7 ms·

https://www.forbes.com/sites/forbesfinancecouncil/2021/11/03/when-might-renouncing-us-citizenship-make-sense-from-a-tax-point-of-view/ https://www.forbes.com/si

https://www.forbes.com/sites/forbesfinancecouncil/2021/11/03/when-might-renouncing-us-citizenship-make-sense-from-a-tax-point-of-view/ https://www.forbes.com/sites/forbesfinancecouncil/2021/11/03... To renounce, you first have to meet several criteria: • You must hold citizenship of another country, so you don’t become stateless. • You have to be up-to-date with your U.S. tax filing, with the past five years submitted. • You have to attend an exit interview at your nearest U.S. consulate or embassy. • You have to pay a $2,350 renunciation fee. • If you have financial assets worth over $2 million, you may have to pay a one-off exit tax calculated as a capital gains tax as if you sold all of your assets on the day you renounced. --- At least two of those points seem to be pretty prohibitive, if your goal is to avoid taxes on money already earned...

immigrantheart 4y ago
What if your assets are less than $2 million?
- sgjohnson 4y ago
  Then it’s probably not worth to renounce the US citizenship, and you’d be shooting yourself in the foot if you did.
  - immigrantheart 4y ago
    How so? You can retire comfortably today in SEA countries with $2 million in bank account.
    - sgjohnson 4y ago
      Why renounce the US citizenship, if you’re retiring? There’s only one benefit from renouncing the US citizenship. You’re no longer a tax resident. There’s also a $112k+inflation/year exemption for foreign earned income for non-residents. https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion https://www.irs.gov/individuals/international-taxpayers/fore... So if you’re renouncing your citizenship for tax reasons, it’s very unlikely that it’s going to be worth it, if you’ve got under $2m in assets. Not to mention that if you decide to return to the US, not only have to go through the US immigation system, but you also won’t clear a background check, because people who renounce their US citizenship are entered into the NICS system.
    - nullc 4y ago
      But what would the LTCG be on those assets? At most $2m * 15% = 300k (assuming you were able to realize it over several years and avoid the 20% LTCG bracket and 3.8% NIIT), cheaper to pay the taxes than buy a passport and you would preserve your ability to return to the US if you found it in your interest.
  - javert 4y ago
    There are moral and practical arguments for renouncing US citizenship. It's not just about saving on taxes.
    - sgjohnson 4y ago
      > practical arguments Such as? All of them stem from FATCA, and we’re back to taxes. And in a lot of situations not even renouncing the US citizenship will help you there, as you’ll be scrutinized for having a US birthplace.
      - FooBarBizBazz 4y ago
        >> practical arguments > Such as? All of them stem from FATCA, and we’re back to taxes. I understand that FATCA's reporting requirements are onerous enough for banks that they reject US account holders. Then, the inability to get a local bank account may cause problems. This is where I ask, "can't you just use a US bank account, then? One with good international support? (No fees, etc.)" I suspect this is feasible in many countries? I do know, however, that in India, many activities require an Indian credit card (regular Visa &etc cards work fine for many things, but for others -- particularly if they touch the government in any way -- they are rejected). And the way to get an Indian credit card is to have an Indian bank account. You see where this is going. So e.g., you end up unable to buy train tickets without bugging an Indian citizen to do it for you. I would also suspect that, the minute you need to deal with an account with any kind of special government classification -- say, a retirement account -- then you need that account to be at an institution that knows about those laws, which again would require a local bank.
        jen20 4y ago
        There isn’t even a US bank that functions well in the US, let alone abroad. Absolutely nothing like Monzo available (until Monzo itself becomes more broadly available…)
  - jhugo 4y ago
    Really? US citizenship is a huge liability because of global taxation. If you have the opportunity to exchange it for another, and you don't want to live in the US, it seems like a no-brainer.
  - brobinson 4y ago
    If you live in another country and make over $112,000 USD (2022 number) there, you're paying US taxes on the difference even with the Foreign Earned Income Exclusion. That sucks a lot for a lot of Americans.
    - sgjohnson 4y ago
      What’s the top federal income tax bracket? 37%? In most high-income countries with that income, you either won’t pay anything, or the difference will be marginal. There will be very few people in the world for whom renouncing the US citizenship would be worth it long-term. Unless you go full tax-haven, which is also fine.
      - deleted 4y ago
        [deleted]
      - brobinson 4y ago
        What do you mean by, "you won't pay anything"? The issue is that you pay taxes to _two_ countries on the same income because you can't shield the income from the US above the foreign earned income exclusion amount. Sorry if I'm misunderstanding you.
        sgjohnson 4y ago
        You pay only the difference. There’s also an exemption on taxes already paid to a different country.
        brobinson 4y ago
        Yes, I mentioned the FEIE in the first post you replied to. Wealthy/high income Americans renounce their citizenships to avoid being double taxed if they don't live in the US because the FEIE has a cap and they are double taxed on the remainder.
sgjohnson 4y ago
> • You must hold citizenship of another country, so you don’t become stateless. This is not actually true for the US. The United States will let you renounce your citizenship even if it leaves you stateless.
- javert 4y ago
  Is this viable? As in, is there a reasonable pathway for renouncing US citizenship and then getting citizenship somewhere else? I wonder if this opens up pathways to citizenship that aren't available otherwise. The "passports for sale" are mostly either extremely expensive or for tiny island nations like St. Kitts. But maybe there are additional countries that offer citizenship to stateless people out of compassion?
  - sgjohnson 4y ago
    > Is this viable? Absolutely fucking not. But if you really, really, I mean, really want to stateless yourself and end up in a situation where you can’t even get a travel document, you can. Not that anyone ever should. > Perhaps there are countries that will grant citizenship to stateless people out of compassion, or for a fee? Not that I’m aware of.
    - javert 4y ago
      How did you find out that the US will allow you to renounce and make yourself stateless? I'm genuinely curious, and also slightly skeptical that it's really true.
      - sgjohnson 4y ago
        https://travel.state.gov/content/travel/en/legal/travel-legal-considerations/us-citizenship/Renunciation-US-Nationality-Abroad.html https://travel.state.gov/content/travel/en/legal/travel-lega... > Persons intending to renounce U.S. citizenship should be aware that, unless they already possess a foreign nationality, they may be rendered stateless and, thus, lack the protection of any government. They may also have difficulty traveling as they may not be entitled to a passport from any country. This guy did it in 2008. https://en.m.wikipedia.org/wiki/Mike_Gogulski https://en.m.wikipedia.org/wiki/Mike_Gogulski
RspecMAuthortah 4y ago
For my own curiosity. > If you have financial assets worth over $2 million, you may have to pay a one-off exit tax calculated as a capital gains tax as if you sold all of your assets on the day you renounced. Do you have to pay capital gains taxes on anything over $2 million or wholesale all capital gain? > You have to attend an exit interview at your nearest U.S. consulate or embassy. Can they reject your exit?
- HWR_14 4y ago
  I believe the exit interview is to ensure that you understand the consequences, sign papers that are motorized, make sure you pay your taxes, etc. I'm sure they can reject your exit if you haven't finished paying taxes owed or you seem under duress or mental impairment. But absent that (or maybe similar reasons you wouldn't let someone sign a contract) I don't think they can.
nullc 4y ago
> If you have financial assets worth over $2 million, you may have to pay a one-off exit tax calculated as a capital gains tax as if you sold all of your assets on the day you renounced. Enforcement on that appears to be about zero. A fair amount of the increase this article is discussing is likely cryptobros inspired by Roger Ver's success-- he renounced US citizenship while owning >40k bitcoin (potentially much more than 40k, that is just what was in his publicly identified wallet) at a near zero cost basis worth over $20 million at the time while paying only about $200k in exit taxes (he tweeted a picture of the exit taxes check), presumably for his non-bitcoin properties. He even setup a company to help other people get st. kitts passports that promoted evading US taxes as a top level feature.
HWR_14 4y ago
If you have enough money that you are renouncing US citizenship to avoid your taxes, then the fee is a rounding error. And I'm quite happy with US citizens who make their money as US citizens paying their taxes on cap gains before they go. Morally it seems superior, and practically it keeps everyone from renouncing their citizenship right before their startup sells.

immigrantheart 4y ago

What if your assets are less than $2 million?

sgjohnson 4y ago
Then it’s probably not worth to renounce the US citizenship, and you’d be shooting yourself in the foot if you did.
- immigrantheart 4y ago
  How so? You can retire comfortably today in SEA countries with $2 million in bank account.
  - sgjohnson 4y ago
    Why renounce the US citizenship, if you’re retiring? There’s only one benefit from renouncing the US citizenship. You’re no longer a tax resident. There’s also a $112k+inflation/year exemption for foreign earned income for non-residents. https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion https://www.irs.gov/individuals/international-taxpayers/fore... So if you’re renouncing your citizenship for tax reasons, it’s very unlikely that it’s going to be worth it, if you’ve got under $2m in assets. Not to mention that if you decide to return to the US, not only have to go through the US immigation system, but you also won’t clear a background check, because people who renounce their US citizenship are entered into the NICS system.
  - nullc 4y ago
    But what would the LTCG be on those assets? At most $2m * 15% = 300k (assuming you were able to realize it over several years and avoid the 20% LTCG bracket and 3.8% NIIT), cheaper to pay the taxes than buy a passport and you would preserve your ability to return to the US if you found it in your interest.
- javert 4y ago
  There are moral and practical arguments for renouncing US citizenship. It's not just about saving on taxes.
  - sgjohnson 4y ago
    > practical arguments Such as? All of them stem from FATCA, and we’re back to taxes. And in a lot of situations not even renouncing the US citizenship will help you there, as you’ll be scrutinized for having a US birthplace.
    - FooBarBizBazz 4y ago
      >> practical arguments > Such as? All of them stem from FATCA, and we’re back to taxes. I understand that FATCA's reporting requirements are onerous enough for banks that they reject US account holders. Then, the inability to get a local bank account may cause problems. This is where I ask, "can't you just use a US bank account, then? One with good international support? (No fees, etc.)" I suspect this is feasible in many countries? I do know, however, that in India, many activities require an Indian credit card (regular Visa &etc cards work fine for many things, but for others -- particularly if they touch the government in any way -- they are rejected). And the way to get an Indian credit card is to have an Indian bank account. You see where this is going. So e.g., you end up unable to buy train tickets without bugging an Indian citizen to do it for you. I would also suspect that, the minute you need to deal with an account with any kind of special government classification -- say, a retirement account -- then you need that account to be at an institution that knows about those laws, which again would require a local bank.
      - jen20 4y ago
        There isn’t even a US bank that functions well in the US, let alone abroad. Absolutely nothing like Monzo available (until Monzo itself becomes more broadly available…)
- jhugo 4y ago
  Really? US citizenship is a huge liability because of global taxation. If you have the opportunity to exchange it for another, and you don't want to live in the US, it seems like a no-brainer.
- brobinson 4y ago
  If you live in another country and make over $112,000 USD (2022 number) there, you're paying US taxes on the difference even with the Foreign Earned Income Exclusion. That sucks a lot for a lot of Americans.
  - sgjohnson 4y ago
    What’s the top federal income tax bracket? 37%? In most high-income countries with that income, you either won’t pay anything, or the difference will be marginal. There will be very few people in the world for whom renouncing the US citizenship would be worth it long-term. Unless you go full tax-haven, which is also fine.
    - deleted 4y ago
      [deleted]
    - brobinson 4y ago
      What do you mean by, "you won't pay anything"? The issue is that you pay taxes to _two_ countries on the same income because you can't shield the income from the US above the foreign earned income exclusion amount. Sorry if I'm misunderstanding you.
      - sgjohnson 4y ago
        You pay only the difference. There’s also an exemption on taxes already paid to a different country.
        brobinson 4y ago
        Yes, I mentioned the FEIE in the first post you replied to. Wealthy/high income Americans renounce their citizenships to avoid being double taxed if they don't live in the US because the FEIE has a cap and they are double taxed on the remainder.

sgjohnson 4y ago

> • You must hold citizenship of another country, so you don’t become stateless. This is not actually true for the US. The United States will let you renounce your citizenship even if it leaves you stateless.

javert 4y ago
Is this viable? As in, is there a reasonable pathway for renouncing US citizenship and then getting citizenship somewhere else? I wonder if this opens up pathways to citizenship that aren't available otherwise. The "passports for sale" are mostly either extremely expensive or for tiny island nations like St. Kitts. But maybe there are additional countries that offer citizenship to stateless people out of compassion?
- sgjohnson 4y ago
  > Is this viable? Absolutely fucking not. But if you really, really, I mean, really want to stateless yourself and end up in a situation where you can’t even get a travel document, you can. Not that anyone ever should. > Perhaps there are countries that will grant citizenship to stateless people out of compassion, or for a fee? Not that I’m aware of.
  - javert 4y ago
    How did you find out that the US will allow you to renounce and make yourself stateless? I'm genuinely curious, and also slightly skeptical that it's really true.
    - sgjohnson 4y ago
      https://travel.state.gov/content/travel/en/legal/travel-legal-considerations/us-citizenship/Renunciation-US-Nationality-Abroad.html https://travel.state.gov/content/travel/en/legal/travel-lega... > Persons intending to renounce U.S. citizenship should be aware that, unless they already possess a foreign nationality, they may be rendered stateless and, thus, lack the protection of any government. They may also have difficulty traveling as they may not be entitled to a passport from any country. This guy did it in 2008. https://en.m.wikipedia.org/wiki/Mike_Gogulski https://en.m.wikipedia.org/wiki/Mike_Gogulski

RspecMAuthortah 4y ago

For my own curiosity. > If you have financial assets worth over $2 million, you may have to pay a one-off exit tax calculated as a capital gains tax as if you sold all of your assets on the day you renounced. Do you have to pay capital gains taxes on anything over $2 million or wholesale all capital gain? > You have to attend an exit interview at your nearest U.S. consulate or embassy. Can they reject your exit?

HWR_14 4y ago
I believe the exit interview is to ensure that you understand the consequences, sign papers that are motorized, make sure you pay your taxes, etc. I'm sure they can reject your exit if you haven't finished paying taxes owed or you seem under duress or mental impairment. But absent that (or maybe similar reasons you wouldn't let someone sign a contract) I don't think they can.

nullc 4y ago

> If you have financial assets worth over $2 million, you may have to pay a one-off exit tax calculated as a capital gains tax as if you sold all of your assets on the day you renounced. Enforcement on that appears to be about zero. A fair amount of the increase this article is discussing is likely cryptobros inspired by Roger Ver's success-- he renounced US citizenship while owning >40k bitcoin (potentially much more than 40k, that is just what was in his publicly identified wallet) at a near zero cost basis worth over $20 million at the time while paying only about $200k in exit taxes (he tweeted a picture of the exit taxes check), presumably for his non-bitcoin properties. He even setup a company to help other people get st. kitts passports that promoted evading US taxes as a top level feature.

HWR_14 4y ago

If you have enough money that you are renouncing US citizenship to avoid your taxes, then the fee is a rounding error. And I'm quite happy with US citizens who make their money as US citizens paying their taxes on cap gains before they go. Morally it seems superior, and practically it keeps everyone from renouncing their citizenship right before their startup sells.