Legally minimizing taxes to protect personal assets is the norm in foreign countries. However, given the complexity and sophistication of tax laws in some immigrant-receiving nations, tax planning remains a challenge for new immigrants. Using the United States as an example, WorldWay's immigration experts introduce five methods for new immigrants to minimize their tax burden.
Strategy 1:
Two ways to avoid estate tax
Americans primarily use two methods to avoid estate tax: the shelter trust and the family limited partnership.
A shelter trust effectively avoids the uncertainty of which spouse passes away first by establishing a separate trust for each. Whichever spouse passes away first has their share of assets transferred into their children's trust. This ensures that the tax reduction allowances for both spouses are not wasted. Families establishing family businesses can form a family limited partnership—ideally in middle age—where parents act as general partners. Assets are then gradually transferred to the children's accounts until all children hold a small portion. For Chinese families who enjoy purchasing commercial real estate, this is an excellent tool for asset transfer.
Strategy 2:
Cashing out paper gains before immigration
The principle of U.S. taxation is generally to tax realized income only; that is, taxes are applied when property is sold or transferred. If the property has not been transferred, paper gains are not subject to capital gains tax.
There are many situations where paper gains remain unrealized, such as appreciation in real estate, stocks, bonds, and jewelry. When processing their assets, new immigrants may face U.S. capital gains tax issues. Since assets brought into the country upon becoming U.S. residents are not taxed, the simplest method is to liquidate unrealized gains—such as selling stocks or transferring real estate titles—before reporting for immigration. Once you have acquired your status, you can reinvest the cash into new stocks or property. This way, you avoid paying taxes on those appreciated assets. Conversely, if you have investments at a loss, do not rush to sell; you can wait until after you obtain your Green Card to sell, allowing you to use the losses for tax deductions later.
Strategy 3:
Working abroad to claim U.S. tax exemptions
For immigrants, Green Cards, citizenship, and tax obligations are often in conflict. U.S. immigration law states that Green Card holders must reside in the U.S. for at least six months per year; otherwise, their status may be revoked. If there is a legitimate reason for not being able to return to the U.S. within six months, one can apply for a Re-entry Permit (White Paper), which is valid for two years. Furthermore, to naturalize as a U.S. citizen, one must reside in the U.S. for at least two and a half years within the five-year period of holding a Green Card and must honestly report taxes.
However, an increasing number of new immigrants return to China to work after receiving their Green Cards, only visiting the U.S. symbolically each year, commonly known as "astronauts."
"Astronauts" have a tax exemption for overseas earned income. Tax law stipulates that one must reside overseas for more than 330 days within a year to qualify for this exemption, meaning one can only stay in the U.S. for 35 days per year. This conflicts with the immigration law requirement of residing in the U.S. for six months annually to maintain a Green Card. However, if one applies for a Re-entry Permit (White Paper) and uses it in conjunction with the Green Card, one can legally reside overseas for 1–2 years without the Green Card being revoked upon re-entry. This satisfies immigration law requirements while benefiting from the specific tax exemption amounts allowed by tax law.
Strategy 4:
Setting up overseas accounts in "tax havens"
According to the U.S. Bank Secrecy Act, anyone who owns overseas bank accounts, brokerage accounts, mutual funds, unit trusts, and other financial accounts with a cumulative total exceeding $10,000 must file an FBAR (Report of Foreign Bank and Financial Accounts, Form TDF 90-22.1). However, if these accounts are held in world-renowned "tax havens" such as Puerto Rico, the Northern Mariana Islands, Guam, American Samoa, or the U.S. Virgin Islands, they may be eligible for tax-exempt treatment.
Strategy 5:
Wisely using gift tax exemptions
In the United States, an individual has a lifetime gift tax exemption of $1 million, with an annual gift tax exclusion of $11,000 per person. If annual gifts exceed this amount, they must be reported to the IRS. One may choose not to pay gift tax—by deducting the amount from the future $1.5 million estate tax exemption—but the government must be notified.
Sometimes, however, gifting can lead to higher taxes. For example, if parents gift a house purchased for $100,000 to their children, and it now has a market value of $700,000, and the children sell it two years later for $1 million, the cost basis remains $100,000. The children would then have a $900,000 gain and owe capital gains tax because, with a gift, the cost basis is determined by the original purchase price.
If handled differently, the tax liability would change. For example, if the parents do not gift the house now but leave it as an inheritance after they pass away, and if the market value at that time is $1 million, the basis for the house becomes $1 million. If the children sell it for $1.2 million after living in it for two years, they only owe tax on the $200,000 gain. In the case of an inheritance, the cost basis is the fair market value at the time of the owner's death.