DV Winner & double taxation

[LJ75 3]

As the title says, I won DV lottery, and we (SO, 2 kids and I) have our interviews scheduled in June, and unless something unexpected happens, expect to move across the pond in August 2017. I also don't think our situation is unique, and quite a few of us posters will have the same dilemmas.

 

We're in our early 40s, and over the years, we have managed to save a bit, and purchase a few properties. If everything goes as per plan, most likely we'll sell them, and permanently settle in the US.

 

Hypothetically, let's say this is the situation:

 

• I have 100K in savings account.
• In addition, I expect 100K to be paid in June this year as a completion bonus for my current contract.
• I also have 100K in properties.

 

All of this has already been taxed by my home country (which doesn't have any tax agreement on double taxation with the US) (and since I work as an expat, my income also by my host country). It's not a bad problem to have, but it's still a problem. I'd appreciate your views and experiences on the following:

 

• What are the tax implications of moving to the US?
• What is the best and most economical way of transferring the funds?
• What should I expect going forward?
• None of my net worth has been generated in the US, and although I expect this to come up in 2018, what should I expect?

 

Of course, we will contact a tax consultant on this (and tbh, I have already asked Ernst&Young, who currently file my taxes, and I will share once I hear from them), but I'd be also interested to hear what esteemed posters think.

[NigeriaorBust 4,087]

  Your income for this year is subject to the tax issues from both places .   Monies from selling your properties will probably be also ( it is income for the year it sells in )   the money in a savings  account is probably not .   It does however need to be properly documented when transferred to the US as it is over the 10K limit ( that is just to show it isn't drug money )  

[Suss&Camm 2,213]

• What are the tax implications of moving to the US?

Non US earnings that you make before entering the US as a Green Card holder does not need to be reported and will not be taxed. Your first year you will be a dual-status tax person. Income that you make after arriving in the US is subject to taxation no matter if it's made in the US or in your home country. https://www.irs.gov/individuals/international-taxpayers/taxation-of-dual-status-aliens

 

• What is the best and most economical way of transferring the funds?

There are many ways - I used a currency broker to get the best currency rate, and they are normally (not always) cheaper than banks. I can refer you to who helped me at TorFX, she was very prompt, and professional and things went incredibly smooth. She answered all and any silly questions I had. Let me know if you want her info.

 

• What should I expect going forward?

1. If you will sell your property prior to moving, then any earnings from it will not be taxed. If you will keep it and will make an income off it in the future, then that income will be taxed.
2. If you keep any accounts in your home country with over 10k in total, you will have to file FBAR - which means you have to report to the IRS that these accounts exist. Any rent will be subject to taxation. If you transfer all your funds to the U.S - you do not need to file FBAR. https://www.irs.gov/uac/foreign-financial-accounts-reporting-requirements
3. Your first year filing taxes - DO NOT USE A REGULAR TAX PREPARER. Make sure to find one that is well versed in immigration and taxes.

 

• None of my net worth has been generated in the US, and although I expect this to come up in 2018, what should I expect?

See answer to the first question

Edited May 3, 2017 by Suss&Camm

[LJ75 3]

Thanks a lot, extremely useful.

 

Based on your replies, I am OK when it comes to cash and near-cash. However, I need to figure out what to do with the real estate. We'll be moving either to NY or NC, and I guess tax rates vary from one state to another. So, we need to see are we better off paying the tax eventually, or selling quickly, even at a loss.

 

Quote

There are many ways - I used a currency broker to get the best currency rate, and they are normally (not always) cheaper than banks. I can refer you to who helped me at TorFX, she was very prompt, and professional and things went incredibly smooth. She answered all and any silly questions I had. Let me know if you want her info.

Yes, thank you, I'd appreciate that.

 

Again, if I find out anything from E&Y, I will post here. 

[Wuozopo 4,293]

Your home sale could be a capital gain for what you gained over how much you paid if sold after you are a US permanent resident.. You get to take off any costs to sell from your gain.

 

Only the gain is taxable, not the whole value. Furthermore on a joint US tax return you could be eligible to exclude up to $500,000 of your gain. Read the details on the IRS website. Publication 523 and assess your specific situation. 

 

Your assets in general are not taxed. It is INCOME tax, so new income money earned during a given calendar year whether it be a profit from selling mops or a house. Or from employment or interest or dividends. 

 

You report (online) any foreign bank account(s) cumulatively exceeding $10k to the US Treasury each year, not the IRS. (Not a tax issue. Information only.) Commonly called FBAR. 

 

There is also FATCA for accounts/assets held overseas exceeding $100k. Look up what counts as reportable. Also for information, not to tax you on it.

 

i like Transferwise for sending funds to the US. 

Edited May 6, 2017 by Wuozopo

[LJ75 3]

 

Only the gain is taxable, not the whole value.

This is great news, thanks.

 

 

Your assets in general are not taxed. It is INCOME tax, so new income money earned during a given calendar year whether it be a profit from selling mops or a house. Or from employment or interest or dividends. 

 

Can you please clarify a bit the term 'calendar year' in this context - i.e. if I enter US in August (and hence become PR), will my income received before this date be taxed? I have read different interpretations on the issue.

 

 

 

[Suss&Camm 2,213]

 

This is great news, thanks.

Sorry if I wasn't clear on that earnings is ofc only what you earn from it. That automatically excludes what you originally paid.

 

 

Can you please clarify a bit the term 'calendar year' in this context - i.e. if I enter US in August (and hence become PR), will my income received before this date be taxed? I have read different interpretations on the issue.

No it won't. It would were it US based.

I think he just means in regards to filing your taxes. Everything is reported and taxed per calendar year.

[Suss&Camm 2,213]

 

You report (online) any foreign bank account(s) cumulatively exceeding $10k to the US Treasury each year, not the IRS. (Not a tax issue. Information only.) Commonly called FBAR. 

"4.26.16.2  (11-06-2015)
FBAR Authorities

1. The requirement to report foreign bank and financial accounts was added to the United States Code (USC) in 1970 as part of the "Currency and Foreign Transactions Reporting Act of 1970" , which came to be known as the "Bank Secrecy Act" or "BSA." These anti-money laundering provisions, as amended, were codified at 31 USC 5311 - 5332, excluding section 5315.

2. The Secretary of the Treasury delegated the authority to administer civil compliance with Title II of the BSA to the Director, FinCEN. IRS Criminal Investigation (CI) has authority to enforce the criminal provisions of the BSA.

3. While FinCEN retains its rule-making authority for FBAR, it redelegated civil FBAR enforcement authority to the IRS. See IRM 4.26.16.2.2(4), below."

https://www.irs.gov/irm/part4/irm_04-026-016.html#d0e76

 

Which is why FBAR info is found on the IRS website.

 

Edited May 6, 2017 by Suss&Camm

[Wuozopo 4,293]

 

This is great news, thanks.

 

Can you please clarify a bit the term 'calendar year' in this context - i.e. if I enter US in August (and hence become PR), will my income received before this date be taxed? I have read different interpretations on the issue.

 

 

 

Your first tax year is the year you become a permanent resident. The first year can often be dual status because you are only "a US person" as the IRS sometimes calls it  from August ? to December 31. You follow IRS rules starting in August. Your potential income that year could be from August Xth onward if you have gain/profit on a house, interest/dividends paid to you (even on foreign investments), employment.

 

My goal is to give you simply written concepts so you can dig deeper to see exactly how each fits your situation because God knows the IRS has a rule, exceptions, exclusions, qualifications for everything imaginable. Once you drill down to what fits your situation and throw out everything that does not apply to you, I think you can find some useful answers from the IRS. For example there is a whole publication on selling a home. It you are a "US person" when you sell, then learn about gain, exclusions. If you made no gain or sold before coming, you can quit reading that topic. If you have a gain while in the US, then drill deeper to find out if you are eligible to exclude up to $500k of that gain and possibly eliminate an taxation. There is also Publication 519 which is going to explain a lot about your filing, first year things, dual status etc so you can work out where you fit and what you do. 

 

Mainly don't panic that you will pay tax on all your worldly savings because it is probably not nearly as bad as what your first thoughts were. 

Edited May 6, 2017 by Wuozopo

[Wuozopo 4,293]

 

"4.26.16.2  (11-06-2015)
FBAR Authorities

1. The requirement to report foreign bank and financial accounts was added to the United States Code (USC) in 1970 as part of the "Currency and Foreign Transactions Reporting Act of 1970" , which came to be known as the "Bank Secrecy Act" or "BSA." These anti-money laundering provisions, as amended, were codified at 31 USC 5311 - 5332, excluding section 5315.

2. The Secretary of the Treasury delegated the authority to administer civil compliance with Title II of the BSA to the Director, FinCEN. IRS Criminal Investigation (CI) has authority to enforce the criminal provisions of the BSA.

3. While FinCEN retains its rule-making authority for FBAR, it redelegated civil FBAR enforcement authority to the IRS. See IRM 4.26.16.2.2(4), below."

https://www.irs.gov/irm/part4/irm_04-026-016.html#d0e76

 

Which is why FBAR info is found on the IRS website.

 

 

I have done FBAR many years. It is not a form on my tax return. I used to do it on paper and mail it addressed to the US Treasury. Now I do it online separate from e-filing my tax return. That was all I meant by it is a report to the treasury so to distinguish it as a separate thing from the tax return. Yes, of course the information is explained on the IRS website. Are you angry at me for something?

Edited May 6, 2017 by Wuozopo

[LJ75 3]

Thank you both. Of course, these are major decisions, and I'll triple check before making such an important call. Ultimately, I'll contact a US based accountant for concrete advice. 

 

Btw, Ernst&Young file my taxes, and contractually, they are supposed to assist me on these matters (one of the perks I have under my current contract), and I have asked them for guidance on this matter, but all I got from them so far is that 'should any additional tax obligations arise as a result of my relocation to the US, it is not xx company's responsibility to pay them, but mine (i.e. LJ75's)'. Well, thanks, of course. I'll keep pushing, see what they say.

 

I have also sent a preliminary inquiry to my real estate agent anyway, just get a feel about the prices etc.

 

Overall, there are many of us who have at least some capital that we plan to carry into our adopting country, yet I was surprised to find very limited info on the subject - and I am talking about general guidelines, not specific instructions from the IRS website.

 

So, your guys' advice has been invaluable, and personally, I would make this topic a sticky, adding, of course, a link or two and a bit more general info.

[EmilyW 1,452]

I second @Dee elle's suggestion of a US tax accountant who knows both US and international tax laws.

 

Our situation was complicated as we had property, superannuation, shares and other assets to liquidate.  Some we kept in Australia.  Some we brought over here.  We also had capital gains tax implications in year 1.  

 

We found an accountant through a referral from another Aussie: our accountant knows Aussie tax laws and US tax laws intimately and she makes the process easy.  There were implications we had no idea about that she picked up on.  I don't want to have any issues with the IRS so having her take care of everything helps me sleep at night.  In January, she sends me a questionnaire.  I fill it in, provide her with required documents, and she does the rest.

[Suss&Camm 2,213]

 

 

I have done FBAR many years. It is not a form on my tax return. I used to do it on paper and mail it addressed to the US Treasury. Now I do it online separate from e-filing my tax return. That was all I meant by it is a report to the treasury so to distinguish it as a separate thing from the tax return. Yes, of course the information is explained on the IRS website. Are you angry at me for something?

Angry? 

I was clarifying that IRS is the enforcing authority for FBAR since I interpreted the "not IRS" as if FBAR has nothing to do with IRS, which it does. I apologize if I said something to make you feel as if I was angry, that was not my intention.

I believe you also state your accounts on schedule B for the 1040 (correct me if I'm wrong), so the FBAR reporting is separate from the filing but the reporting of accounts I suppose is part of the return in way. That's a later concern for OP however

[Californiansunset 336]

 

• What are the tax implications of moving to the US?

Non US earnings that you make before entering the US as a Green Card holder does not need to be reported and will not be taxed. Your first year you will be a dual-status tax person. Income that you make after arriving in the US is subject to taxation no matter if it's made in the US or in your home country. https://www.irs.gov/individuals/international-taxpayers/taxation-of-dual-status-aliens

 

• What is the best and most economical way of transferring the funds?

There are many ways - I used a currency broker to get the best currency rate, and they are normally (not always) cheaper than banks. I can refer you to who helped me at TorFX, she was very prompt, and professional and things went incredibly smooth. She answered all and any silly questions I had. Let me know if you want her info.

 

• What should I expect going forward?

1. If you will sell your property prior to moving, then any earnings from it will not be taxed. If you will keep it and will make an income off it in the future, then that income will be taxed.
2. If you keep any accounts in your home country with over 10k in total, you will have to file FBAR - which means you have to report to the IRS that these accounts exist. Any rent will be subject to taxation. If you transfer all your funds to the U.S - you do not need to file FBAR. https://www.irs.gov/uac/foreign-financial-accounts-reporting-requirements
3. Your first year filing taxes - DO NOT USE A REGULAR TAX PREPARER. Make sure to find one that is well versed in immigration and taxes.

 

• None of my net worth has been generated in the US, and although I expect this to come up in 2018, what should I expect?

See answer to the first question

Is this also the case for bank accounts with investment portfolios over 10K? I'm talking about a bank account that I habe with comdirect who lets you buy and sell stocks within different stock markets. 

In Germany I always had to report the earnings I made with it for tax purposes (which is not that much, maybe $500 a year). 

[Suss&Camm 2,213]

 

Is this also the case for bank accounts with investment portfolios over 10K? I'm talking about a bank account that I habe with comdirect who lets you buy and sell stocks within different stock markets. 

In Germany I always had to report the earnings I made with it for tax purposes (which is not that much, maybe $500 a year). 

Yes, you have to report that account under FBAR:

 

"A reportable financial account includes a:

Bank account, such as a savings deposit, demand deposit, checking, time deposit (CD), or any other account maintained with a financial institution or other person engaged in the business of banking.

Securities account, securities derivatives account, or other financial instruments account held with a person engaged in the business of buying, selling, holding or trading stock or other securities."

https://www.irs.gov/irm/part4/irm_04-026-016.html

 

In addition there are other tax implications - similar to those you describe

https://www.irs.gov/taxtopics/tc429.html

https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements