07.04.2023

Getting U.S. Tax Residency – Navigating the Tax Considerations

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Let’s talk about your U.S. tax residency. Moving to the United States and becoming a U.S. tax resident can be a complex process, with many tax considerations that need to be taken into account. Whether you are a foreign national considering a move to the U.S. for work, study, or to start a business, or you are a U.S. citizen or legal permanent resident returning to the U.S. after living abroad, understanding your U.S. tax residency status is crucial to navigate the U.S. tax system and its impact on you.

One of the most important tax considerations when moving to the U.S. is determining your residency status for U.S. tax residency purposes. The U.S. tax system is based on a system of worldwide taxation, meaning U.S. citizens and legal permanent residents (also known as green card holders) are subject to U.S. taxes on their worldwide income, regardless of where they reside. Foreign nationals, on the other hand, are generally only subject to U.S. taxes on their U.S. source income unless they meet the criteria for U.S. tax residency, in which case they will be liable for U.S. taxes on their worldwide income.

The most common test used to determine U.S. tax residency status is the substantial presence test. Under this test, you will be considered a U.S. tax resident if you were present in the U.S. for at least 31 days during the current calendar year and 183 days during the three-year period that includes the current year and the two years immediately preceding it. The 183 days are calculated by counting all the days present in the current year, 1/3 of the days present in the first preceding year, and 1/6 of the days present in the second preceding year.

However, other tests may apply, such as the green card test, which directly grants U.S. tax residency to legal permanent residents, and the first-year choice test, which applies to certain foreign students and scholars. Additionally, claiming a tax treaty benefit can help reduce or eliminate U.S. tax liability for those navigating U.S. tax residency rules.

It is important to note that the U.S. has a different tax year and filing deadline than other countries, requiring multiple tax returns for those with income from both U.S. and foreign sources. Furthermore, U.S. tax residency status may necessitate filing additional forms, such as the Foreign Bank and Financial Accounts (FBAR) form, for those with foreign bank accounts or assets.

Another crucial consideration for those assessing their U.S. tax residency is the tax treatment of foreign assets. Under U.S. tax law, residents and citizens must report foreign assets on their U.S. tax returns, including prior-owned assets before becoming a U.S. tax resident.

Additionally, U.S. tax on the capital gains from the sale of foreign assets can represent a significant liability, emphasizing the importance of planning for those affected by U.S. tax residency regulations.

Finally, given the complexity and potential for change within the U.S. tax system, it’s vital to stay informed and compliant with all relevant tax laws and regulations.

Do not navigate the complex U.S. tax system and tax residency issues alone. Contact us today to schedule a consultation. We can help you understand your tax obligations related to U.S. tax residency and develop a plan to minimize your tax liability. Ensure your move to the U.S. is smooth and tax-efficient by getting in touch now.

We recommend the following resources to learn more about your U.S. tax obligations as a U.S. resident:

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