How To Figure The Exit Tax When Renouncing U.S. Citizenship

How To Figure The Exit Tax When Renouncing U.S. Citizenship
How To Figure The Exit Tax When Renouncing U.S. CitizenshipUnderstanding The U.S. Exit Tax

Dec. 15, 2014
Panama City, Panama

Dear Offshore Living Letter Reader,

Last week’s Taxation 101 (Where To Live Tax-Free) essay was well received but raised lots of questions from American readers, including many to do with what I’d say is maybe the most misunderstood U.S. tax on individuals—the “Exit Tax” Americans have to pay when they give up their U.S. citizenship.

To clarify, this is not a separate or an additional tax. What, then, is it?

In the past, the Exit Tax was imposed on an American giving up his or her U.S. citizenship if the U.S. government decided in its infinite wisdom that he or she were renouncing citizenship for tax purposes. In that case, you could be required to continue to file and pay taxes on your income for up to another 10 years.

As giving some bureaucrat the power to determine a person’s reasons for relinquishing U.S. citizenship introduced a highly subjective variable into the process, the U.S. government eventually changed the rules to be more black and white. Continue reading “How To Figure The Exit Tax When Renouncing U.S. Citizenship” »

Panama, Belize, And Uruguay Are Top Tax Havens

tax
taxesTaxation 101 (Where To Live Tax Free)

Dec. 11, 2014
Panama City, Panama

Dear Offshore Living Letter Reader,

A reader wrote this week to say, “Lief, whenever you mention the countries that tax their citizens’ worldwide income you never mention Canada, which does tax its residents on worldwide income.”

Indeed, Canada, like the majority of countries around the world, taxes residents on their worldwide income. I don’t see this as newsworthy, as, again, it’s how most countries operate.

Broadly speaking, countries approach income tax in one of four ways. One is not to tax income at all. Resident in a country that takes this approach, you’d pay no income tax…period. While that may sound like heaven, many of these countries aren’t places you’re likely to want to reside.

A handful of the world’s no-tax countries are in the Middle East, including Kuwait, the UAE, Qatar, and Oman. These are not high on my Places I’d Like To Live list. On the other hand, spending your working years in one of these zero-tax jurisdictions would allow you to grow your retirement nest egg faster. Continue reading “Panama, Belize, And Uruguay Are Top Tax Havens” »