US expatriate increase as a result of tax changes

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Changes to taxation in the US have led to a rise in the number of people renouncing their US passports. The Federal Register records every US citizen who emigrates, publishing the list quarterly for public viewing.

Facebook co-founder Eduardo Saverin, wealthy socialite Denise Rich, and Tina Turner are all high profile US expats who made the move for taxation reasons.

After making billions of dollars from Facebook, Saverin made the savvy tax move to leave his US citizenship behind. This cited some anger and several state senators actually proposed to implement a 30% tax for anyone who leaves America purely for tax reasons.

In previous years, notably 2011 and 2012, the number of expatriates was decreasing, but this year’s number shows a significant turnaround. At the forefront of American taxation is the stringent and controversial worldwide income tax. This applies to both US citizens and residents with a federal foreign tax credit available for certain tax relief. The US is the only country in the world that applies worldwide income tax on non-resident citizens.

Many countries in Europe and worldwide offer much more favourable tax rates and regimes. However, upping sticks and moving to more beneficial tax location is not always the best decision.

There are various tax benefits and relief provided by federal and state authorities that you can take advantage of if you are a US citizen. Additionally, if you are considering leaving America, it is important consider the exit tax rules and costs to ensure the move will be worth it financially.

You are allowed to cite tax motivation as your sole reason for leaving for leaving America but you must ensure that all IRS tax filings are completed properly and fully before you go. Specifically this includes an exit tax which is applicable if you personally have a net worth exceeding $2 million or if you paid $155,000 over the past five years as an average annual net income tax.

In more general terms you must prove that you were fully tax compliant in the US over the past five years; a 15% tax applies to any gains on property if sold after your move; and further costs apply if you are giving up a Green Card.

The benefits of becoming a US expat in favour of more flexible and lower tax rates vary depending on your income and net worth. Just because wealthy celebrities have made the move and found it profitable doesn’t mean it will be successful to normal citizens. Seeking advice from a financial expert will help you weigh up the pros and cons so you make the right decision for you.