If you are a foreign person and thinking in emigrating to the U.S., the land of opportunities, the first thing that must come into your mind is to look for an immigration attorney. Many people disregard how important is to understand what really means to achieve the American Dream. One important thing that you need to know is that you will have some type of taxes that you may never imagine. I am from Peru and when I came to Florida the shock, I had to learn about gift taxes, or that you will pay taxes on your worldwide assets and/or income. With proper planning, the income tax, gift and estate taxation of immigrants can be significantly minimized.
First things first: The tax system in the U.S.
U.S. citizens and residents who are subject to taxation on their international income and assets, especially those who are more familiar with the territoriality principle or “source country” taxation, can be surprised by the tax implications of residing in the U.S. In that note Florida is an attractive destination for high-net-worth individuals. Among other things, Florida does not impose state or local income tax on individuals. This contrasts with many other states.
While the need for timely pre-immigration tax planning may not be evident to a foreigner considering moving to the United States, failing to plan until it is too late may have extremely costly tax consequences. Conversely, some foreigners have been pleasantly surprised to learn that, with proper planning, their exposure to U.S. taxation is less intimidating than they had initially expected (particularly compared with the laws of their home country).
All tax planning for an immigrant starts with determining when the immigrant becomes a U.S. resident alien for tax purposes (“U.S. tax resident”). This is the day the immigrant becomes subject to the U.S. tax regime. Having determined the residence start date, the focus shifts to how the United States will tax the NRAs (“Nonresident Aliens”) pre-immigration planning transactions.
There are generally four tax planning objectives that an immigrant may wish to accomplish prior to the resident start date: (1) recognize capital gains and step-up basis; (2) accelerate income; (3) defer deductible expenses; and (4) transfer assets to foreign trusts.
1 – Recognize capital gains and step-up basis: On a sale of a capital asset, the United States will tax the difference between the sale price and the tax basis (the acquisition cost, subject to possible adjustments). The burden falls on the immigrant to establish the tax basis, and if the immigrant cannot establish a basis, it will be presumed to be zero.
2 – Accelerate income: If you’re a person who is not a U.S. resident (NRA), any money you make outside the U.S. before becoming a U.S. resident isn’t subject to U.S. taxes. It’s a good idea for nonresidents to earn income before they officially become U.S. residents.
3 – Defer deductible expenses: If you’re a non-U.S. resident (NRA) and you own assets that have lost value since you bought them, selling or swapping these assets before you become a U.S. resident can help adjust the tax basis (the original cost for tax purposes) to the current lower value. It’s a good idea to keep proof of the initial cost. By doing this, you can save these losses and use them later when you are a U.S. taxpayer to offset any money you make (ordinary income and capital gains).
4 – Transfer assets to foreign trusts: The United States taxes NRAs only on U.S.-source income and imposes an estate tax only on U.S.-sited assets. For these reasons, funding a foreign trust prior to the residence start date is a significant pre-immigration tax planning too.
Planning before immigrating to the U.S. can help immigrants significantly cut down on U.S. income and estate taxes. This is typically achieved through various strategies. It’s crucial to consider the tax laws of the immigrant’s home country as well. The goal is not just to reduce U.S. taxes but to ensure that the overall tax burden, including taxes in the home country, is minimized. If you are planning to move to the U.S. and need assistance, don’t hesitate to book a 15-minute session here.
