Moving to the U.S. is wonderful, right? American football, coast-to-coast scenic drives, the U.S. Tax Code and Treasury Department regulations…oops, well almost.
Yes, moving here does trigger a number of new reporting issues that seem to come from all directions. Most of these requirements are based on the U.S.’s goal to tax you on your worldwide income, a system you most likely did not face in your home country. Other issues arise because the U.S. has an estate tax, again, something that may not exist in your home country. Where do you start?
Don’t worry, here are the most common things we look for when we take on foreign nationals as clients.
Report those assets still outside the U.S.!
Generally, all U.S. taxpayers need to report income-generating assets still outside the U.S. such as bank and investment accounts, retirement plans, life insurance policies or rental property. However, the total asset value must be over a certain dollar threshold (more details in another blog) and be reported in separate filings to the Internal Revenue Service and the Treasury Department. If you haven’t reported these assets in that past when you should have, the IRS has disclosure programs to help you correct the situation, though penalties will likely still be assessed.
U.S. and foreign taxes do play nicely together
You may still be paying taxes in your home country. In many cases, a foreign tax credit is available in the U.S. so you will not be double taxed. We collect all non-U.S. tax returns to make this determination. We see this quite often with rental properties or investment accounts. Either way, we can help you wade through the complexities inherent when blending U.S. and foreign tax obligations.
If you anticipate receiving an inheritance from outside the U.S., you will ultimately need to report the inheritance to the IRS. Chances are there will be no tax, but there are penalties for not reporting. Also, if you are the executor on a foreign estate, this will also need to be reported in the U.S.
Don’t forget your estate plan
I know, it is tough to think about, but a little planning in this area can save your loved ones from unfavorable tax complications. Amongst other estate planning issues, the biggest is that a spouse cannot leave an unlimited dollar amount of assets to a non-citizen spouse at death without being subject to estate tax (leaving assets to a citizen spouse is not subject to estate tax). There are planning tools to mitigate this issue but it is much easier to handle ahead of time.
It sounds like so many things to worry about, but with a little forethought and planning these issues are easily managed. In fact, we would say the most difficult part of all these issues is just being aware they exist in the first place. In which case, you are already ahead in the game – – great job!
Please remember this is only a sampling of the issues floating around out there, consult your tax professional so you are not caught off guard and enjoy your stay!