I am writing a series of blog posts about pre-immigration tax planning. What should you do — for tax planning — if you wish to become a U.S. resident?This is the fifth post. Prior posts are found here: Post 1, Post 2, Post 3, and Post 4.If you have any questions or comments I would love to hear them. Send an email to phil-at-hodgen-dot-com, or leave a comment below.Routine disclaimer: this is not legal or tax advice to you. Go hire someone smart before you make any moves.
Calculate the tax cost of immigration
Becoming a U.S. resident exposes everything you own, everywhere, to U.S. taxation. When you are deciding whether to become a U.S. resident, the tax problem ultimately boils down to:
At what point is the additional tax cost of being a U.S. resident so high that you decide you do not want to be a U.S. resident at all?
Your answer comes after will ultimately be one where you weigh the tax cost (“It costs me a lot in tax to become a U.S. resident”) on the one hand against the intangible “quality of life” factors on the other (“As a U.S. resident I can see my grandchildren every day if I want to.”)
My job is to help you arrive at the number–the tax cost of becoming a U.S. resident.
The tax cost of becoming a U.S. resident is calculated by comparing two numbers.
If you remain a nonresident of the United States, die, and leave everything to your children, exactly how much money your children will have after all taxes in your home country and in the United States?
If you become a U.S. resident, how much money will your children have after all taxes are paid when you die?
The difference between those two numbers is the tax cost for you becoming a resident of the United States. You will look at that number and decide whether the financial cost of becoming a U.S. resident is worth getting the visa.
If you are immigrating from a country with high tax rates, then the tax costs you face in your home country may be about the same as the tax costs you will face as a U.S. resident. For these situations, the financial impact of becoming a U.S. resident is small or zero.
But for people coming from a country with low (or no) income and estate taxes, you absolutely need to know these numbers. Otherwise you will be making an important financial decision without the basic information needed to make this decision.
Here is a simple example of what I mean:
You have $100 million of assets. You are a nonresident of the United States, living in a country with no income tax and no estate tax. Therefore, when you die your children will inherit $100 million.
You do the necessary calculations, and determine that if you become a U.S. resident and then die, the estate tax will be $45 million. This means that your children will inherit $55 million when you die.
This means that the tax cost of becoming a U.S. resident is $45 million. You must now decide whether the value of U.S. residence is worth the $45 million price tag.
Philip D. W. Hodgen is the principal attorney of HodgenLaw PC, an international tax law firm based in Pasadena, California. He earned his undergraduate degree from Claremont McKenna College and his law degree from the School of Law at the University of California, Los Angeles. He then went on to earn a Master of Laws degree with a specialty in taxation from the University of San Diego School of Law. Admitted to the California bar in 1982, Phil spent nine years in law firms and with a large U.S. bank before starting his own firm in 1991.
Phil is a past chair of the International Tax Committee of the State Bar of California's Tax Section and was a member of the Executive Committee of the State Bar of California's Tax Section for 2004-2007. Phil frequently speaks on a variety of international tax, trust and estate topics to attorneys, accountants, and real estate professionals.
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Tax laws change over time, and the information in this post above may be less accurate today than it was at the time of the last revision. This post is not tax advice for your specific situation. Please contact an international tax professional to get personalized advice for your situation.