As each year ends and a new one begins, the time for preparing taxes also comes and goes. After the hard journey of preparing for and obtaining an EB-5 visa, some investors who have settled nicely in the U.S. their first year begin to feel the stress that sometimes accompany other green card holders: the filing of their first income taxes in the U.S.
With proper assistance from experienced tax professionals and pre-immigration planning, EB-5 investors can anticipate new tax challenges and navigate through them fairly painlessly.
On the other hand, EB-5 investors who have completely forgotten or ignored U.S. tax implications throughout the EB-5 preparation and petition process may find themselves a bit shocked and surprised by the following tax requirements:
- Reporting worldwide income. Once you obtain your green card, the U.S. considers you a tax resident. When it comes time to file your federal income tax return each year, you will have to report all of your earnings, from all sources, both inside and outside of the U.S. As you can imagine, EB-5 investors who have significant sources of income from outside the U.S. will not only have to report all sources of income, but may find they have to pay tax on some of that income if they have not met certain tax minimums.
- Paying income taxes at the federal and state level. For many long-time citizens and residents in the U.S., there is a saying that “death and taxes are inevitable.” Unlike in some countries, where only one government agency imposes an income tax, here in the U.S., the federal government imposes income taxes and the states may individually impose an income tax as well. As of December 2013, there are seven states that do not impose an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. The rest of the states impose some form of income tax. (Tennessee and New Hampshire do not tax income earned from wages but do tax income earned from dividends and interest.) Therefore, EB-5 investors who live in a state that imposes state income tax may find it hard to adjust to the dual taxation and may find that they are paying very high taxes!
- Paying income taxes due to substantial presence in the U.S. Some EB-5 investors may be impacted by the “substantial presence” test for tax purposes. Under this test, the federal government lays out a formula of how many days a foreigner who is in the U.S. may qualify as a U.S. tax resident by virtue of having been physically present in the U.S. Newly minted EB-5 visa investors, whose spouse or children are not green card holders, may find that their family members’ multiple visits to the U.S. might inadvertently trigger the “substantial presence” rule. The consequences can mean that their spouses or children will have to file U.S. income taxes because they are technically tax residents under the “substantial presence” test.
Every EB-5 investor’s circumstance is different, which is why any EB-5 investor who has tax-related questions should carefully and thoroughly discuss their issues with an experienced and licensed tax professional skilled in counseling an international clientele.
While we are not tax attorneys, we’ve worked with many licensed tax professionals in the immigration setting. If you need a referral to a skilled tax advisor experienced in counseling EB-5 clients, we can help. Our immigration attorneys at Jatoi & de Kirby, A.P.C. can refer you to a skilled tax advisor, as well advise you about the requirements of an EB-5 visa. Contact us for more information.