Being a high net worth individual allows you to see and do more than you ever dreamed of, but it also produces a number of issues which can require detailed planning. Moving your assets into the US can often feel confusing and overwhelming, and it can be a stressful and time-consuming process if done incorrectly. Our goal is to show you that by using years’ of experience we can take care of the basics with ease, and then spend our time on the complex issues that make all the difference to your quality of life.
We Avoid Every Gray Area
Gray areas are something we always avoid: clarity is the name of the game when it comes to the complex issue of cross-border taxation. Just because something isn’t prohibited doesn’t necessarily mean it’s a good idea, which is why we use a proven approach to get all the basics in order. Once you have a solid foundation, it’s then much more straightforward to fine tune everything else.
Planning For Any State-Specific Taxation
The state you move to can have a significant impact on how your assets and estate will be taxed. By building your pre-planning stage on a foundation that takes care of these all-important details from day one, we can create the robust, flexible solution you need for peace of mind.
Take California for example: residency for tax purposes is determined under rules which are completely different from those used for U.S. Federal income tax purposes:
You will be considered a resident if you live in California for any purpose other than transitory or temporary, and this will remain in effect should you be outside of California for a temporary or transitory purpose of any kind
If you are present in California for more than 9 months a year, you will be presumed to be a resident of California, and there will be a non-conclusive presumption of non-residence if you are present in California for 6 months or less in a given year
It’s also important to note that the U.S. income tax treaties do not constrain a state to impose tax on income derived within said state.
Explaining Transitional Income Tax
Transitional taxation is an area that many organizations drastically overcomplicate, and we’ve never understood why. For us, it’s all about getting the basics right so we can focus on the complex fine details, so that’s exactly what we do here. The year you make the move is effectively split into 2 tax years by the date of your arrival.
Any individual changing residency during a tax year will be referred to as a ‘dual-resident alien,’ and this is different from the dual residency found under U.S. income tax treaties which covers individuals resident in two places at the same time.
You will only be taxed on your U.S. source income that can be shown to be accurately connected with trade and business with and within the U.S. during a period of nonresidency, but will be taxed on global income during U.S. residency
It should also be noted that income from employment outside of the U.S. is only exempt from U.S. taxation before the residency period begins.
Sales of property will be taxed at the time of sale, which makes it important to take a strategic approach to the sale of assets.
Dual-status alien married to a U.S. resident, or citizen, has the option to be taxed as a resident alien for the full tax year of arrival. This can be under IRC 6013(h) where you will be treated as a resident of the U.S. for the entire year, or under IRC §6013(g) whereby you will also be treated this way for all years going forward in perpetuity, provided there is no chance to your or your spouses residency/citizenship.
This means that your liabilities for the first year can vary significantly from what they will be going forward in perpetuity. Our job is to make this distinction clear to you, and to create a solution that works both for the first year, and every year going forward.
Clarifying the Impact of Being a US Resident
We’ve seen many people overcomplicate the decision of whether or not to become a US resident, and others who adopt a one size fits all approach. By making everything as simple as possible for you to digest, we clearly lay out your financial arrangements if you were to become a US resident. Whilst finding the right solution for you is a highly specialist skill, the result we produce is a simple side-by-side comparison that allows you to see your options.
Outlining the Outcomes of Remaining a Nonresident
We do exactly the same for those of you considering remaining nonresidents. Our goal is never to force you towards a particular solution we feel comfortable executing; it’s to show you what your options are in the simplest terms possible.
Maintaining nonresidency for U.S. federal income tax purposes means you must:
Not obtain a green card
Not be present in the U.S. for more than 182 days per year
Maintain closer ties to a foreign country
Or obtain a green card, but qualify as a dual resident of two countries at the same time for tax purposes
In the case of the last point, a tie breaker will be involved which will require you to demonstrate in which country you have a permanent home available to you. In such instances where this applies to both countries, you will deemed to be a resident of the country with which you have the closest economic and business ties: your center of vital interests. If the tie cannot be broken with this, or by determining the place of your ‘habitual abode,’ you will be deemed a resident of the country you are a citizen of.
If you are pursing this path it is strongly advised to look into:
Life insurance to cover any U.S. estate tax liability
Mortgaging out any equity in U.S. property which cannot be transferred to a holding corporation
Shifting value to future owners by using partnerships such as LLCs to create ‘frozen interests’
Creating a fail-safe foreign trust to hold shares in the holding company