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Is Fleeing the Country a Smart Tax Strategy for You?

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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.

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.

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ha6ai

Here's some REAL tax news:

A new study shows that Taxpayers are being ripped off by Tax Fraud by Mexican immigrants for $5 BILLION A YEAR!

The scam: They file false and fraudulen US tax returns, claiming "Child Tax Credits" for $1,000.00 per child, for children IN MEXICO (including nephews, neices, etc.) WE pay our $5 Billion per year for this fraud.

Democrate Senate leader Harry Reid is BLOCKING legislation to require that Social Security numbers be provided on tax returns for these phantom children .... to stop the fraud.

The Senate Democrats are aiding and abetting $5 Billion per year in tax fraud to illegal immigrants! No wonder some over-taxed "rich" people flee the US, when actual tax frauds are trying to get in!

May 24 2012 at 4:27 PM Report abuse rate up rate down Reply
1 reply to ha6ai's comment
wdcarterjr

The requirement of proper identification makes voter fraud just to difficult. Ripping off the tax payer is no big deal if it is what it takes to get reelected. Do you think Mr. Saturday Night Live from Minn. would have been elected without the heavy voter turn out from the cemeteries?

May 29 2012 at 11:33 AM Report abuse rate up rate down Reply
wdcarterjr

As taxes got up you will see more of this.

Taxes are the reason that many companies are not bringing money made overseas back to the US.

As taxes go up fewer investments will be worth while. HIgher taxes reduce the return on investment while the risk remains the same or increases because of a reduced customer base that is also paying more in taxes.

May 24 2012 at 3:13 PM Report abuse rate up rate down Reply
freshmurj

Despicable traitors! Give up your citizenship because of taxes?? Really?? That's the most hateful thing I've ever heard of. Like Benedict Arnold and Judas Iscariot rolled into one! A pox on your house traitors!

May 24 2012 at 2:01 PM Report abuse rate up rate down Reply
Artie

If they would just come up with a reasonable flat tax or a value added tax (VAT) on something EVERYONE uses, that would go a long way in reducing this game playing, expecially by certain industries and the very wealthy. I don't know of any middle class US citizens personally who have given up US citizenship for tax reasons. Perhaps, if taxpayers had more to say about how their tax dollars got spent instead of squandered by our inept Governent , maybe there would be more compliance and less tax-dodging going on out there. No one feels good when they see all the wasteful Gov't spending that goes on whether on the useless military hardware or on pork barrel projects. Then again, there are always going to be pigs, crooks and wise guys who game the system and can afford lobbyists to create loop holes and tax laws which work in their favor.

May 24 2012 at 11:45 AM Report abuse rate up rate down Reply
ha6ai

Another "AOL Original" - what a waste of time! How about a REAL story, not being reported by the lame-stream media:

Big News: 43 MAJOR CATHOLIC ORGANIZATIONS SUE OBAMA to stop Obamacare trampling on Religious Freedom!

Obama forcing Catholics to pay for and provide abortion on demand (including late-term abortions where legal), abortion pills, sterilization, and contraception, is a an un-American fascist attack on the First Amendment, and Freedom of Religion!

Religious freedom is under attack by Obama.

Have you heard about these law suits? WHERE is this reported by the left-wing media?

May 24 2012 at 3:22 AM Report abuse +1 rate up rate down Reply
King Orgasmic

i blame al sharpton and jessie jackson..gd rebelrousers..what???...oh...nevermind...

May 24 2012 at 1:00 AM Report abuse +1 rate up rate down Reply
percheron1

One wonders if Mitt will follow his money to Switzerland?

May 23 2012 at 11:28 PM Report abuse -2 rate up rate down Reply
percheron1

All the US needs to do is place Eduardo Saverin on the undesirable aliens list...and then he can stay out of the US for the rest of his life....no lost to the US

May 23 2012 at 11:24 PM Report abuse +2 rate up rate down Reply
Steve

The question is really should any person striving for great success flee the US and the answer is probably. Depending on the outcome of the next election the US will have a greater chance of civil war, definitely class warfare were success my be harmful and taxed out of existence or at least regulated to near death. In his position and the current state of affairs in the US I cannot really blame him.

May 23 2012 at 10:55 PM Report abuse rate up rate down Reply
1 reply to Steve's comment
freshmurj

Traitor.

May 24 2012 at 2:04 PM Report abuse rate up rate down Reply
Annie O

...only Alec Baldwin should leave...he promised us when George Bush was elected but he didn't leave...maybe now he will when President Romney gets in the White House

May 23 2012 at 10:48 PM Report abuse +3 rate up rate down Reply
1 reply to Annie O's comment
ha6ai

LOL!

May 24 2012 at 3:23 AM Report abuse +3 rate up rate down Reply