Importance of Pre-Immigration Tax Planning

Pre-immigration tax planning is done by very few of the millions of immigrants who come to the United States. This is highly unfortunate because US tax laws are highly complex and it is very easy to get into trouble. The legal and emotional costs of bringing your tax affairs back into US tax compliance (after you violated any of these complex laws) are usually a lot higher than those of the pre-immigration tax planning. In this writing, I would like to discuss the concept and process of pre-immigration tax planning for persons who wish to immigrate and/or work in the United States.

The concept of pre-immigration tax planning is far more complex than what people generally believe. Most people simply focus on the actions required by local tax laws of their home country; very little attention is actually paid to the tax laws of the future host country – the United States. Perhaps, the only exception to this rule is avoidance of double-taxation; however, even this concept is approached narrowly to avoid only the taxation of US-source income by the home country.

Yet, the pre-immigration tax planning should focus on both, US tax laws and the laws of the home country. It is even safe to argue that a much larger effort should be going into US tax planning due to the much farther reach and the higher level of complexity of the US tax system; in fact, the capacity of US tax laws to invade one’s life is not something for which the new US immigrants are likely to be prepared. Furthermore, once a person emigrates to the United States, he will likely lose his tax residency in his home country.

Once the correct focus on US tax laws is adopted, the pre-immigration tax planning process should begin by securing a consultation with an international tax lawyer in the United States. Beware of using local tax lawyers who are not licensed in the United States to do your pre-immigration tax planning – having an idea of US tax laws is not the same as practicing US tax law. A separate article can be written on how to find and secure the right international tax lawyer, but, if you are reading this article, you already know that you should call Sherayzen Law Office for help with your pre-immigration tax planning!

During the consultation, your international tax lawyer should carefully go over your existing asset structure, their acquisition history, any built-up appreciation and other relevant matters. Then, he should classify the assets according to their likely US tax treatment and identify the problematic assets or assets which need further research. The lawyer should also discuss with you some of the most common US tax compliance requirements.

After the initial consultation, your US international tax lawyer will engage in preliminary pre-immigration tax planning, creating the first draft of your plan solely from US tax perspective.

Then, he will contact a tax professional in your home country (preferably a tax professional that you supply and who is familiar with your asset structure). If you have assets in multiple jurisdictions, the US lawyer should also contact tax attorneys in these jurisdictions in order to find out the tax consequences of his plan in these jurisdictions. He will then modify his plan based on these discussions to create the second draft of your pre-immigration tax plan.

The next step of your pre-immigration tax planning should be the discussion of the relevant details of the modified plan with your immigration lawyer in order to make sure that the plan does not interfere with your immigration goals. Once the immigration lawyer’s approval is secured, you can proceed with the implementation of the tax plan.

Obviously, this discussion of your pre-immigration tax planning is somewhat simplified in some aspects and overly structured in others. Not all of the steps need to be always followed, especially followed in the same order; a lot will depend on your asset structure and how complex or simple it is.

Finally, it is important to emphasize that pre-immigration tax planning applies not only to persons who wish to obtain US permanent residence, but also to persons who just wish to work (either as employees, contractors or business owners) in the United States, because these persons are likely to become US tax residents even if they never become US permanent residents.

Contact Sherayzen Law Office for Experienced Help With Your Pre-Immigration Tax Planning

If you are thinking of immigrating to or working in the United States, contact a leading international tax law firm in this field, Sherayzen Law Office, for professional tax help. Our experienced legal team has helped foreign individuals and families around the world and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Payroll Tax Cut Temporarily Extended into 2012

The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extended the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through February 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.

The IRS warned employers that they should implement the new payroll tax rate as soon as possible in 2012 but not later than January 31, 2012.  If however any extra Social Security tax is withheld in January of 2012, the employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.

Workers do not need to do anything else; employers and payroll companies should handle the withholding changes.

Recapture Provision

The Act also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year  amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).

This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions.  The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. This may change, however, since there is a possibility of a full-year extension of the payroll tax cut being discussed for 2012.

IRS May Issue Additional Guidance

The IRS will closely monitor the situation in case future legislation changes the recapture provision.  The IRS also promises to issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision.

For most employers, the quarterly employment tax return for the quarter ending March 31, 2012 is due on April 30, 2012.

Tax Consequences of Converting a Rental Property into a Primary Residence

Do you own a residential rental property that you plan to convert into your primary residence? Are you wondering if by doing so, you could still qualify for the capital gains exclusion on sales of a primary residence, when you do eventually sell? This article will examine these questions, and will explain some of the basic tax rules involved in turning a rental property into a primary residence.

The Capital Gains Exclusion for Sale of a Primary Residence- General Rules

In general, under Internal Revenue Code (IRC) section 121, taxpayers who reside in a primary residence, and who have both owned and lived (or used as a primary residence) in a home for at least two years within a five year period may qualify for the full capital gains exclusion of $500,000 on a joint filed tax return ($250,000 per spouse). However, taxpayers must not have already claimed this exemption within the past two years. Typically, each spouse of a married couple must meet both requirements in order to get the full exclusion. Certain exceptions may be available if the requirements are not met, depending upon the taxpayer’s circumstances. You will need to consult a tax attorney on this issue.

In converting a residential rental property into a primary residence, it should be noted that any depreciation taken while the property was a rental will not qualify for the capital gains exclusion, and will instead be subject to depreciation recapture. Depreciation deducted before May 6, 1997 will reduce the adjusted basis of a rental property, whereas depreciation deducted after that date will be taxed as a capital gain.

Non-qualified use of a Rental Property

In 2008, Congress amended IRC section 121, with the Housing and Economic Recovery Act, to add a limitation of the capital gains exclusion due to “nonqualified” use of a converted rental-to-primary residence. “Qualified” use is defined as any use of the property as a primary residence. “Non-qualified” use is defined as any use of the property other than as a primary residence, such as as a second home, a vacation property, a rental or investment property, or use of the property in a trade or business.

In general, the effect of the change is to limit the amount of capital gains exclusion to an allocation formula dependent upon non-qualified and qualified use of the property. For example, if the property is held for ten years and then sold, and for six of those years it was used as non-qualifying property, then 6/10 of the capital gain, would not be excluded. However, subject to certain exceptions, non-qualified use prior to January 1, 2009 will be ignored for purposes of the section

Contact Sherayzen Law Office For Tax Planning With Respect to Rental-Primary Residence Tax Planning

Taking advantage of the IRC section 121 capital gains exclusion may require detailed knowledge of the relevant tax rules and careful tax planning. Obviously, this article only provides some general background information for education purposes and should NOT be relied upon as a legal advice. Rather, you should contact Sherayzen Law Office to set up a consultation to discuss your particular fact situation. Our experienced tax firm will help you determine whether you may be able to take advantage of the IRC section 121 and how to do it.

Business Tax Lawyers | Certain End-of-Year Tax Deadlines and Reminders (2010)

The following are some upcoming tax deadlines and reminders for the December of 2010. (This list may not include all applicable tax deadlines for your situation, and does not constitute tax advice; please, consult Sherayzen Law Office for more information and assistance with your tax planning needs.)

Selected General Deadline Reminders for Individuals: December 31, 2010

Traditional IRA to Roth IRA Conversion. Last date for taxpayers to convert a traditional IRA to a Roth IRA for the tax year 2010 (provided a taxpayer meets the other applicable criteria).

Keogh plan deadline. Keogh plans must be established by the last date of the year (December 31, for calendar year basis taxpayers) in order for contributions to be deductible for the tax year 2010.

Capital Gains and Losses. Capital gains and losses for individual taxpayers are determined by the last trading date of the tax year. This is the case even though the settlement date (the date the shares-sold are actually exchanged and cash is received by the broker) may be several days later. Thus, even though the settlement date may occur in early 2011 for shares sold on the last trading date of 2010, the capital gains and/or losses will be established in 2010.

Short Sale Gains (But not Losses). Gains on shares sold short are also determined by trading date because of an IRS ruling treating the transaction as a constructive sale. Thus, shares sold short for gain on the last trading date of 2010 will be treated as capital gains for the tax year 2010, even though actual delivery of the shares may occur in 2011. Note, however, that for losses on shares sold short, the losses are not deductible until the shares are actually delivered to a broker. Taxpayers should plan accordingly if a loss is anticipated.

Marital Status. Taxpayers should note in general that marital status as of the last date of the year will determine the status for the entire tax year 2010.

General Tax Calendar Deadlines and Information (From IRS Publication 509)

December 10: Employees who work for tips. If you received $20 or more in tips during November, report them to your employer. You can use Form 4070.

December 15: Corporations. Deposit the fourth installment of estimated income tax for 2010. A worksheet, Form 1120-W, is available to help you estimate your tax for the year.

Selected Tax Deadlines for Employers Based on Monthly Deposit Rule

Social security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in November by December 15, 2010.

Non-payroll withholding. If the monthly deposit rule applies, deposit the tax for payments in November by December 15, 2010.

Employer’s Tax Deadlines: Payroll Due Dates for Deposit of Taxes for 2010 Under the Semiweekly Rule

Nov 24-26: Dec 1
Nov 27-30: Dec 3
Dec 1-3: Dec 8
Dec 4-7: Dec 10
Dec 8-10: Dec 15
Dec 11-14: Dec 17
Dec 15-17: Dec 22
Dec 18-21: Dec 27
Dec 22-24: Dec 29
Dec 25-28: Jan 3
Dec 29-31: Jan 5

Excise Tax Deadlines

December 10: Communications and air transportation taxes under the alternative method. Deposit the tax included in amounts billed or tickets sold during the first 15 days of November.

December 14: Regular method taxes. Deposit the tax for the last 15 days of November.

December 28: Communications and air transportation taxes under the alternative method. Deposit the tax included in amounts billed or tickets sold during the last 15 days of November.

December 29: Regular method taxes. Deposit the tax for the first 15 days of December.

Have more questions about tax deadlines, or need help in planning for your year-end tax decisions? Call Sherayzen Law Office to discuss your tax situation with an experienced tax lawyer!

Capital Gains and Losses: Tax Implications for Individuals and C-Corporations

Capital gains and losses defined

Capital gains and losses result from the taxable realized sale or exchange of capital assets. In general, capital assets include investments (such as stocks and real estate) and fixed assets, as opposed to personal-use property.

Capital gains result when the sale or exchange price is greater than the adjusted basis of the capital asset. Conversely, capital losses occur when the adjusted basis is higher than the sale or exchange price, and certain expenses associated with the sale may be added to the loss. The holding period of the capital asset being sold or exchanged will determine whether the capital gain or loss is long-term (held for more than a year) or short-term (held for less than a year).

Netting Capital Gains and Losses (Individual taxpayers)

Each taxable year, capital gains and losses are aggregated or “netted” on Schedule D. First, long-term capital gains and losses are netted. Second, short-term capital gains and losses are netted. Four possible scenarios will result from this two-step process:

Scenario A: A long-term gain and short-term gain
Scenario B: A long-term gain and short-term loss
Scenario C: A long-term loss and short-term gain
Scenario D: A long-term loss and short-term loss

In scenario A, the short-term gain will be taxed with the taxpayer’s ordinary income at his or her marginal rate. For the long-term capital gain, the favorable long-term capital gains tax rate will apply, depending upon the taxpayer’s tax bracket.

In scenario B, there are two possible outcomes depending upon which result is larger, the loss or the gain. If the short-term loss is greater than the long-term gain, a net short-term loss will result, and up to $3,000 can be used to offset other income, with additional amounts can be carried forward to subsequent tax years. Alternatively, if the long-term gain is larger than the short-term loss, then a net long-term gain will result, and the favorable long-term capital gains tax rates will apply.

In scenario C, there are two possible outcomes depending upon which result is larger, the loss or the gain. If the long-term loss is larger than the short-term gain, then a net long-term loss will result, and (as with scenario B) up to $3,000 can be used to offset ordinary income. Any unused amount above $3,000 can be carried forward to subsequent years as long-term loss. Alternatively, if the short-term gain is larger than the long-term loss, then a net short-term gain will result, and it will be taxed at the taxpayer’s marginal rate.

In scenario D, there are several possible outcomes. First, if the total long-term and short-term losses combined total $3,000 or less, then the amount may be used to offset ordinary income. However, if the total amount of short-term losses exceed $3,000, then the first $3,000 of short-term loss will be applied to offset other income, and any remainder will be carried forward to subsequent years as a long-term loss. If the short-term loss is less than $3,000, then that amount will be applied to offset ordinary income, and any amount of available long-term loss making up the difference between the short-term loss applied and $3,000 will also be used to offset ordinary income (with the additional, unused amounts carried forward).

Capital Gains and Losses (C Corporations)
C corporations, unlike individuals, do not receive favorable tax rate on capital gains. Capital gains must be included as part of ordinary income, in their entirety.

Further, capital losses must be used only to offset capital gains, and are non-deductible against ordinary income for C corporations. Net capital losses can be carried back to the three preceding years (and are applied in chronological order, beginning with the earliest tax year) provided the corporation has capital gains to offset. Additionally, corporate taxpayers may carry forward the capital loss five years from the year of loss, again provided that there are capital gains to offset. Carryforwards expire after the fifth year. Importantly, all losses carried back or forward are considered to be short-term.

Offsetting Capital Gains and Losses
Are you a taxpayer interested in benefiting from the capital gains and losses tax rules? Do you have questions about selling capital assets such as stocks or real estate for tax purposes, and how to best time your transactions in order to pay less taxes? Are you concerned about how new capital gains and loss tax changes may affect your situation?

Sherayzen Law Office can guide you with all of your capital gains and losses questions, and help you plan ahead so that you pay less taxes.

Call NOW to discuss your case with an experienced tax attorney!