for that same year in Canada.
Whatever your intention is to renounce your U.S. citizenship, be sure that you have as much information as possible ahead of time.
We hope that this mini-guide has helped you better understand the cost of expatriating and how it affects your taxes and income. If you have more questions, reach out to the friendly and knowledgeable team here at Maggi Tax. We are always here to help with any questions you may have. So, give us a call today!
