Dual citizens can avoid the U.S. exit tax (Form 8854) by qualifying for the birthright dual-citizen exception: becoming a citizen of both the U.S. and another country at birth, maintaining residency and citizenship in the other country, not being a U.S. resident for more than 10 of the last 15 years, and certifying 5-year tax compliance.
The dual citizen exception potentially allows some individuals classified as a covered expatriate to escape hundreds of thousands if not millions of dollars in exit tax. If you are considering expatriating from the United States, you should consult with a qualified international tax attorney.
The best way to “beat” the exit tax is to avoid becoming a Covered Expatriate in the first place. If you don't trigger any of the three tests (Net Worth, Tax Liability, or Compliance), you can leave the U.S. tax system without paying a “deemed sale” tax on your assets.
How can dual citizens avoid double taxation?
You will not be subject to the Tax Liability Test or the Net Worth Test if you satisfy one of the following exceptions: Dual Citizens: This exception will apply if you became at birth a U.S. citizen and a citizen of another country and you continue to be a citizen of, and are taxed as a resident of, that other country.
You can travel abroad for as long as you'd like without any risk of losing your U.S. citizenship. And if you plan to stay outside of the United States for longer than a year, you won't need a re-entry permit in order to return, as is the case for green card holders (permanent residents).
To avoid being taxed twice on the same income, there are two main IRS forms that expats tend to use: Form 1116 and Form 2555. Form 1116 is for the Foreign Tax Credit. This form helps you claim a credit for the foreign income taxes you already paid.
Do dual citizens pay taxes in Canada and the US? Yes, dual citizens may be required to pay taxes in both countries. If you're a dual citizen of the U.S. and another country, like Canada, you're taxed on your worldwide income by the U.S., no matter where you live.
Dual citizenship remains fully legal in the United States. The Exclusive Citizenship Act of 2025 has not been enacted and does not change current law. Americans can still hold more than one citizenship, and no renunciation deadlines or requirements exist today.
Renouncing your US citizenship does not automatically disqualify you from receiving Social Security benefits, but it can complicate the process.
To prove the IRS's 2-out-of-5-year rule, you must show you owned and lived in your home as your primary residence for at least 24 months (two years) (not necessarily consecutive) within the five years before the sale, using documentation like utility bills, driver's license, voter registration, tax returns, bank statements, and mail all showing the home address. This proves you meet both the ownership and use tests for excluding capital gains on the sale, requiring documentation to back up your claim of residency during that period.
The IRS 7-year rule primarily applies to keeping records for claiming a deduction for bad debts or losses from worthless securities, allowing a longer period to file for a credit or refund, but it's not a universal audit limit; it's often a recommended safe buffer for general record-keeping, with the standard IRS audit period usually being 3 years, extending to 6 years for substantial income omission (over 25%) or foreign income issues, and indefinitely for fraud.
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This would allow Americans to pay taxes only to the country where they live and earn income, similar to how most other developed nations handle their expatriate citizens.
I'm a U.S. citizen living and working outside of the United States for many years. Do I still need to file a U.S. tax return? Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live.
As a dual citizen, you face a unique set of circumstances. The U.S. taxes your worldwide income based on citizenship, while your country of residence likely taxes you based on where you live. This creates the potential for paying taxes twice on the same income.
To avoid double taxation, one option is to structure the business as a “flow-through” or “pass-through” entity. In this setup, profits bypass corporate taxation and go directly to the business owners. The owners then report and pay taxes on their share of the income at their tax rates.
Holding a green card for 8+ years may trigger exit tax liability. You must formally file Form I-407 to abandon your green card. Proper timing and compliance can help you avoid covered expatriate status. Strategies like consolidating accounts and avoiding PFICs can ease the tax burden.
Yes, dual citizens generally need to travel with both passports to comply with laws, using the U.S. passport to enter/exit the U.S. and the other country's passport to enter/exit that country, which avoids visa issues and ensures you're treated as a citizen by each nation's immigration. Always carry both, as you'll show the U.S. passport at U.S. borders and your other passport at your destination's border, proving your right to be there and receive consular assistance if needed.
The top passports for 2026, according to the Henley Passport Index, are led by Singapore (No. 1), followed by Japan & South Korea (tied for No. 2), and a group including Denmark, Luxembourg, Spain, Sweden, & Switzerland (tied for No. 3), all offering extensive visa-free access to numerous countries, highlighting Asia and Europe's dominance at the top for global travel freedom.
What will happen if I am out of the United States for more than six months? Staying outside the United States for more than 6 months but less than one year will subject you to additional questioning when you return to the United States but you are not required to have a Reentry Permit.