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Expatriation: Covered Expats & Deferred Compensation – Form W-8CE

As you might expect, there are rules and regulations that cover US expatriates. This article will explore some issues that US citizens should be knowledgeable of before deciding to give up their United States citizenship.

The first, and most important, step to take is to ensure you are not going to be considered a “covered expatriate”.

Exit Tax Considerations

If you are labeled a covered expat, one potential consequence is an exit tax that can be imposed. Avoiding being a covered expatriate can take some planning, and some time. One example is using your gift allowance (currently USD 5.49 mil) to reduce net worth to under the USD 2 million limit discussed below. Doing this could delay the point where you can expatriate without significant tax consequences.

How to be non-covered:

If you can answer YES to all of these issues:

1. Net worth below $2 million

2. Tax liability (on average) for the previous 5 years is below USD 162,000

3. Has fulfilled all US tax filing obligations during those same 5 years

4. Filed form 8854 on time with your final tax return for the year of expatriation

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