By Elena Hanson

Special to the Financial Independence Hub

In my last blog I talked about expatriation and reasons you may want to give up U.S. citizenship or long-term resident status (i.e., green card). The key reason to expatriate is to end the reporting and tax obligations that come along with the privilege of being a U.S. citizen, especially when you don’t reside there. But before ending your obligations, you may have to pay expatriation tax, also known as exit tax.

Canada has a similar tax, called departure tax, but it’s imposed on your assets when you are no longer willing to reside in Canada.

Who is subject to the exit tax?

Generally, exit tax applies to U.S. citizens who terminate their citizenship and to long-term residents who terminate their status. However, if you are a long-term resident or green card holder who was not a U.S. resident for eight out of the 15 years leading up to expatriation, you are not subject to the exit tax.

In fact, just being a U.S. citizen or long-term resident doesn’t automatically subject you to exit tax upon expatriation. Last time we discussed implications of being deemed a covered expatriate for U.S. tax purposes. You must satisfy one of three tests, which are aimed at identifying people who are high-earning, high net-worth individuals and who are not compliant. Continue Reading…