My Letter to Meghan Markel
Dear Ms. Meghan:
Congratulations on your engagement and finding love! I’m certain you are very excited and looking forward to settling into married royal life. However, there is something we need to have a serious discussion about. It’s not what your royal title will be or what color the bridesmaid’s dresses will be. It’s taxes.
I do not intend to rain on your parade or distract you from the excitement of your upcoming wedding. But taxes are not to be taken lightly…and more so when you are marrying into royalty. As an American citizen living in Canada for the past few years, you are likely already familiar with the filing requirements for non-resident taxpayers. You know that you still have to file and pay federal income tax even when you are not residing in the US. That is a very old requirement that relates back to the US’s citizenship-based taxation (CBT) system. See my previous post on CBT here.
For 2018, the foreign earned income exclusion is set to $104,100. I heard you have hung up your acting career once you became engaged. I’m not sure if you will be undertaking any paid employment in 2018 while living in the UK. If you do, you will be able to exclude $104,100 of it from your taxable income.
Where it becomes tricky is now that you will be married in 2018, Mr. Windsor’s financial information will be included on your joint tax return. Filing the FBAR and Form 8938 (Statement of Specified Foreign Financial Assets) will now include assets, including trusts, owned or controlled by your betrothed. Prince Harry’s income will be included on your Form 1040. If you are living rent free at Nottingham Cottage, this will need to be reported as a gift…as will any other gift given to you by the Queen or by virtue of your status as a member of the royal family. All your British bank accounts will need to comply with FATCA. which will share your account information with the IRS.
I suspect the royal family isn’t too keen on having their financial affairs shared with the US government.
Two options are available for you. One you can exercise immediately. The other will take some patience and waiting a few years.
First, you could file a Married Filing Separately (MFS) 1040 for 2018. This would eliminate the need for Prince Harry to have to disclose earnings or assets. This comes with a downside though. You may have an increased tax burden from filing MFS. Perhaps you can smile sweetly and ask Prince Harry to help with the increased tax liability.
Second, you can renounce your US citizenship. This, and death, are the only two ways to get out of paying income tax and reporting to the IRS. This option should not be taken lightly. Once you renounce, that’s it…no going back. If you want to ever regain citizenship later, you must get in line with everyone else looking to naturalize. No special rules or breaks for those formerly known as US citizens. Additionally, there is an exit tax due on your assets when you renounce. This tax could be as high as 20% if you meet certain requirements like having over $2 million in world-wide assets.
I hope you have already started these discussions with your future husband. I’m certain you will hire highly competent tax lawyers and accountants to help you navigate this windy road. All the best.
Kindest Regards, Melissa
PS: My wedding invitation still hasn’t arrived. Feel free to email it to me at: firstname.lastname@example.org