Before renouncing your US citizenship, there are a few tasks related to US taxes that you need to make sure you’ve completed. For example, filing IRS Form 8854, Initial and Annual Expatriation Statement. If you don’t file Form 8854, you could be treated as a covered expatriate and face severe penalties – read the information provided below to ensure you remain compliant.
What is an 8854 tax form?
Tax Form 8854 notifies the IRS that you have formally renounced your US citizenship or long-term resident status. It is used to show that you are not a covered expatriate and have settled your tax obligations with the US government, when giving up your US citizenship or residency for good.
Who must file Form 8854?
US citizens giving up their citizenship or long-term residents giving up their Green Card must use tax Form 8854 to do so. You are considered a long-term resident of the US if you have been a permanent and lawful resident of the US for 8 of the past 15 tax years.
You need to file Form 8854 the year you expatriate with your income tax return. If you don’t need to file an income tax return, then mail Form 8854 to the IRS using the address included in the form instructions.
Does the United States have an exit tax?
Covered expatriates have to pay an ‘exit tax’ in the US. This means that any assets held will be taxed at the rate that was applicable the day before your expatriation date. Covered expatriates are subject to income tax on the net unrealized gains that they would’ve received for selling every asset held on the day before expatriation, at its fair market value.
What is a covered expatriate?
You are a covered expatriate if you expatriated after June 16, 2008 and any of the following apply:
- You have a personal net worth of over $2 million at the date of expatriation;
- For the past 5 years your average net income tax liability is over the threshold ($171,000 for 2020);
- You have failed to indicate on Form 8854 that you have filed tax returns for the past 5 years.
What if I’m way behind on my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.
Get a quote here.
What happens if I don’t file tax Form 8854?
Failing to file Form 8854 on time means that you are unable to certify you are compliant with all tax obligations, and will be considered a covered expatriate. The monetary penalties for not filing Form 8854 when you are required to can be severe – you could be fined up to $10,000.
Can Form 8854 be filed electronically?
Form 8854 should be filed with your income tax return if you have a tax return filing requirement for that year. Taxpayers with an AGI (Adjusted Gross Income) within a certain threshold are able to electronically file their tax return for free, using the IRS’ ‘Free File’.
How can I avoid US exit tax?
There are some exceptions for being treated as a covered expatriate where you won’t be subject to expatriation tax. Dual citizens and certain minors can be exempt from treatment, given that they filed Form 8854 and are tax compliant for the past 5 years.
- Certain minors will qualify for the exception if they expatriated before the age of 18 ½ and were not residents of the US for a period greater than 10 years prior to expatriation.
- To qualify for the exception, dual citizens must have become a US citizen and citizen of another country at birth, and once expatriated continue to be a citizen and tax resident of this other country.