Pre-Residence US Tax Planning

Individuals who are planning to become US residents are strongly advised to enter the US with a “pre-residence” tax plan in place. For our Canadian expat clients and other non-US citizens, “pre-residence” tax planning is especially important due to significant differences between the US and Canadian tax systems, or the tax system in any other foreign country in which new resident was previously subject to residence-based taxation.

As the name implies, most elements of a “pre-residence” tax plan should generally be in place before US income tax residence begins (i.e., prior to the first day of U.S. residence), because some planning options will be foreclosed after that point. That includes, among other things, planning for existing investments (e.g., in the country of origin) that will be retained after arrival in the US and that have unrealized gains and a low tax (cost) basis (as determined from a US tax point of view). Unless the low tax (cost) basis of such assets are “stepped-up” to fair market value in a “pre-residence” transaction, a sale occurring while you are resident in the US will tax all of the gain, including the part accruing prior to becoming a US income tax resident.

Similar considerations apply to owners of non-US companies (where a “purging” of undistributed earnings accruing prior to beginning US tax residence may be necessary in order to avoid being taxed on those earnings by the US when post-arrival distributions are made). Likewise, interests in nonresident trusts may also require restructuring prior to arrival to avoid a variety of US tax problems.

Other “pre-residence” tax planning, although potentially time-sensitive, can be implemented after arrival, for example, at the time when restricted, share-based compensation is granted by an employer.

We regularly guide new residents through planning designed to mitigate the tax consequences of differences between tax law systems in the US and other countries, as well as to exploit the disharmonies between US and foreign tax law, where they exist.

Our decades of experience in planning cross-border residence changes have also taught us that the best time to engage in departure tax planning is when preparing a “pre-residence” tax plan (see discussion on our webpage entitled “Departure Tax Planning for Relinquishment of Green Cards”).

We also prepare “pre-residence” state tax plans for individuals wishing to become California tax residents or for whom California income tax residence will result from taking a job here, starting or expanding a business or managing their investments here on a more than seasonal basis (see discussion on our webpage entitled “Pre-Residence Tax Planning for Future California Tax Residents”).

At Lance Cross-Border Law and Tax, we have decades of experience assisting future US income tax residents with pre-residence tax planning. We also recommend engaging us to prepare the outlines of a departure tax plan at the time your “pre-residence” tax planning is being formulated (see discussion on the page of this website entitled “Departure Tax Planning for Relinquishment of Green Cards”). We welcome inquiries concerning your specific tax situation. Feel free to call us at (760) 578-5093, or contact us via email at Brent@LanceCrossborder.com or by using our online contact form. We will respond to all relevant inquiries without any obligation. Why not put us to work preventing or solving future US tax issues or problems for you today?