Pre-immigration Tax & Estate Planning

Pre-immigration Tax Planning

In the midst of making the move to the United States, many forget one very crucial aspect of the transition to the United States. That is, U.S. taxation and the process of pre-immigration tax planning. The key to effective pre-immigration tax planning is to do it BEFORE you come to live or work in the United States or become a Legal Permanent Resident (LPR).

The Intersection Between Your Immigration Status and Your Tax Payer Status

Generally, taxation in the U.S. is based on an individual’s worldwide income, unless an exception applies. There are three ways in which individuals become liable for U.S. taxation.

  1. As U.S. Citizens or through an election to be taxed in the U.S.
  2. As Resident Aliens (LPRs or Green Card Holders)
  3. As Non-Resident Aliens through the Substantial Presence Test or if stipulated by statute or in a Treaty
    • Treaty: When an individual is neither a U.S. citizen or an LPR, then an applicable income tax treaty between the U.S. and the treaty partner country determines how the individual will be taxed. There is a sequence of analysis to determine taxation.
      1. Did the individual properly claim to be a U.S. resident under domestic U.S. tax law?
      2. Did the individual properly claim to be a resident of the treaty partner?
      3. If the individual is a dual resident of the U.S. and the treaty partner, then apply the treaty Tie-Breaker Rules.
        1. The existence and location of a permanent home
        2. The center of vital interests
        3. The individual’s habitual abode
        4. Nationality

          The I.R.S. reviews each factor in order until one factor can be attributed to one of the countries. However, if all factors still indicate dual residency without an a conclusion about the individual ties to one country more than the other, then the tax authorities in the U.S. and the treaty partner country must hash it out to determine who will tax the individual.

    • Substantial Present Test: When there is no applicable income tax treaty involved then taxation is determined through the Substantial Presence Test.
      If you have substantial presence in the United States for over a certain number of days within a calendar year, then the individual, which includes a non-resident alien, may be liable for U.S. taxes. If the number of days falls under a certain number, then there may be no tax liability.
    • Other Immigration Status: Having a certain immigration status may exempt you from taxation on worldwide income. For example, as a Student with a Student Visa you’ll only be responsible for taxation on U.S. source income and not on worldwide income. Therefore, if you are a student living and studying in the U.S., and you make millions of dollars in income in your foreign home country, you won’t pay any taxes on that foreign income. The same benefits may be accorded to close family of the foreign student such as the spouse.

If you are moving to the United States from another country, you should consult a tax attorney to receive the advice you need to determine whether or not you’ll be liable as a U.S. tax payer, how to be compliant and how to save on your tax bill before to arrive.

Becoming a U.S. Permanent Resident and Taxation

As a non-resident alien, U.S. taxation on your income depends on your personal circumstances under each of the tests explained above. However, as a U.S. permanent resident, there is no doubt that you are liable for U.S. taxes on your worldwide income from day one (1) of your permanent residence. Day one (1) may just mean the day you receive your LPR status at a U.S. embassy abroad. This means you’ll have to disclose and pay taxes on your total income around the world, whether from a foreign job, foreign business or company or other foreign source. The tax rate is as high as 37 percent. This is why it is crucial to complete your tax planning and execution before you receive LPR status. There are certain strategies to reduce tax liability before becoming an LPR.

Pre-immigration Tax Planning Strategies Before Becoming a U.S. Tax Payer:

There are ways to reduce your tax liability on income and assets before you become a U.S. tax payer. Below are some strategies. However, these strategies must only be undertaken under the guidance of a tax attorney, CPA or qualified tax professional.

  • Look for an exception or an exemption: An exception may be within a Treaty, the Substantial Presence Test or Immigration Status (e.g. student visa beneficiaries).
  • Basis Step Up: Sell assets with gain or restructure your company for U.S. tax purposes before becoming a U.S. tax payer. This includes selling assets or conducting a tax transaction to ensure the basis of the asset equals the value of the asset on the day you become a U.S. tax payer.
  • Accelerate Income: The income should be paid before becoming a U.S. tax payer. Therefore, this money would have already been earned before becoming a U.S. tax payer. Examples of income to accelerate include corporate shares or partnership gains, pension plans, stocks and bonds, prepaid interest, dividends and annuities.
  • Defer Losses: Perhaps losses from an asset or business can be deferred to offset income in the U.S. Therefore, delay the sale of assets at a loss until after becoming a U.S. tax payer.
  • Defer the payment of deductible payments: Use deductible expenses after you’ve entered the United States.

Pre-immigration Estate Tax Planning

Non-Resident Aliens are subject to US estate and gift taxation on certain US assets, also at a maximum tax rate of 40% but with an exemption of $60,000, which is only available for transfers at death. Obtaining a green card is one way to establish US residency. This can amount to a substantial tax bill on your high value assets. It is important to determine ways to avoid this hefty tax bill through effective and legal tax planning strategies.

In addition to the practice of Business, Employment and Family Immigration Law, ST Law ensures clients take effective measures to comply with U.S. tax laws while saving them unnecessary tax liability. Call 561.405.4889 to speak with the Attorney and to schedule a consultation or go to

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