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Renouncing US citizenship for tax purposes

US citizens living abroad and US connected people are subject to US tax rules no matter where they live. While some people are happy to retain their US connections, many people look to renounce their US citizenship. This article provides a detailed overview of the process.

Written on 10 January 2023

In a time that there has never been a higher number of Americans living overseas, it’s no wonder the question is being asked so frequently is: Would it be financially smart for me to renounce my US citizenship?

With an estimated 9 million Americans living abroad, renouncing citizenship can be extremely financially savvy, but it is also crucial to understand what exactly you are giving up.

Who should consider renouncing their US citizenship?

A very large variety of people are included in the said 9 million Americans that are living outside of the US, ranging from students and professionals posted abroad, to accidental Americans.

But despite this array of differing circumstances, only one usually sparks an individual's interest in renouncing, which will be them not holding any plans to either return to the US, or ever live there at all.

Due to the US claiming tax on all its citizen’s worldwide income, it is not too difficult to see the appeal.

Despite being able to claim certain exemptions and tax credits, the process of filing a US federal return is still mandatory, not to mention in some cases being obligated to disclose additional information such as investments, foreign banks and pensions.

The option of renouncing your US citizenship is irreversible. It is a way for Americans living overseas permanently to not have to file US federal taxes any longer. This process is also known as Expatriation.

What you need in order to renounce

There is specific criteria that you will need to meet in order to start the process of renouncing citizenship. Some of these are, but are not limited to:

  • Being completely up to date with your US tax filings, going back 5 years
  • Currently holding citizenship within another country
  • Being able to pay the renunciation fee ($2,350)
  • Attending an exit-interview at your nearest US embassy/consulate

You may also be subject to paying a one-time ‘exit tax’. This will only apply to those which hold financial assets worth more than $2 million.

This exit tax fee is calculated by the IRS, as if you had sold all of your assets on the day before renouncing and then had to report a capital gain.

Understanding what it really means to renounce your citizenship

Renunciation of your citizenship should not be looked at purely through a financial approach.

Of course, it can be your driving reason to want to go through with the process, but it brings with it other consequences that you must have considered and be prepared for going forward.

You are essentially giving up all benefits that come with being a US citizen, which will mean some of the following:

  • No longer being eligible to vote in US elections
  • Losing access to federal jobs
  • Losing benefit of unrestricted travel in and out of the US
  • Losing the right to citizenship for all future children and grandchildren (leaving them unable to live and work in the US)

How do I start the process of renouncing my US citizenship?

It is firstly most important to know that any questions or concerns that you may have about your US taxes should always start with seeking professional, tailored advice from a US tax expert.

If you are clear that the process of renouncing your citizenship is final and irreversible and have also sought the necessary professional advice you need in order to know that it is the right decision for you, the next steps will be a renunciation appointment with the state department.

There will be forms you are asked to complete before the appointment itself, which will also have to be carried out in person (by visiting a US embassy or consulate abroad.

Some of the documentations and forms needed for your appointment will be the following:

  • Evidence of U.S. citizenship (such as your most recent U.S. passport or U.S. birth certificate, if you are not in possession of a U.S. passport
  • S. Consular Report of Birth Abroad, if applicable
  • Bio-pages of all current foreign passports
  • Certificates of Naturalization for any country, including the United States, if applicable
  • Certificates of Citizenship for any country, including the United States, if applicable
  • Evidence of any name changes, if applicable (e.g. your marriage or divorce certificates, court orders or deed polls)
  • Completed form DS-4079
  • Completed Loss of Citizenship Questionnaire
  • Completed Informal Loss of Citizenship Acknowledgement, which must be signed/dated and sent as a scanned document

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