Recently, U.S. investment immigration has been gaining strong momentum, with a continuous increase in the number of visas granted. However, given the refinement and complexity of U.S. tax laws, how to avoid taxes and protect personal assets has become a challenge for new immigrants.
Strategy 1:
Realize paper gains before immigration
The principle of U.S. taxation generally applies only to realized income, meaning taxes are levied only when property is sold or transferred. If property has not been transferred, paper gains—such as appreciation in real estate, stocks, bonds, and jewelry—are not subject to capital gains tax. Assets brought in from abroad when becoming a U.S. resident are not subject to tax. The simplest method is to realize paper gains before reporting to the U.S., for example, by selling stocks or transferring real estate titles. After obtaining status, the cash on hand can then be used to invest in new stocks or real estate. Conversely, if there are investments with losses, there is no need to rush to sell; one can wait until after receiving a Green Card to sell, which can then be used to offset taxes.
Strategy 2:
Work overseas, enjoy U.S. tax exemptions
More and more new immigrants return to China to work after receiving their Green Cards, visiting the U.S. only symbolically each year, earning them the nickname "commuters." "Commuters" are entitled to a tax exemption on foreign earned income, but tax law stipulates that this exemption can only be enjoyed if one resides overseas for more than 330 days within a year, meaning one can only stay in the U.S. for 35 days annually. This conflicts with the immigration law requirement that one must reside in the U.S. for at least half a year annually to maintain a Green Card. However, by applying for a Re-entry Permit and using the Green Card in conjunction with the Re-entry Permit, one can legally reside overseas for 1–2 years without the Green Card being confiscated upon re-entry. This satisfies both the requirements of immigration law and allows for the enjoyment of a certain amount of tax-exempt income as stipulated by tax law.
Strategy 3:
Set up overseas accounts in "tax havens"
According to the U.S. Bank Secrecy Act, anyone who owns bank accounts, brokerage accounts, mutual funds, unit trusts, or other financial accounts overseas, and whose cumulative funds in these accounts exceed $10,000, must file the Report of Foreign Bank and Financial Accounts (FBAR) form TDF90-22.1. However, if the accounts are set up in world-renowned "tax havens" such as Puerto Rico, the Northern Mariana Islands, as well as the U.S. territories of Guam, American Samoa, and the U.S. Virgin Islands, they may enjoy tax-exempt treatment.
Strategy 4:
Make good use of gift tax exemptions
In the U.S., an individual can only gift $1 million to others over their lifetime, and $11,000 per person per year. If gifts within a year exceed this amount, it must be reported to the Internal Revenue Service (IRS). One may choose not to pay gift tax by deducting the gift from the future $1.5 million estate tax exemption, but the government must be notified. Gifting can sometimes lead to higher taxes. For example, if parents gift a house purchased for $100,000 to their children, and the house is now worth $700,000, and the children sell it 2 years later for $1 million, the cost basis of the house remains $100,000. The children would have a $900,000 gain and would have to pay capital gains tax because, as a gift, the basis is calculated from the original purchase price.
If other methods are adopted, the tax amount would be different. For example, if the parents do not gift it now but leave it as an inheritance after they pass away, and the house is worth $1 million at that time, the basis of the house becomes $1 million. If the children sell it after living in it for 2 years for $1.2 million, only the $200,000 appreciation is subject to tax. In the case of an inheritance, the basis is the market value at the time of the asset owner's death.
Strategy 5:
Two ways to avoid estate tax
Americans mainly use two methods to avoid estate tax: the bypass trust and the family limited partnership. A bypass trust effectively avoids the uncertainty of which spouse passes away first; it sets up a trust for each spouse, and whichever spouse passes away first, their portion of the assets is transferred into the children's trust. In this way, the tax reduction allowance for both spouses is not wasted. Families who have established family businesses can set up a family limited partnership, which is best established in middle age, with parents serving as general partners, and then gradually transferring assets to the children's accounts until all children have a small portion. For Chinese families who enjoy purchasing commercial properties, it is very suitable to use family limited partnerships to transfer assets.