(Photo by Chip Somodevilla/Getty Images)
Now that Donald Trump has been elected for his second and final term as president, some people are thinking about leaving the country during his imperial reign. Most people who are simply unhappy with the election results will probably change their minds after a day or two.
While Trump is known for his bluster, he has been subject to all kinds of investigations, impeachments, indictments, and even assassination attempts. He claims that he has been unfairly attacked. In some cases, he may be correct. So some of his critics and detractors may want to flee because they genuinely fear government reprisal because of what they did or said.
Others fear that the likely Republican-controlled government will strip civil rights and incite others to harass or persecute marginalized groups.
But leaving the country is not an easy endeavor, especially without proper planning.
First, you need to be able to enter the foreign country legally. Otherwise, it may be difficult or impossible to legally work, obtain a local identification card or driver’s license, have local bank accounts, or even find a place to live. Also, you don’t want to go through their deportation or removal procedures, which may involve jail time.
Tourist visas generally do not allow holders to obtain employment in the country. Instead, an employer must sponsor the applicant for an employment visa. That may require approval from the government before it is issued.
Another way to enter and work in a country legally is to apply for asylum. While each country has its own procedures and requirements for granting asylum, in most countries an applicant must show that he or she will face torture or persecution if forced to return to their home country due to their race, nationality, membership in a group, or their political opinions. Generally being unhappy with election outcomes does not make someone eligible for asylum, even it results in mental health problems.
For those who can work remotely full-time, they may not need to worry about the above. They can simply stay as long as their tourist visa allows before either returning home or moving to another country.
Alternatively, some countries are starting to issue digital nomad visas which generally allow foreigners to reside in the country while working remotely for an employer based overseas. To qualify, most countries require payment of a processing fee, and proof of income. In some cases, after a certain number of years, visa holders can apply for permanent resident status.
If you set up a bank account in a foreign country, you will have to file an annual report known as the Foreign Bank Account Report or FBAR. This is required if your foreign bank account at any time during the year had more than $10,000. The FBAR requires you to disclose the highest balance in the account during a calendar year.
Once you figured out a way to obtain employment, you will have to plan for taxes, which can get quite complicated. Most countries, just like the United States, require payment of income taxes. But the U.S. imposes income tax on a taxpayer’s worldwide income. This could present a possible double tax problem.
Fortunately, U.S. tax law has provisions to minimize or eliminate the potential double tax. The first is the foreign earned-income exclusion which excludes a certain amount of overseas-earned income from U.S. income taxes. To qualify, the taxpayer has to have lived in the foreign country for the entire tax year or at least 330 days in a 12-month period. However, self-employed taxpayers must pay self-employment tax — typically around 15% of net income. For 2024, the maximum exclusion is $126,500 per person.
In addition to the foreign earned-income exclusion, taxpayers living overseas can also take advantage of the foreign housing deduction or exclusion. Generally, this allows taxpayers to exclude a certain amount of housing expenses from taxable income or deduct the cost of housing expenses from taxable income.
To qualify the above income exclusions or deductions, the taxpayer’s “tax home” must be in a foreign country throughout the period of bona fide residence or physical presence abroad. Also, if the employment assignment in the foreign country is temporary, rather than for an indefinite period, the taxpayer will not qualify for the foreign income exclusion provisions.
If the overseas taxpayer either exhausted their foreign income exclusion or does not qualify for the exclusion, the taxpayer’s U.S. tax bill can be minimized with the foreign tax credit. This generally means that income taxes paid to a foreign country can be used as a dollar-for-dollar credit to offset the taxpayer’s U.S. income tax bill. This is particularly useful if the taxpayer lives in a country whose income tax rates are higher than the U.S. This credit is not available for a foreign country’s local income taxes, sales taxes or value-added taxes.
To add an extra layer of complexity, there may be a tax treaty between the U.S. and a foreign country which imposes its own rules or special tax rates.
One last thing to consider: will the grass be greener on the other side? Other countries do not seem to be openly inviting U.S. citizens and residents to immigrate. In fact, it may be the opposite. In March 24, 2023, Canada and the U.S. made changes to its Safe Third Country Agreement. Notably, people who enter Canada from the U.S. to seek asylum will be returned to the U.S. unless a narrow exception applies. Also, Canada has recently tightened its immigration rules because a large influx of immigrants is believed to have created a housing shortage and strained its national health care system.
Also, U.S. citizens working remotely have moved to Mexico City because of the relatively low cost of living and its vibrant atmosphere. But this has angered local residents because it has resulted in locals moving out due to higher housing costs.
While many people are upset with the election results and want to leave the country out of frustration or fear, it is only feasible for a small number to do so. And those who are able to leave may find that their new neighbors may not welcome them with open arms.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at [email protected]. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.