Accounting and Tax Consulting
As I always tell my clients, “planning is much more than a science, it is an art”. Officially moving to the United States requires a lot of caution, financial, tax and immigration planning, preferably BEFORE DELIVERING THE COUNTRY FOREVER.
There are many cases of Brazilians who are arriving in Uncle Sam's land and then go looking for details on how to adjust their immigration visa, what the tax impacts are here in the United States and also in Brazil, etc.
This conversation needs to be broken down into two parts: Accounting and Tax Consulting and Immigration Consulting.
This article refers to income tax, taxes, succession and inheritance and can be divided into the following categories:
income tax (while alive). Objective calculation.
and the complex part of estate succession (in case of death). Subjective calculation.
The formula for calculating income taxes is objective and clear. The first calculation is the Green Card Test. In theory, when we receive a Green Card, we are tax residents for the purposes of the Green Card.
The second calculation refers to the “Substantial Presence Test” or substantial presence test in the country.
If I stayed in the country for 183 days in 2016, I became a tax resident from the date of my entry stamped in my passport, except for a few exceptions to the rule. However, the calculation goes a little further. Now imagine that I stayed 120 days in 2016, 120 in 2015 and 120 days in 2014. Did I become a tax resident? This calculation is retroactive to the last 3 years.
The formula is as follows: number of days in the current year + 1/3 of the days in the previous year, + 1/6 of the days in the penultimate year, where the sum of these last 3 years cannot exceed 183 days.
See below:
Period
120 Days in 2016
120 Days in 2015
120 Days in 2014
Current Number of Days
= 120 days
(+ 1/3 of the days of 2015) = 40 days
(+ 1/6 of the days of 2014) = 20 days
Total Sum of 3 Years
180 days
The sum of the days is 180 days, so in the example above I would not become a tax resident for income tax purposes. Obviously there are exceptions and for this you need to consult with an accountant, CPA.
In the part now referring to the famous inheritance tax upon death, the specter of lack of knowledge generates great doubts on the part of the clients who come to us.
This is a more subjective test, where it is necessary to demonstrate to American Immigration the permanent “INTENT” of living in the United States. Several topics are analyzed here, such as: where do the children study? where is the main residence located? where were the plans made for the eventual death? where are the majority of the assets located? In other words, again, an extremely subjective calculation.
Let's imagine that, for calculation purposes, we die with a green card in hand, where the American tax authorities have proven that my main intention of residence is the United States. Now, yes, I am taxed worldwide on my global assets at a maximum rate of up to 40%. It is a progressive calculation, which can reach more than 40%, because, as I said, it is a progressive rate. This is only the federal tax, depending on where we live. In New York, for example, we still pay state and municipal taxes, which makes this calculation almost 70%.
There are, of course, exceptions for “gifts” and exclusion limits for this calculation. In general terms, each green card holder, like each American citizen, has an exclusion limit for these taxes in the amount of $5,490,000 adjusted annually for inflation, that is, up to almost $11,000,000 in assets can be protected through Financial Planning, with professionals who understand what they are doing.
Imagine that I am a member of a family with $100,000,000 (One Hundred Million Dollars) in assets and I leave Brazil permanently to reside legally in the United States, I get my green card without knowing all these details (believe it or not, the number of people who contact us saying they did not know all these details is alarming). Now I have a big problem on my hands: if I die today, my heirs can protect $5,490,000 of my estate, + $5,490,000 of my wife's (exemptions applicable under US laws), without much complication through a Q-dot (Qualified Domestic Trust) and, eventually, would be charged on the $89,000,000 million of the difference a small amount of 40% or $35,600,000 (Thirty-five million and six hundred thousand dollars) paid 9 months after my death on IRS form 706 as my last income tax.
"That's why I always say that each case is a case that needs to be considered coherently, knowing each family's objectives, plans for the future, permanent residence, etc."
As I always joke with my clients, being rich is a privilege, but rushing to get a green card with a large estate can be a very expensive “mistake” for our heirs.
There's nothing like consulting professionals specialized in the area.
Check out the interview with my good friend João Gomes, CPA at Accounting Ally, where he explains all the details in the text above in a simple way. The income tax part is very complex, so I recorded this interview.
I hope you like it!