Anyone who pays tax in California is likely to think about how nice it would be not to pay the state's 13.3% tax rate. Indeed, there's even a top 14.4% rate in some cases. It can grate when you see your friends and relatives in Nevada, Texas, Florida, Wyoming, Alaska, Tennessee, South Dakota or New Hampshire, where you could just pay federal tax. Washington is generally tax-free too, although it now has a 7% capital gain tax on stock, bonds, etc.

For that matter, even though most states have a state income tax, paying 5% or so is a lot better than 13.3%. In my experience, one of the biggest frustrations many Californians have is that there is no reduced rate for capital gains. Plus, when it comes to perks like the qualified small business stock exclusion that can shield up to $10M or even $15M on certain stock gains from federal taxes, California does not conform to the federal law. You pay full California tax when you sell, no matter what.

Well, unless you move, and many people do move out. U-Haul recently announced that for the sixth straight year, California was the state more people leave than any other. Moving sounds easy, and it can be, although it can also trigger a residency audit in some cases. But if you move properly, after you file your California tax return for the year of your move, you can stop filing California returns altogether. However, if you have California source income, you need to file a nonresident return.

In fact, having some California source income as a nonresident (say a California K-1 or California rental income), can be a good thing if you move away. Filing a nonresident tax return gets the California statute of limitations running, so that four years later, you know you are in the clear. If you simply stop filing California returns, the FTB's statute of limitations never starts to run. There have been some well-known cases in which California audits and makes residency claims many years later.

What if you move out of the country, instead of just out of state? Under the federal tax system, not too much changes if you move abroad. You still must file and pay annually, etc. That is so even if you are paying taxes abroad, although you may be able to claim a foreign tax credit for the taxes you pay elsewhere. You get an extra two months to file beyond April 15, and there are a few other perks. But even if you live abroad for 30 years, the IRS gets its cut.

Isn't there any way to cut this IRS cord? Expats have long lobbied for an exemption from filing IRS returns and paying taxes, but it's a tough sell in Congress. Consequently, the only way to truly get out of the annual IRS filing and payment routine is to give up your citizenship or green card. But most people find that hard to do.

The news that George Clooney secured French citizenship ignited comments between Clooney and President Trump. Clooney is no stranger to politics and fired back after Trump mocked the actor's new French status. Clooney's citizenship came just in time to avoid the new French immigration rules that took effect Jan. 1 and that now require French fluency. His wife Amal is a citizen of the United Kingdom, Lebanon and now also France.

Having multiple citizenships is not uncommon, and there's been no suggestion that Clooney will give up his U.S. passport. He likely already has a complex tax picture, paying tax and filing annual tax returns in both countries. If you are a U.S. citizen, the mere fact that you live abroad--even forever--does not mean that you avoid U.S. taxes or the annual slog to file IRS returns. If you want to stop paying U.S. tax, you have to go a step further and give up your passport or green card.

That can be costly, since the U.S. has an exit tax tied to assets and income that would eat into Clooney's wealth, which is reportedly $500 million or more. If he were to expatriate, he would pay a whopping exit tax. The tax applies only to U.S. citizens and to longer-term (8 years or more) green card holders. The exit tax is like an estate tax on the gain in your assets, even though you are not actually selling anything. It is the IRS's last chance to tax you. Citizens and green card holders leave for many reasons, and they can include the pressures of America's global tax reporting and compliance, including FATCA, the Foreign Account Tax Compliance Act.

The Exit Tax is computed as if you sold all your assets on the day before you expatriated and had to report the gain. Net capital gains can be taxed as high as 23.8%, including the 3.8% net investment income tax that applies to some types of gains. For a time, Congress talked of hiking the exit tax to 30% after Eduardo Saverin of Facebook decamped for Singapore.

Exit Tax triggers

There are three triggers for the Exit Tax, and any one of them will make you a covered expatriate.

1. $2 million net worth?

First, is your net worth over $2 million? This is the aggregate net value of worldwide assets. It is not just your U.S. assets. For a married couple, each spouse's net worth is calculated separately. If they own their assets relatively equally, a married couple could have a total net worth of up to $4 million without triggering the Exit Tax.

If one spouse owns most of the assets, that spouse could be a covered expatriate, even if the other spouse owns significantly less than $2 million of assets. Thankfully, some couples can gift assets to each other to bring both spouses' net worth below $2 million. If the spouse receiving the gifts is a U.S. citizen, these gifts may escape U.S. gift tax.

On the other hand, if the spouse receiving the gift is not a U.S. citizen, spousal gifts may be subject to gift tax even if the spouse receiving the gift is a U.S. green card holder. For 2026, there is an annual exclusion of $190,000 for gifts to non-citizen spouses. If you need to transfer more than that amount to your spouse to bring your net worth to below $2 million, you would have to rely on your unified tax credit to avoid gift tax, or you would need to plan in advance to make the transfers over multiple years before expatriating.

2. Average income tax liability over $211,000

Second, is your average net annual income tax liability over $211,000? This is not your taxableincome, but yourtax liabilityon that income. If you are married and filing taxes jointly, you must use your net tax liability on yourjointreturns, even if only one of you is expatriating. This trigger can sometimes be avoided with careful planning. Filing separate tax returns (not joint returns) often makes sense. As the trigger is youraveragetax liability over the last five years, you may need to file separately for several years before you expatriate.

3. Five years of U.S. tax compliance

The third way you can be a covered expatriate is if you do not (or cannot) certify five years of U.S. tax compliance. If you haven't filed or haven't filed properly--say you didn't report an offshore bank account--you will need to fix that before you are in compliance. Fortunately, you can amend your prior tax returns (and other forms) and simultaneously file an IRS Form 8854 to expatriate. In effect, you sign your Form 8854 last,afteryou've signed the amended tax documents.

What if you trip any of these tests? You need to calculate the Exit Tax. If you arenota covered expatriate, it does not matter. If youarea covered expatriate, the first$890,000of gain is shielded from the Exit Tax for 2025 expatriations. For spouses who expatriate, each spouse files a separate Form 8854, and each spouse can exclude $890,000 of gain (or nearly $1.4 million of gain combined). The Exit Tax on certain assets, notably 401(k) plans, can be deferred.

Thus, you may not have to pay the Exit Tax on the plans' values when you expatriate and would only pay U.S. tax on the 401(k) plan as distributions are made out of the plan. However, the tax on the future distributions is generally 30%, and you cannot claim a treaty benefit to reduce the tax. For most other assets, you can make an irrevocable election to defer payment on the Exit Tax owed. Still, the IRS wants a bond or adequate security for any deferred Exit Tax, and interest accrues until it is paid.

Even if a covered expatriate has less than $890,000 of gain in his or her assets, being a covered expatriate has negative consequences. If you have friends or family in the U.S., being a covered expatriate could result in your gifts to them coming with a tax bill thattheywould have to pay. Even if your Exit Tax may be slight, or you would not owe any Exit Tax (for example, because of the $890,000 gain exclusion), avoid being a covered expatriate if you can. A goal of many expatriating taxpayers is to have a final, clean break from the U.S. tax system.

Certifying five years of tax compliance can be difficult. U.S. taxes are complex, and if you live or have assets abroad, there are extra levels of complexity. You must report your worldwide income, wherever it is generated. And FATCA requires an annualForm 8938filed with the IRS if your foreign assets meet a threshold. Then there are annual foreign bank account reports calledFBARs. They carry big civil and even potential criminal penalties if you fail to file them or file them falsely. The civil penalties can consume the entire balance of an account, so be careful.