Personal Finance Mar 25, 2024 12:30 PM EDT

Tax Headaches Drive Expats to Consider Renouncing US Citizenship

By April Fowell

  • Growing Citizenship Renunciation: Survey reveals a 10 percent rise in expats considering renunciation in the last year.

  • Taxation Challenges: Expats cite complex US tax laws as the main reason, with 1 in 5 uncomfortable filing taxes abroad.

  • Awareness and Representation: Many expats lack awareness of FBAR rules, and 75 percent feel misrepresented by the government.

With the federal tax deadline drawing near, millions of Americans feel pressured to file their forms. However, there are additional filing requirements for American expatriates, and this burden is causing some expats to doubt their citizenship.

Tax Headaches Drive Expats to Consider Renouncing U.S. Citizenship

With the federal tax deadline drawing near, millions of Americans feel pressured to file their forms.            
(Photo : by Oli Scarff/Getty Images)

Considerations Regarding Citizenship Renunciation

A recent poll by Greenback Expat Tax Services found that almost one-third of American foreign nationals either have intentions to renounce their American citizenship or are "seriously considering it."

According to Mike Wallace, CEO of Greenback Expat Tax Services, there has been a "significant increase" in that figure over the last 12 months. The ratio increased from 20 percent to 30 percent between 2023 and 2024. The most recent estimate is based on a survey conducted in February among around 1,000 American expatriates.

The main reason American expats are thinking about relinquishing their citizenship is the hassle of handling and reporting US taxes. The poll found that almost 1 in 5 haven't felt comfortable filing taxes overseas.

U.S. income taxes are due on worldwide earnings for American expatriates, which include salary, company profits, investment income, and more. Expats may have to spend more money and time filing taxes in two different countries each year, even though they can avoid double taxation with a foreign income exclusion and tax credit.

If the total value of your accounts exceeds $10,000 at any point in the year, you may also be required to declare foreign bank accounts to the government by completing the declare of Foreign Bank and Financial Accounts, or FBAR. Failing to do so might result in a significant penalty.

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Awareness and Representation Issues

The Greenback Expat Tax Services poll found that 17% of American foreign nationals were not aware with the FBAR regulations.

According to the report, around 75 percent of American foreign nationals have not felt "fairly represented" by the government.

While some expatriates may find it alluring to give up their U.S. citizenship in order to avoid the "tax and reporting headache," certified financial planner Jude Boudreaux, a partner and senior financial planner at The Planning Center in New Orleans, says that typically it doesn't make sense.

Depending on your circumstances, the decision may be hard to undo and result in further unanticipated estate tax complications, he added.

Boudreaux, who is also a member of CNBC's Financial Advisor Council, stated that you can "streamline things and be forward-planning enough to avoid major landmines" with the correct tax assistance.

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