By Lynn Eller, CPA, APCIT, PFS

Pre-immigration tax planning begins with assessing the potential international tax implications of relocating and ultimately structuring the most advantageous decisions along the way.

Goals for Pre-immigration Planning

The goal of pre-immigration planning is to minimize exposure to U.S. federal and state tax by leveraging informed strategies while properly interpreting existing tax laws and regulations.

Simply becoming aware of potential tax implications before making a move can avoid costly mistakes and enable the following benefits:

• minimize worldwide tax on income;
• comply with complex international reporting requirements; and
• simplify annual S. federal and state tax filings.

Pre-residency Considerations

In the U.S., taxation of foreign income and the reporting of foreign assets are unique and not typically similar to systems in other countries. As such, it’s important to understand the U.S. tax treatment of your worldwide investments prior to the move.

First, it’s critical to understand when you are classified as a U.S. tax resident. This designation occurs if you are a:

• S. citizen (by either birthright or naturalization), or
• S. resident alien by way of either
  • obtaining a S. green card, or
  • meeting the Substantial Presence Test. You meet the test if you are present in the U.S. for at least 31 days during the current year, and at least 183 days when counting all days in current year, 1/3rd of the days in the first preceding year, and 1/6th of the days in the second preceding year.

Next, it’s important to understand that U.S. tax residents reports worldwide income on an annual tax return regardless of where they live. Therefore, citizens and green card holders will file annual U.S. tax returns even after they move back overseas.

Pre-residency strategies include:

• establishing asset protection structures to reorganize existing wealth;
• accelerating sales of appreciated assets when foreign country tax rates are lower;
• divesting certain assets that have unfavorable S. tax regimes; and
• deferring S. residency start date.

Income Tax Planning Strategies

Laws governing international taxation and reporting are constantly evolving. As such, understanding the many complex tax filing and reporting requirements that apply to foreign assets, transactions, and income helps to ensure informed financial decision making.

Some key planning strategies for immigrants include:

• Establish charitable vehicles that may qualify for favorable tax treatment in the S. and abroad.
• Analyze S. income tax treaties to reveal opportunities to accomplish the following:
• reduce or eliminate the tax on certain portions of income;
• re-source income to avoid double taxation;
• understand retirement plan tax implications in S. and home country; and
• interpret rules to accurately determine S. tax residency status.
• Understanding the elections and options to mitigate the unfavorable S. tax regimes for investments in:
• controlled foreign corporations (“CFC”), and
• passive foreign investment companies (“PFIC”).
• In general, shareholders are not taxed on a corporation’s earnings until such earnings are distributed as a dividend. However, U.S. anti-deferral rules applicable to CFCs and PFICs can override the general This may cause U.S. tax residents that own CFCs and PFICs to be taxed on corporate earnings even before receiving a distribution or taxed at more punitive rates.

Learn More

Proactive pre-immigration tax planning can mitigate immediate tax burdens and establish a foundation for long-term wealth preservation by ensuring seamless integration into the U.S. for individuals and their families.

Our experienced international tax team can provide valuable guidance to ensure compliance with all international tax obligations while also uncovering opportunities to minimize the tax burden. Contact us today.