Tax Exit Checklist for Leaving the United States

A no-nonsense guide to escaping the IRS’s gravitational pull—without triggering a paperwork supernova.

Why This Checklist Exists

If you’ve been Googling phrases like “renounce U.S. citizenship taxes” or “Form 8854 nightmare,” take a breath. The U.S. tax system is notoriously sticky: it clings to your wallet long after your plane has touched down somewhere far sunnier (or tax-friendlier).
My job, after two decades of untangling cross-border messes for founders, freelancers and Fortune-500 expats, is to make that exit process boring. Bureaucracy without pain. No drama, no nasty surprises at midnight on April 15.

In plain English, here’s the reality:

• The United States taxes citizens and long-term green-card holders on worldwide income, even if you live on a beach in Bali.
• To break that bond, you must formally terminate your U.S. tax residency—and maybe pay an “exit tax.”
• If you skip steps or miss deadlines, penalties multiply and your bank may freeze accounts under FATCA rules. Yes, really.

The good news? A clean break is totally doable if you follow the sequence below. Let’s dive in.

Step-by-Step Process

1. Decide Where You’re Actually Moving—First

Sounds obvious, but the IRS only releases you when another tax authority claims you.
Before touching paperwork, lock down:

1. Residency permit or visa in your new country (e.g., Portugal D7, Mexico temporary resident, Italy Elective Residency).
2. Housing lease or property purchase.
3. Day-count plan proving you’ll be physically present abroad (think 330-day rule).

Pro tip: Sort out banking too. A non-U.S. account will receive your income once you’re no longer “U.S. Person.” Our review of border-friendly banks is a solid starting point: International banking for remote workers.

Pull-quote: “The IRS can’t chase a tax ghost. Give them a forward address—and make sure another tax office agrees to adopt you.”

2. Determine If You’re a “Covered Expatriate”

Not everyone pays exit tax. The law targets so-called covered expatriates. You fall into that bucket if any of these are true on the day you expatriate:

Own more Airbnb properties than you realized? Due a mega stock-option vest next quarter? You may be covered without knowing it. Run the numbers now, not on April 14.

3. Plug Your Compliance Holes (Five Years Back)

You must file all U.S. income, gift and FBAR reports for the five tax years prior to your exit year. Yes, that includes:

• Form 5471 for foreign corporations
• Form 3520-A for those “benign” overseas trusts
• Crypto gains you forgot in 2020 (the IRS didn’t)

Missing forms? Use the Delinquent International Information Return Submission Procedures (DIIRSP) or Streamlined Foreign Offshore to clean up. Better to pay modest late-filing penalties now than 50 % FBAR fines later.

4. Book Your Consulate Appointment (Citizens) or File I-407 (Green-Card Holders)

Citizens must:

1. Complete State Dept. Form DS-4079 (self-assessment of intent)
2. Pay the US$2,350 renunciation fee
3. Attend an in-person interview—slots can take 3–9 months in crowded consulates

Long-term green-card holders (held GC in ≥ 8 of last 15 years) instead mail Form I-407 to USCIS or hand it to a border officer. It’s free and faster—but it can still trigger exit tax.

5. Crystal-Ball Your Exit-Tax Exposure

If covered, you owe a mark-to-market tax on unrealized gains as if you sold everything the day before expatriation, above a US$821,000 (2024) exclusion. Assets include:

• Worldwide real estate
• Brokerage and retirement accounts
• Shares in closely-held businesses
• Certain deferred comp, 401(k)s and stock options

Tools like a year-end brokerage statement often underestimate cost basis. Get a formal valuation for private companies—IRS Form 8854 leaves zero space for “my best guess.”

6. Pay, Defer or Bond the Exit Tax

You’ve got options:

1. Pay upfront with your final 1040/8854 (cleanest).
2. Installment agreement under Code § 877A(b)(4) with security (5 % interest).
3. Deferral election for deferred compensation, but you must waive treaty benefits.

Choose before filing; amendments are nearly impossible.

7. File Your Dual-Status Return + Form 8854

Due the normal April deadline of the year following expatriation (or Oct 15 with extension). Package includes:

• 1040 covering Jan 1 to day before expatriation
• 1040-NR for the remainder of the year (wages earned abroad)
• Form 8854 statement of net worth and tax liability
• Schedules for mark-to-market gains
• FBAR and Form 8938 if thresholds met

8. Switch Default FATCA Status with Your Banks

Send a W-8BEN to each U.S. bank/broker showing your new foreign status. Otherwise, they’ll keep reporting you as a U.S. Person—raising red flags at the IRS and your new local tax office.

9. Monitor Three “Gotcha” Triggers Post-Exit

1. U.S. Source Passive Income: Still subject to 30 % withholding unless treaty says otherwise.
2. Real Property Interests (FIRPTA): Selling your old rental may require extra withholding.
3. Gift & Estate Tax: Transfers to U.S. persons above $18,000 may be taxed at 40 %.

Keep a U.S. CPA on speed dial for Year 1 abroad. You’ll thank me.

Costs and Timelines at a Glance

Budget a bare-minimum US$10–15k (outside of exit tax itself) for professionals and filings if your affairs are modest. Serial entrepreneurs with illiquid equity? Triple that.

Common Mistakes to Avoid

1. Waiting until December to start. Consulates close, CPAs vanish, interest accrues. Begin 12 months out.
2. Assuming treaty protection beats exit tax. Treaties rarely override § 877A. Don’t rely on them.
3. Ignoring pensions. A vested 401(k) counts toward net worth and exit tax. Lump-sum it or plan a rollover.
4. Undervaluing a startup at “founder’s equity.” The IRS may compare your 409A to recent funding rounds—and slap on accuracy penalties.
5. Forgetting state exit formalities. California’s FTB will chase you for partial-year returns even after federal renunciation. File Form 540NR and cut ties (no CA cars, no CA voter reg, etc.).
6. Bank still thinks you’re American. Failure to send W-8BEN triggers 1099s to IRS, reopening audits you thought were done.
7. Gifting assets the day before leaving. Gifts to U.S. persons above the annual exclusion don’t reduce your net worth test—they’re still counted within 3 years under § 2035.

Bureaucracy Without Pain: My Personal Workflow

I follow the same 9-step flow for every client, whether they’re a crypto whale or a retired teacher:

1. 360° Asset Map – spreadsheets + valuations
2. Five-Year Tax Audit – plug reporting gaps
3. Residency Foundation – visa + foreign bank
4. Net-Worth Stress-Test – covered vs. non-covered
5. Consulate Slot Secured – or I-407 filed
6. Exit-Tax Simulation – pay vs. defer
7. Dual-Status Return Drafted – numbers locked in
8. Bank Status Flip – W-8BEN mailed
9. First-Year Abroad Review – post-exit compliance

Clients who follow this timeline rarely pay penalties. Those who arrive with a carrier bag full of unopened IRS letters… well, let’s just say stress is expensive.

Frequently Asked (but Misguided) Questions

“Can’t I just stop filing U.S. taxes once I move?”
You can also ignore parking tickets. Eventually, compounded penalties cost more than the original problem.

“If I own mainly crypto, the IRS can’t trace me, right?”
Coinbase, Kraken and even Bitstamp now report. Plus, Form 8854 asks explicitly for “other assets” at FMV. Omit at your peril.

“What if I renounce first, then catch up on five years of filings?”
Backwards. You must certify five years of compliance at expatriation. Otherwise you’re automatically covered (and penalized).

Life After Exit: What Changes (and What Doesn’t)

1. No more global income on 1040. Bliss.
2. Still file 1040-NR for U.S. dividends, royalties, rental income.
3. Estate tax drops to US$60,000 exemption if you die owning U.S. shares or property. Plan accordingly with holding companies or local trusts.
4. Banking becomes simpler abroad; FATCA red flags disappear.
5. Travel on ESTA, not a U.S. passport. Keep that in mind for 90-day limits.

Ready for a Smoother Exit?

Breaking up with Uncle Sam can feel like uncoupling from a high-maintenance ex: lots of forms, emotional baggage and the occasional surprise bill. Yet thousands do it each year—quietly, efficiently, and without drama—because they prepare.

BorderPilot distills your visa goals, tax profile and lifestyle priorities into a personalised roadmap, so you never miss a step (or a deadline).

Curious what your own exit could look like? Create your free relocation plan today—and let’s turn that U.S. tax anchor into a paperweight.