Renouncing US citizenship? When it might make sense from a tax point of view?
As per the reports published by the state department almost, 9 million citizens of America reside overseas. The assortment of people residing in these slots are:
- Diplomats
- Military staffs
- Medical professionals
- Students
- Digital nomads
- Citizens having job postings in the foreign firms
- Accidental American
Note: The “Accidental American” is a term used for citizens who are born to American parents but stay abroad or those who are born in America to a non-American parent but return to their place of origin.
All these sets of people despite residing in the foreign slots are subjected to file the tax returns every financial year. It is because these people are listed as American citizens (dual citizenship allowed in the US) and also possess a native passport.
To avoid any delay in the filing of tax returns, there are several tax consultants (like US Tax consultants in Toronto and other cities) placed across the country. This piece will discuss various facts that uncover the reasons to renounce the citizenship criteria of the United States of America.
U.S. Tax Structure
Interestingly, the U.S. tax system is entirely based on the citizenship offered by the administration and not on residential status. This is a clear indication that all the designated citizens need to pay taxes on a regular basis.
Americans who reside abroad seek personal tax consultancy services in Toronto, International Tax Consultants in Florida and other cities under the US boundaries. They can apply for the exemption of tax deduction on income and claim for tax credits. However, they cannot liberate themselves from the federal returns paid every year.
The foreign tax details are listed on the IRS that in turn enables an augmented reach over the citizens who reside overseas.
Debunking Renouncement of the U.S. Citizenship
An immutable way to stop the process of filing tax returns for overseas American citizens is called renouncing citizenship or expatriation). The criteria to renounce are:
- Citizenship of another nation
- Successive 5 years tax submission
- Clear an interview at the nearest embassy
- Pay a repudiation fee of $2,350
- If your overall financial assets are beyond $2 million, you need to make an exit tax payment
The American citizens who have migrated abroad on a permanent basis, are liable to renounce their citizenship. However, the renouncement might lead to the removal of several merits associated with citizenship. Renouncing somehow might sound appropriate for some American citizens who are not interested to incur benefits, rather claim for the tax credits.
From a tax point of view, an individual can refrain from filing returns. Often as per the set tax guidelines and the passport powers of a particular country decide the financial ramifications (in future). The renouncement of citizenship will help people to retrieve maximum financial perks on a long-term basis.
