Exit Tax Book Chapter 6: Mark-to-Market Taxation

Last month, I explained how to determine if you are a covered or non-covered expatriate.

The major difference between covered and non-covered expatriates is that covered expatriates must pay exit tax, and non-covered expatriates do not.

The exit tax applies to everything a covered expatriate owns. The method of calculating tax, however, differs depending on the asset involved.

For most types of assets, the mark-to-market tax applies. To calculate exit tax under the mark-to-market rules, pretend that you sold everything you own on the day before you expatriated. Apply an exclusion to prevent tax on the first $713,000 of gain (for expatriations that occurred in 2018); pay tax on the rest.... continue reading

Exit Tax Book Chapter 5: Are You a Covered Expatriate?

There are two types of expatriates: covered expatriates, and non-covered expatriates.

Covered expatriates must pretend that they sold all their worldwide assets on the day before expatriation and pay tax on the pretend gains. There are a few types of assets to which other special tax treatments apply if you are a covered expatriate, as well.

Non-covered expatriates do not have to do the pretend sale. They are required to inform the IRS about their expatriation on Form 8854, but without a giant gain recognition event.

There are three tests for covered expatriate status:

1. Certification test
2. Net worth test
3. Net tax liability test

If you meet (or fail, depending on how you look at it) any one of these tests, you are a covered expatriate.... continue reading

Exit Tax Book Chapter 4: Paperwork for Expatriates

Last month, I discussed how long-term residents can become expatriates. Now I will overview the tax paperwork expatriates will need to file.

All individuals who cease to be taxed as US persons file tax returns to signal that change in status to the IRS. Typically, this happens on a dual-status tax return: for part of the year you are a US person reporting your worldwide income, and for part of the year you are a nonresident of the US reporting only your US-source income.

For people whose change in status is also an expatriation event, there is another form to file: Form 8854, Initial and Annual Expatriation statement.... continue reading

Minimultinationals Chapter 02: It’s All Taxable to You

All of the profits generated by a minimultinational enterprise will be exposed in real time to the U.S. tax system. Chapter 2 explains why.

We will talk about how the U.S. taxes those profits in future installments of this book. Different business structures have different tax results.1

What’s a minimultinational?

Let’s recap. A minimultinational is a small business that:

• Has U.S. owners; and
• Generates its profits outside the United States.

“Small” is relative. A minimultinational might have sales in the hundreds of millions or the hundreds of thousands.2

Who this is for?

This series is for owners of minimultinationals.... continue reading

Exit Tax Book Chapter 3: How a Green Card Holder Becomes an Expatriate

Last month, I talked about citizens and how they can renounce their US citizenship. This month, I am focusing on another group of people who can become expatriates, known as long-term residents.

“Long-term resident” is a special term under US tax law. It looks and sounds very similar to “lawful permanent resident”, which is a term that is used to describe a type of US immigration status.

Everyone who has the immigration status of being a lawful permanent resident is automatically a US resident for tax purposes, and must pay tax on their worldwide income. Someone who has had that status for “too long” (as defined by the Internal Revenue Code) becomes a long-term resident.... continue reading