The Tax Implications of US Immigration
Moving to the United States has a number of important tax implications, some more obvious than others. The implications of becoming a U.S. tax resident include:
- Federal and state income tax implications
- U.S. tax compliance implications (U.S. income tax returns)
- State and local tax compliance implications (state tax returns)
- Gift and estate tax implications
In this blog, we focus on some examples of tax planning methods available to U.S. immigrants in order to help minimize the impact of transitioning to the U.S. system of worldwide taxation.
Below is a very brief description of some of the more common methods:
Acceleration of Income Prior to Immigration
This involves the realization of income, to the extent possible, prior to immigration, so that such income will not be subject to U.S. federal income taxation. Generally, this involves collecting outstanding amounts that may be due for personal or other services.
Also, if you own a profitable company, you can have the company distribute its accumulated earnings prior to the immigration year.
“Basis Step Up” For Appreciated Assets
This involves reducing or eliminating the difference between the individual’s tax basis and fair market value in each of his assets prior to immigration, so that, among other things, the sale of such assets will not result in a taxable gain for U.S. tax purposes.
Methods used to accomplish this include the sale and repurchase of foreign property and the actual or deemed liquidation of foreign companies.
Gifts to Family Members Before Moving to the US
Similar to a sale, another method of minimizing the effects of the U.S. system of worldwide taxation would be to gift any non-U.S. assets to other people prior to moving to the United States. The form of consideration could be either a cash or a note.
CFC/PFIC/GILTI Tax Planning
Individuals should consider reducing or otherwise restructuring their interests in foreign corporations so as not to run afoul of the CFC or GILTI anti-deferral provisions. These provisions are designed to prevent the deferral of U.S. taxation via low-taxed foreign companies.
You should also consider selling your interests in PFICs, unless certain U.S. tax elections are available, to avoid the onerous default PFIC rules.
How We Can Help
Please keep in mind that the above list does not nearly include all of the different options available when it comes to pre-immigration tax planning.
If you are interested in immigrating to the United States and would like to manage your tax planning, please contact Expat Tax Professionals and we will be happy to assist you and review your situation.