Is Fleeing the Country a Smart Tax Strategy for You?

Eduardo SaverinFacebook co-founder Eduardo Saverin has received a lot of criticism for his decision to give up his U.S. citizenship and emigrate to Singapore immediately before Facebook's (FB) IPO. But it's not a bad business move.

Under current law, those who renounce their citizenship have to pay U.S. tax on their gains as if they had sold all their assets -- with up to about $650,000 in gains exempt from tax. That will lead to a huge tax bill for Saverin, but once it's paid, any future price appreciation -- if there is any -- will go untouched by the IRS. And because Saverin is moving to Singapore -- where capital gains aren't subject to tax -- he won't have a tax bill at all from now on.

Leaving aside whether that is a travesty of tax justice or a perfectly valid way to take advantage of the tax system, should you consider becoming an expatriate? If the rich are running, is it worthwhile for the rest of us to consider following suit?

A Tax-Dodging Trend

Interest in giving up U.S. citizenship is nothing new. In the fourth quarter of 2009, more than 500 people gave up their citizenship -- more than double the number who did so in all of 2008. By last year, that number had jumped to almost 1,800.

Taxes can be an important element of the decision, but there are others. Recent regulations require citizens to report foreign bank accounts with more than $10,000 on deposit. For the millions of Americans who live and work abroad, it can be difficult to comply with such restrictions. In particular, with the U.S. now expecting foreign financial institutions to meet reporting requirements of their own, those institutions are less willing than ever to open accounts for Americans subject to those requirements.

Moreover, those who live abroad may reasonably believe that they get little benefit from the U.S. taxes they have to pay. Although foreign residents get a $100,000 exemption on income from U.S. tax, they have to pay tax on the excess -- even if they have no other connection to the U.S. other than citizenship.



A Lower Bill...

The current exit tax rules are far less draconian than they used to be. Under previous law, expatriates had to file tax returns for 10 years even after they gave up citizenship. Now, once you get through the current exit-tax regime, you're done.

Moreover, you even get to keep some of the benefits you earned as a citizen. For instance, those who've given up their citizenship are still entitled to receive benefits from Social Security and Medicare, as well as any other pension benefits.

...but at what price?

But those who decide to give up their U.S. citizenship have to consider the other side of the coin: where they'll end up.

Sponsored Links
Although rich people can buy their way into tax-haven countries that let them enjoy rock-bottom tax rates, average folks may not be so fortunate. Ordinarily, you need to have some sort of tie to a foreign country before you can emigrate from the U.S. to become a citizen in that country.

Moreover, in many countries that are attractive living sites, tax rates can actually be higher than they are for U.S. citizens. For instance, according to CNBC, in Ireland, the top income tax rate is 48%. The U.K. and Japan tax their top tiers at at 50% and Sweden's highest rate is 56.6%.

So if taxes are really your primary motivation, then you'll want to check closely to see whether you'll actually save any money by giving up your citizenship.

The uproar over Saverin's departure has predictably led to an effort to reinstate a more burdensome tax on those who renounce their citizenship. Two Democratic senators said last week that they would introduce a bill putting a 30% capital gains tax on expatriates, as well as barring them from coming back to the U.S.


For most Americans, giving up citizenship isn't worth the hassle. But as the economy becomes more global, you can expect the trend of renouncers to continue rising.

Motley Fool contributor Dan Caplinger thinks about Canada sometimes, but is usually content with just visiting. You can follow him on Twitter here.

Tax Tips for Real Estate Agents and Brokers

Most real estate agents and brokers receive income in the form of commissions from sales transactions. You're generally not considered an employee under federal tax guidelines, but rather a self-employed sole proprietor, even if you're an agent or broker working for a real estate brokerage firm. This self-employed status allows you to deduct many of the expenses you incur in your real estate sales or property management activities. Careful record keeping and knowing your eligible write-offs are key to getting all of the tax deductions you're entitled to.

Read More

Brought to you by TurboTax.com

What is the Educator Expense Tax Deduction?

The Educator Expense Tax Deduction allows teachers and certain academic administrators to deduct a portion of the costs of technology, supplies, and certain training. Here’s what teachers need to know about taking the Educator Expense Deduction on their tax returns.

Read More

Brought to you by TurboTax.com

Self-Employed Less Than a Year? How to Do Your Taxes

Have you been self-employed less than a year? If you’re just starting out, it’s possible you worked at a job earlier in the tax year before making the switch to self-employment, or you’re working multiple jobs. In this case, you may have more than once source of income you’ll need to report on your income tax return.

Read More

Brought to you by TurboTax.com

Taxes for Grads: Do Scholarships Count as Taxable Income?

Heading off to college to broaden your horizons is exciting, but funding your education via scholarships? That's even better. Scholarships often provide a path to education that might not be feasible otherwise, which is why the Internal Revenue Service (IRS) can be generous in minimizing students' tax obligations. But sometimes scholarship money does count as income, and it’s better to find out now if your scholarship adds to your tax liability than to have a surprise later. Here’s how to decode your scholarship taxation.

Read More

Brought to you by TurboTax.com
Read Full Story
Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.