How to save on taxes if you’re coming to America
People moving to the U.S., especially those with substantial wealth, need to organize their financial affairs before landing here. For those who plan ahead, there can be significant tax savings. Here are five steps to consider:
1. Know your residency status: While this may seem straightforward, you must understand the exact date you become a resident.
Once you are a U.S. tax resident, you are generally taxed on your worldwide income and gains. The income tax residency rules for those who do not have U.S. citizenship or green card status are based on the number of days you are present in the U.S.
Knowing your residency start date and planning accordingly can help minimize first-year taxes and provide a window to take action prior to actually becoming a resident. It is also important to understand how this impacts your estate and gift tax position. Unlike the income tax residency rules, exposure to gift and estate taxes is determined by your actions. Applying for U.S. citizenship or a green card could expose your worldwide assets to U.S. estate and gift taxes. Moreover, you could also be exposed if you move to the U.S. and your actions imply an intention to remain here indefinitely, such as discontinuing ties with your home country.
2. Consider accelerating or deferring income: If you are moving from a jurisdiction with a lower tax rate than the U.S., consider accelerating the recognition of income — such as dividends paid by closely held foreign corporations or deferred compensation for services performed outside the U.S. — prior to becoming resident. In this way, you avoid being taxed at higher U.S. rates. Conversely, if moving from a jurisdiction with a higher tax rate, consider deferring recognition of the income until after you move to the U.S.
3. Realize gains or losses: While timing of income recognition is limited to those few who have such control, the timing of when you realize capital gains or losses can be wider reaching.
January 16, 2014
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