10 Reasons to Renounce Your U.S. Citizenship as Soon as Possible

AI image of a man on a tropical beach tossing his US passport in the air.

10 Reasons to Renounce Your U.S. Citizenship as Soon as Possible

While many people are applying for green cards, citizenship, and work visas to allow entry into the U.S., there are equally a number of people trying to get out. The U.S. is the only country in the world to require annual tax filings based solely on U.S. citizenship and tax on worldwide income, which leaves many thinking about why they still keep their ties to the country. Especially for those born to U.S. parents abroad, or those born to foreign parents living in the U.S. temporarily, their ties and connections to the U.S. may be so limited that it makes little sense to keep them.  What you may not consider, though, is that right now may be an opportune time, and you may miss a golden opportunity. Below, we will delve into ten reasons why you should think about renouncing your citizenship as early as possible:

1.    Avoiding the Exit Tax With Proper Planning Within the Next Year

One of the most daunting hurdles for those considering renouncing their U.S. citizenship is the dreaded “exit tax.” This form of taxation acts as a final settlement with the IRS, treating your assets as if they were sold the day before your renunciation. This can lead to a significant tax liability for individuals with substantial wealth. However, with the proper planning—utilizing trusts and gifts and understanding the exemptions and thresholds that apply—the impact of the exit tax can be mitigated or even avoided.

This careful financial maneuvering is particularly urgent now, as exemption thresholds are set to change, making it a potentially optimal time for action. The current amount one can gift away or add to a trust tax-free is $13,610,000. That is set to drop to half the amount at the end of 2025. This means that now is a timely way to structure things correctly to ensure the exit tax doesn’t apply to you.

1.    FATCA and Bank Filing Requirements

The Foreign Account Tax Compliance Act (FATCA) has cast a wide net, ensnaring U.S. citizens worldwide with onerous reporting requirements and compliance burdens. Any U.S. citizen who has opened a non-U.S. bank account in the past five years likely knows the headaches caused by the numerous U.S. forms that must be filled out.

Banks have been crazed with having new clients fill out all kinds of papers and certifying all sorts of documents to ensure that they aren’t trying to hide money from the U.S.  They have good reason to since the U.S. government has penalized foreign banks hundreds of millions of dollars for storing U.S. citizens’ money abroad and not reporting it to the U.S. The burden is heavy, though, and can be very burdensome. Renouncing U.S. citizenship is a pragmatic solution for those weary of navigating the labyrinthine tax obligations extending far beyond U.S. borders.

2.    Broadening Investment Horizons

For U.S. citizens abroad, investment opportunities are often limited by punitive regulations around Passive Foreign Investment Companies (PFICs) and other foreign assets, which can erode investment returns through harsh taxation. This financial straitjacket restricts the ability to engage with local markets and diversify investments to align with one’s residence and financial goals, placing U.S. citizens at a distinct disadvantage in the global investment landscape.

The decision to renounce U.S. citizenship opens the door to a world where investment choices are dictated by market potential and personal strategy, not by the fear of onerous tax implications.

3.    Simplifying Life without Tax Filings

The United States’ unique practice of taxing its citizens on worldwide income, regardless of their residence, imposes a lifetime taxation and compliance burden. This policy complicates financial matters and ties individuals to a tax system that may not reflect their current economic realities or contribute to their social benefits in their countries of residence.

Renouncing U.S. citizenship is a definitive step towards breaking free from this perpetual tax obligation, offering a fresh start in financial planning and tax strategy. This shouldn’t be your only reason for renouncing citizenship, but luckily this list provides many others that contribute along with it.

4.    Global Mobility

Many countries only allow you to hold a passport from their country if you don’t already hold too many other citizenships. The benefits that other countries may offer can be enticing without as many strings attached as a U.S. passport carries.

In a world of growing digital nomads moving from place to place, not being tied down to a U.S. citizenship can help broaden some business ventures otherwise closed.

5.    Aligning with Personal Values and Political Views

This can be a polarizing reason, but America always seems to have polarizing political views. Many who live overseas may disagree with a lot of them. Heck, many in the U.S. seem to disagree with many of them. The current two choices for president are, again, likely Biden or Trump. And a Supreme Court that may block abortions and other policies that may not align with your values. 

Here is one pattern that everyone can agree with, though: each president creates another difficulty for a U.S. person living abroad. Whether it is Obama putting in the Net Investment Income Tax (a.k.a Obamacare tax) or Trump’s Global Intangible Low Taxed Income (GILTI) Tax,  there always seems to be another challenge for living abroad and carrying that citizenship. With presidential elections around the corner, you can rest assured something else will be coming soon.

6.    Avoiding Double Taxation

Despite treaties aimed at preventing double taxation, there are many times that there is still a double tax to pay for U.S. citizens living abroad. Not only is there the burden of filing taxes, but there are also many times that you will end up potentially paying U.S. taxes. The most common occurrences are if you work in hi-tech and have RSUs or stock options from work. We write comprehensively on this topic here. Another time that people will often pay U.S. tax is if they are self-employed and working in Israel. A third is the Net Investment Income Tax on passive income when you sell your stocks. This is a 3.8% tax above and beyond your high Israeli taxes. These and others are reason enough to give up your citizenship as quickly as possible, but they shouldn’t be your only reason. Not to worry, though, we have some more reasons here.

7.    Simplification of Legal Matters

The legal entanglements that accompany U.S. citizenship can be daunting, from compliance with international tax laws to navigating the U.S.’s complex legal requirements from afar. These challenges can complicate everything from business ventures to personal estate planning, casting a long shadow over one’s ability to operate with agility and confidence on the global stage.

Renouncing U.S. citizenship is, in many ways, an act of simplification—paring down legal complexities to better reflect the straightforward needs of one’s international lifestyle. It’s about shedding unnecessary burdens and embracing a legal framework that enhances, rather than hinders, global engagement.

8.    Scarcity of Appointments and Timing Issues

Over the past few years, there has been a pandemic and multiple wars breaking out in different locations around the world. Renouncing your citizenship can take anywhere from a couple of months to a year. However, when disaster strikes, embassies shut down and stop processing different categories of meetings. During the pandemic, it was near impossible for people to renounce their citizenship because the embassies worldwide were closed. When they reopened, they had to contend with expired passports, newborn children, and visa applications. One of the last functions they brought back was the ability to renounce citizenship. So much so that some are still not back to what they were pre-pandemic. 

Don’t push it off and then regret it if they close down again or no longer have appointments for the coming months.

9.    Mental and Emotional Peace

The final reason on our list. Beyond the tangible benefits and burdens, the decision to renounce U.S. citizenship often touches on deeper issues of mental and emotional well-being. As Marie Condo of decluttering fame expresses, when cleaning a closet, one should take out an article of clothing, think about if they love it 100%, and if not, put it on the side to be given away.

For many, having U.S. citizenship is just another thing to take care of. If you are trying to become more of a minimalist or declutter your life, giving up your citizenship should be done sooner rather than later. For many, renouncing citizenship is a path to peace, a way to resolve internal conflicts and reconcile one’s legal status with their personal beliefs and current reality. This profound sense of alignment can bring about tranquility that transcends financial or legal considerations, marking the beginning of a new chapter in harmony with one’s environment and self.

Planning Next Steps

The journey toward renouncing U.S. citizenship is deeply personal and multifaceted, weaving together threads of financial pragmatism, ethical alignment, global identity, and pursuing a life unbound by the confines of traditional national allegiance.

If the prospect of renouncing U.S. citizenship resonates with you, if you find yourself weighing its potential freedoms against its undeniable complexities, know that you do not have to navigate this journey alone. For the intricacies of the process, from tax ramifications to travel plans, feel free to contact us here.

To learn more about the flip side of this issue, check out our blog post here.

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