U.S. Tax Planning Before Moving to the United States

How U.S. tax residency begins

For federal income tax purposes, an individual who is not a U.S. citizen is generally treated as a resident if they hold lawful permanent resident status (the green card test) or if they meet the substantial presence test. The substantial presence test counts days of physical presence in the United States over a three-year period using a weighted formula set out by the IRS, with all days in the current year and fractional weights for the two preceding years. Certain days are excluded, and exceptions such as the closer connection exception may apply where the individual maintains a tax home and closer connection to another country.

Tax residency for income tax purposes is separate from immigration status and separate again from the estate and gift tax concept of domicile. Someone can be a resident for income tax while not domiciled for transfer tax purposes, and the two require distinct analysis.

The residency starting date matters

For an individual meeting the substantial presence test, the residency starting date is generally the first day of physical presence in the United States during that year, subject to specific rules and a de minimis presence exception. Because the start date determines what falls inside the U.S. tax net, the timing of the move itself is a planning variable, not merely a logistical one. Individuals who become residents partway through a year often file a dual-status return for that year, with different rules applying to the pre-residency and residency portions.

Pre-arrival items commonly reviewed

• Timing of the recognition of built-in gains on appreciated assets held before arrival
• Timing of distributions, bonuses, deferred compensation, and dividends from a non-U.S. company
• The treatment of non-U.S. pension and retirement arrangements once residency begins
• Holdings in non-U.S. pooled investment funds, which frequently fall under the PFIC rules
• Ownership of foreign corporations, which can bring Form 5471 reporting and anti-deferral regimes
• Existing trusts, both as settlor and as beneficiary, which can carry significant reporting
• Life insurance and annuity products issued outside the United States
• Whether basis and acquisition records for foreign assets are documented and retrievable

Foreign investment funds deserve early attention

Non-U.S. mutual funds, ETFs, and similar pooled vehicles are among the most common sources of unexpected complexity for new residents. Many fall within the passive foreign investment company rules, which impose an unfavorable default tax treatment and separate annual reporting. Reviewing an investment portfolio before residency begins usually presents more options than reviewing it after.

Entities and trusts

A closely held company abroad that functioned smoothly under local law can become a controlled foreign corporation once its owner becomes a U.S. person, bringing anti-deferral rules and annual reporting. Trusts require particular care: a foreign trust with a U.S. beneficiary or a U.S. settlor can trigger Forms 3520 and 3520-A, and the classification of the trust for U.S. purposes may not match its treatment at home. These are areas where restructuring before residency is often possible and restructuring afterwards is often taxable.

Treaties

Where an income tax treaty exists between the United States and the individual's home country, it may affect residency determinations through tie-breaker provisions, the taxation of pensions, and the treatment of specific income categories. Treaty positions generally require disclosure on the return, and they interact with the rules described above rather than replacing them. Whether a treaty helps is genuinely fact-specific.

Reporting that begins immediately

From the first year of residency, the obligations that apply to U.S. persons apply to the new resident: worldwide income reporting, the FBAR for foreign financial accounts above the threshold, Form 8938 where applicable, and any of the entity or trust forms triggered by existing holdings. None of this depends on income being remitted to the United States. Practically, the most common first-year problem is not tax at all — it is unfiled information returns for assets the client did not think of as reportable.

State considerations

Florida imposes no personal income tax, which is one reason many international families settle here. That does not eliminate federal obligations, and it does not resolve questions about property taxes, sales and use tax on certain transactions, or the state tax treatment of business activity conducted in other states. Where a business will operate across state lines, nexus should be considered alongside the personal planning.

A sensible sequence

In broad terms, pre-arrival planning works best when the review happens in the calendar year before the anticipated move, the asset and structure inventory is completed early, and any restructuring is executed before residency begins. Where a move is already underway, the analysis shifts to what remains available, which is often more than clients expect but less than would have been available a year earlier.

Sources and official references

• IRS — Substantial Presence Test
• IRS — Determining an Individual's Tax Residency Status
• IRS — Taxation of Dual-Status Individuals
• IRS — About Form 8621 (PFIC)