Coming to the U.S.? Find Out If You Are Subject To US Income And Estate Taxes

Coming to the U.S.? Find Out If You Are Subject To US Income And Estate Taxes

Compliance with the US tax system is difficult for US citizens, and even more so for foreign persons. The tax code is full of conflicting rules and exceptions, a complicated web indeed. To make matters worse, one of the most complex challenges remains the manner the US imposes taxes on foreign persons for income, estate and gift tax purposes.

Income Tax

  • The US presumes that foreign persons are non-resident aliens (NRAs).
    • NRAs must pay US tax only on income derived from US sources.
  • If an NRA applies for a green card or spends a well-defined “substantial” number of days per year in the US, they become resident aliens (RAs).
    • RAs must pay US income tax on their worldwide income – as US citizens do.

Gift & Estate Tax

  • For US estate and gift tax purposes, a foreign person’s exposure is determined by their domicile at the time.
  • Domicile is determined by the individual’s specific and unique facts and circumstances.
    • Location of the primary residence.
    • Place of the business and personal belongings.
    • Their intent to remain in the US indefinitely.

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US Resident Domiciliary

  • Subject to US gift and estate tax on their worldwide assets.
  • Must file US estate tax returns when the fair market value of their international and US assets (at time of death) exceeds the estate tax unified credit exemption (2019) of $11.4 million for individuals and $22.8 million for married couples filing jointly.

Non-Resident Domiciliary

  • Only subject to estate tax on their US assets at the time of death.
  • Decedents must report & pay US estate tax only on assets located in the US, and this includes tangible personal property and their interest in or holding of US real estate and securities of US companies.
  • Exempted from US estate tax US-situs assets include:
    • Investments that generate portfolio interest
    • Bank accounts that are not connected with a US trade or business
    • Insurance proceeds
    • The executor must file a US estate tax return (Form 706-NA) if the fair market value of the decedent’s US-situs assets at death exceeds $60,000.

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Take note:

US estate-tax residency has nothing to with either their immigration status or their possession of a visa. Illegal aliens were ruled to be domiciled in the US for estate tax purposes at the time of their death since sufficient facts supported the presumption that the decedent intended to remain in the US indefinitely.

Foreign persons must work closely with US tax and accounting experts before they arrive in the US if they wish to avoid unnecessary tax exposure in the US and in their home country.

This exemption expires in 2026 when it reverts back to $5.49 million for individual taxpayers.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.

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Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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