The Tax Ramifications of Becoming a US-Citizen
Resident foreigners (or “aliens” in US legal parlance) who are considering becoming a US citizen should weigh the advantages and disadvantages also from a tax point of view.
The first noticeable tax consequence is that US citizens have to file tax returns (and
potentially pay taxes) on their worldwide income if that exceeds a low threshold, even if they live outside the United States. US citizens who live in high-tax countries will probably not have to pay taxes in the United States; the obligation to file complicated yearly returns is still burdensome.
From an estate and tax planning standpoint the advantages of becoming a US citizen are significant:
Unlimited Marital Tax Deduction
There is no tax levied on assets that pass to a spouse who is a US citizen either as a gift or inheritance.
High Federal Estate Tax Exemption
Federal estate tax exemption for non-citizens is a meager USD 60,000. If the decedent had become a US citizen before death, his estate enjoys the exemption of currently USD 11.2 M.
Portability means that the estate of the spouse to die last can benefit from the unused portion of the federal estate tax exemption of the spouse that had died first.
The tax advantages of becoming a US citizen are likely to increase under the Trump administration.