{"id":6125,"date":"2016-10-09T08:00:25","date_gmt":"2016-10-09T12:00:25","guid":{"rendered":"http:\/\/www.escapeartist.com\/?p=5663"},"modified":"2020-09-17T09:24:15","modified_gmt":"2020-09-17T14:24:15","slug":"pre-immigration-us-tax-planning-future-us-residents-citizens","status":"publish","type":"post","link":"https:\/\/www.escapeartist.com\/blog\/pre-immigration-us-tax-planning-future-us-residents-citizens\/","title":{"rendered":"Pre-Immigration US Tax Planning for Future US Residents &amp; Citizens"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">If you\u2019re moving to the United States, get ready for our crazy tax system. Most importantly, <\/span><span style=\"font-weight: 400;\">if you will become a US resident, be prepared for US tax on your worldwide income<\/span><span style=\"font-weight: 400;\">. You need to do your pre-immigration US tax planning <\/span><i><span style=\"font-weight: 400;\">before <\/span><\/i><span style=\"font-weight: 400;\">you arrive to minimize these taxes. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Let me begin by defining what I mean by a US \u201cresident.\u201d Then I\u2019ll review your pre-immigration tax planning options and what you need to do NOW before landing in the United States. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The United States taxes its citizens and it\u2019s green card holders on their worldwide income. It doesn\u2019t matter where you live or where your business is located. So long as you hold a blue passport or a green card, you will pay US tax any income you earn. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Likewise, the US taxes its residents on their worldwide income. <\/span><b>A US resident is anyone who spends 183 days or more in the US in a calendar year<\/b><span style=\"font-weight: 400;\">. If you spend more than 183 days in one year, and then fewer days the next year, you might be a US resident for both years because a weighted average is used to determine residency. <\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">I won\u2019t bore you with the details of how to calculate the average. Suffice it to say, if you spend significant time in the United States, Uncle Sam wants his cut.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">A US tax resident is ANYONE who spends 183 days a year in the country. Even if you are here on a tourist visa, or illegally, you are a tax resident and expected to pay US tax on your worldwide income. Your legal or immigration status is separate from your tax status.<\/span><\/p>\n<p><b>US Pre-Immigration Tax Planning Techniques<\/b><\/p>\n<p><span style=\"font-weight: 400;\">If you plan to become a US resident, green card holder or citizen, <\/span><i><span style=\"font-weight: 400;\">you need pre-immigration tax planning before you move to the Americ<\/span><\/i><span style=\"font-weight: 400;\">a. Some of these strategies require you to plan years in advance. So, if you are working towards residency in the United States, stop and think about taxes NOW. <\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">Minimizing US Tax on the Sale of a Foreign Business<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">When you sell a foreign business after you become a US resident, you pay US tax on the gain from that sale. This means you\u2019ll pay US tax on all of the appreciation and value that has accrued in your business over the years.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example, let\u2019s say you started a business in Hong Kong 10 years ago. You invested $100,000 and now the business is worth $1 million. You move to the US and sell this Hong Kong company the following month. The IRS expects you to pay US capital gains tax on $900,000. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Obviously, the simple way to avoid this tax is to sell your business before you move to the United States. I suggest you sell the business and then wait a month or two before traveling to the United States to make sure there are no issues. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">But, what if you\u2019re not ready to sell today? What if you want to move to the United States for a year or two and then sell? Serious planning and US filings are required to minimize your US tax obligations. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">You can basically sell the business to yourself by making certain elections in the United States for your Hong Kong business. By converting the business from a corporation to a partnership or disregarded entity, you are selling it to yourself for US tax purposes. Do this before moving to the US, and you will have no US taxes due on the phantom sale. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Then, when you sell the company again in one or two years, you will only pay US tax on the appreciation in value from the day you sold it to yourself. This is called Stepping Up Basis. Here\u2019s an example: <\/span><\/p>\n<p><span style=\"font-weight: 400;\">You plan to move to the United States on January 15, 2017. So, you file forms with the US IRS to treat your Hong Kong company as a partnership on December 15, 2016. \u00a0This triggers a sale of the assets to you, but no tax is due in the US because you are not a US resident for tax purposes. The value of the business on December 15, 2016 is $900,000. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Then, on December 15, 2018, you sell the business for $1 million dollars to a third party. <\/span><span style=\"font-weight: 400;\">Because of the pre-immigration tax planning you did along the way, you will only pay US tax on the $100,000 of appreciation that accrued from December 15, 2016 to December 15, 2018<\/span><span style=\"font-weight: 400;\">. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Another business income tax planning tool is to recognize as much income as possible before you move to the United States. You pay yourself as much in salary and bonuses as possible to deplete the value of the Hong Kong company before you move to the United States. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Note that salary from a foreign corporation will be taxed at about 35% Federal plus your State (maybe 12%). So, taking as much in salary before moving to the US can save you big time. Even if it requires borrowing money from banks or other sources, accelerating your income can be beneficial.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2><strong>Offshore Trusts in Pre-Immigration Tax Planning<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">When you move to the United States, you need to worry about business tax, personal income tax (salary and capital gains) and death taxes. High net-worth residents pay a tax on the value of their worldwide assets when they pass away. <\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">United States death tax applies to residents, green card holders and citizens with assets of more than $5.45 in 2016 and the tax rate is 35% to 40%. <\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">You can minimize or eliminate the US estate tax by giving away your assets <\/span><i><span style=\"font-weight: 400;\">before <\/span><\/i><span style=\"font-weight: 400;\">you move to the United States. Most transfers after you become a resident will be subject to US gift tax, which is 40% plus your state. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">This form of pre-immigration tax planning can also reduce your US personal and business income taxes. If you give your assets to family who will not be residents of the United States, America can\u2019t tax those assets when sold or as business income is generated. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Most clients want to maintain control over their assets while they are alive. They don\u2019t want to pay US income or estate taxes, but they do want to manage the assets or business for the benefit of their heirs. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">This is where offshore trusts come in to pre-immigration tax planning. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">When you setup an offshore trust to manage your assets, they\u2019re removed from your US estate and the death tax doesn\u2019t apply. Also, gains or income from these assets can be removed from your US income tax <\/span><i><span style=\"font-weight: 400;\">if you plan ahead<\/span><\/i><span style=\"font-weight: 400;\">. <\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">If you set up and fund an offshore trust at least 5 years before becoming a US resident, the income generated in that trust will not be taxable to you in the United States.<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">Thus, if you are thinking about becoming a US resident, or moving to the United States is a possibility (even a remote possibility), you would do well to create an offshore trust and engage in some pre-immigration tax planning now. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you can\u2019t meet the 5 year threshold, there are several benefits to creating an offshore trust before moving to the United States. For example, an irrevocable offshore trust can reduce transfer tax, estate \/ death tax, and protect your assets from creditors. Considering that the United States is the most litigious nation on earth, asset protection is an important part of pre-immigration planning.<\/span><\/p>\n<p><strong>I hope that you have found this information on pre-immigration tax planning to be helpful. For more information, and to consult with a US attorney experienced in these matters, please <a title=\"contact us\" href=\"https:\/\/www.escapeartist.com\/contact\/\" target=\"_blank\" rel=\"noopener noreferrer\">contact us <\/a>here.\u00a0<\/strong><\/p>\n<p><strong>For a great read on all things offshore, please read: <a title=\"The Ultimate Guide to Going Offshore\" href=\"https:\/\/www.escapeartist.com\/blog\/ultimate-guide-to-going-offshore\/\" target=\"_blank\" rel=\"noopener noreferrer\">The Ultimate Guide to Going Offshore<\/a>. You&#8217;ll learn so much!<\/strong><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you\u2019re moving to the United States, get ready for our crazy tax system. Most importantly, if you will become a US resident, be prepared for US tax on your worldwide income. You need to do your pre-immigration US tax planning before you arrive to minimize these taxes. Let me begin by defining what I [&hellip;]<\/p>\n","protected":false},"author":686,"featured_media":31379,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","om_disable_all_campaigns":false,"footnotes":"","_jetpack_memberships_contains_paid_content":false},"categories":[1401],"tags":[],"yst_prominent_words":[1977,15010,15007,15013,15012,2373,15006,15004,15002,16555,15009,2811,15005,15003,15011,2409,15008,5993,2411,1804],"acf":[],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/www.escapeartist.com\/wp-content\/uploads\/2016\/10\/income-tax-4097292_1280.jpg","_links":{"self":[{"href":"https:\/\/www.escapeartist.com\/wp-json\/wp\/v2\/posts\/6125"}],"collection":[{"href":"https:\/\/www.escapeartist.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.escapeartist.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.escapeartist.com\/wp-json\/wp\/v2\/users\/686"}],"replies":[{"embeddable":true,"href":"https:\/\/www.escapeartist.com\/wp-json\/wp\/v2\/comments?post=6125"}],"version-history":[{"count":6,"href":"https:\/\/www.escapeartist.com\/wp-json\/wp\/v2\/posts\/6125\/revisions"}],"predecessor-version":[{"id":41812,"href":"https:\/\/www.escapeartist.com\/wp-json\/wp\/v2\/posts\/6125\/revisions\/41812"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.escapeartist.com\/wp-json\/wp\/v2\/media\/31379"}],"wp:attachment":[{"href":"https:\/\/www.escapeartist.com\/wp-json\/wp\/v2\/media?parent=6125"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.escapeartist.com\/wp-json\/wp\/v2\/categories?post=6125"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.escapeartist.com\/wp-json\/wp\/v2\/tags?post=6125"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.escapeartist.com\/wp-json\/wp\/v2\/yst_prominent_words?post=6125"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}