Pre-Immigration Tax Planning

Immigration Status and Tax Residency Are Not the Same Thing

Someone planning to move to the United States may naturally think about residency primarily as an immigration question.

Tax law uses a different framework.

A person can become a U.S. resident for federal tax purposes by satisfying either the green card test or the substantial presence test. The substantial presence test generally looks at the number of days spent physically in the United States during the current year and the two preceding years under a weighted formula.

That distinction matters because the tax consequences of becoming a U.S. resident can begin before someone thinks of the United States as their permanent home.

Once U.S. tax residency begins, the analysis changes significantly.

U.S. Tax Residents Are Generally Taxed on Worldwide Income

A U.S. tax resident is generally taxed in the same manner as a U.S. citizen for federal income tax purposes, including taxation of worldwide income. That can include income earned outside the United States as well as income from U.S. sources.

For someone whose financial life is entirely within the United States, that concept may be straightforward.

It becomes much more important for an international business owner, investor, executive, or family with assets abroad.

A person may own a foreign company, receive dividends from an overseas investment account, hold rental property in another country, maintain foreign bank accounts, or participate in foreign trusts or other entities. Once U.S. tax residency begins, those interests may create U.S. tax and reporting obligations even though the assets remain outside the United States.

The issue is not simply where the money is located.

It is whether U.S. tax law now applies to the person who owns it.

Timing Matters Before U.S. Tax Residency Begins

Pre-immigration tax planning is most useful before U.S. tax residency has already started.

Once a person becomes a U.S. tax resident, certain transactions involving foreign companies, investments, trusts, appreciated assets, or other property may have different consequences than they would have had beforehand.

That does not mean every asset should be sold or every structure should be changed before moving to the United States. It means there is value in reviewing what exists before the U.S. tax rules begin applying more broadly.

For some individuals, the planning may involve determining when U.S. tax residency is expected to begin. For others, it may involve reviewing whether a sale, restructuring, distribution, transfer, or other transaction should occur before or after that date.

The right answer depends on the facts.

The Substantial Presence Test Can Create Residency Before a Green Card Does

One of the more common misconceptions is that U.S. tax residency begins only when someone receives a green card.

That is not necessarily true.

A foreign national can become a U.S. tax resident by meeting the substantial presence test based on days physically spent in the United States. The IRS generally requires presence for at least 31 days during the current year and 183 weighted days over the current year and two prior years.

For frequent travelers, executives, investors, and family members who spend significant time in the United States before formally immigrating, those day counts can become important.

Someone may still view themselves as living primarily abroad while U.S. tax law reaches a different conclusion.

This is why travel history should be part of pre-immigration planning.

A Green Card Can Also Trigger U.S. Tax Residency

A lawful permanent resident is generally treated as a U.S. resident for federal tax purposes under the green card test. The IRS states that tax residency under this test generally continues until permanent resident status is formally abandoned, revoked, or otherwise terminated under the applicable rules.

For individuals pursuing permanent residence, the tax consequences therefore need to be considered alongside the immigration timeline.

The date someone becomes a permanent resident can affect when worldwide income begins to fall within the U.S. tax system.

That timing can matter when the person owns appreciated assets, foreign companies, investment accounts, trusts, or other property outside the United States.

Foreign Bank and Investment Accounts May Create Reporting Obligations

Foreign accounts do not stop existing simply because their owner moves to the United States.

Once a person becomes subject to U.S. reporting rules, those accounts may need to be disclosed.

For example, an FBAR may be required when a U.S. person has a financial interest in or signature authority over foreign financial accounts with an aggregate value exceeding $10,000 at any time during the calendar year. Certain taxpayers may also need to file Form 8938 for specified foreign financial assets when the applicable reporting thresholds are met.

The reporting rules can extend beyond ordinary bank accounts.

Foreign brokerage accounts, certain business interests, foreign trusts, and other financial arrangements may create additional U.S. reporting obligations depending on the structure involved.

For someone who has accumulated wealth internationally, identifying those accounts and entities before the move can make future compliance significantly easier.

Foreign Business Ownership Deserves Special Attention

Many people immigrating to the United States do not leave their businesses behind.

A founder may continue owning a company in Latin America, Europe, or another region while establishing residence in the United States. An executive may own shares in several foreign companies. A family may hold operating companies and investment entities through structures that were created years earlier under another country’s tax laws.

Those structures may have worked perfectly well before U.S. tax residency.

The U.S. tax system may treat them differently.

Foreign corporations, partnerships, disregarded entities, and other structures can create U.S. tax and reporting issues that did not exist before the owner became a U.S. tax resident.

For business owners, pre-immigration planning should therefore include more than personal income.

The ownership structure itself may need to be reviewed.

Foreign Trusts, Gifts, and Family Wealth Can Become More Complicated

International families often use trusts, foundations, holding companies, and other structures for estate planning, succession, asset management, or family wealth.

Those structures can create additional reporting obligations once a beneficiary, grantor, owner, or other involved person becomes subject to U.S. tax law.

The IRS specifically notes that U.S. residents may have filing obligations involving foreign trusts and certain gifts from foreign persons, including Forms 3520 and 3520-A in applicable circumstances.

This is an area where assumptions based on another country’s tax system can be especially risky.

A structure that is straightforward abroad may be treated very differently under U.S. law.

Reviewing that structure before immigration can help identify issues while there is still time to consider alternatives.

Appreciated Assets May Be Worth Reviewing Before the Move

Someone moving to the United States may own property, securities, business interests, or other assets that have increased significantly in value.

Those assets may have been purchased years or decades before U.S. tax residency begins.

Once the person becomes a U.S. tax resident, a later sale can create U.S. tax consequences based on the applicable rules and the person’s basis in the property.

That does not mean appreciated assets should automatically be sold before immigration.

It does mean the potential consequences should be understood before the residency date passes.

For some clients, reviewing basis, holding structure, likely future disposition, and expected timing is an important part of the planning process.

Estate and Gift Tax Planning May Also Change

Income tax is only one part of pre-immigration planning.

For individuals with substantial wealth, U.S. estate and gift tax considerations may also become relevant depending on domicile, citizenship, residency, the location of assets, and the structure of the estate.

Those rules do not necessarily use the same definitions of residency that apply for federal income tax purposes.

That distinction can create confusion.

An individual may be considered a U.S. resident for one tax purpose while a different analysis applies elsewhere.

For families with significant assets in multiple countries, immigration, tax, and estate planning should therefore be coordinated rather than treated as separate projects.

Business Owners Need to Consider the Company and the Family Together

For an entrepreneur relocating to the United States, personal and business planning often overlap.

A foreign company may continue operating after the move. The owner may establish a new U.S. company, acquire a business here, or shift management responsibilities between countries. At the same time, a spouse and children may relocate on a different timeline, and the family may continue owning real estate or investments abroad.

The immigration strategy may determine when the move becomes possible.

The tax strategy may determine when certain financial decisions make sense.

Those two timelines should be reviewed together.

A visa or green card approval is important, but it should not be the first time someone asks what the move will mean for their broader financial life.

Pre-Immigration Planning Is About Understanding the Change Before It Happens

The goal of pre-immigration tax planning is not to eliminate every future U.S. tax obligation.

It is to understand how the rules may change once U.S. tax residency begins and whether there are legitimate planning decisions that should be considered beforehand.

For one person, the main issue may be determining the expected residency starting date.

For another, it may be a foreign company.

For someone else, the concern may be investment accounts, appreciated property, trusts, gifts, estate planning, or several of those issues at once.

The planning needs to match the actual financial structure.

Immigration and Tax Planning Should Be Coordinated

Immigration decisions can affect when a person becomes a lawful permanent resident, how much time they expect to spend in the United States, and when the family intends to relocate.

Tax residency operates under its own rules, but those immigration and travel decisions can directly affect when U.S. tax obligations begin.

For that reason, immigration counsel and qualified international tax professionals should be working from the same timeline.

The question is not simply how to obtain the immigration status.

It is how the move to the United States affects the person, the family, the businesses, and the assets surrounding that status.

Speak With Counsel Before U.S. Tax Residency Begins

Abraham Benhayoun Immigration Law Offices works with international entrepreneurs, investors, executives, and families whose immigration plans involve businesses, assets, investments, and financial interests outside the United States.

For individuals with substantial international holdings, pre-immigration planning can help identify issues before the move and coordinate the immigration timeline with appropriate international tax and estate planning advice.

If you are planning to move to the United States and have foreign businesses, investments, accounts, trusts, real estate, or other international assets, call Abraham Benhayoun Immigration Law Offices at (786) 636-8250.