A Common Business and Tax Issue Faced by Immigrants in Texas
To read this article in Portuguese click here. (Para ler este artigo em Português click aqui).
We all know that people come from near and far in search of the American dream. I am one of those. Despite the recent changes in immigration laws, foreigners continue to seek entry and status in the United States for a variety of reasons – mostly for the bustling economy, the stability of the U.S. currency, and for the safety of their loved ones.
Immigrants enter the U.S. with a variety of visas, or with the much desired Green Card. And their visa or Green Card status will often dictate the protections they are afforded or the limitations they must work within.
In advising our clients in business and estate planning, we often deal with two common issues faced by immigrants that live in Texas:
1. Starting a Business in the U.S.
Anyone, regardless of immigration status, can start-up a business in the U.S. Many immigrants seek to enter the U.S. exactly for this purpose – starting a U.S. business or bringing a subsidiary of their foreign business to the U.S.
While there is no rule against immigrants starting a business here, certain visas come with restrictions. Depending on the visa status, an owner of a business may not be able to be involved in the daily operation activities of the business, and/or the owner may not be able to draw an income from it. Different visas carry different restrictions. Therefore, it is of utmost importance that an immigrant’s business attorney work in tandem with their immigration attorney.
If you are unsure of visa restrictions that may apply to you, do not risk it. A small mistake can result in jeopardizing your hard-earned visa, may have an impact on your ability to return to the U.S., and may result in serious attorney’s fees. Always consult with an immigration and business attorney to get proper advice for your specific situation.
Tip: If you are an immigrant with an employer-sponsored visa – do not contact the same immigration attorney that helped you with your employer-sponsored visa! This could jeopardize your visa and your employment with your employer. Seek to hire your own team of lawyers that has no connection with your workplace. Keep in mind that your employer’s attorney works for the employer and not for you. Your own attorney will give the best advice for you.
2. Paying Estate Tax
The estate tax is also known as an “inheritance tax” or a “death tax.” It is a federal tax charged upon any assets of a deceased person. The value of the tax is based on the total value of the deceased person’s assets. Some states also have a state estate tax in addition to the federal estate tax.
U.S. citizens and Green Card holders are awarded a federal estate tax exemption which is equal to $5 Million (yes, 5 million!). This amount is adjusted for inflation annually. This inflation adjustment means that for 2017, the federal estate tax exemption for a U.S. citizen and Green Card holder is of $5.49 million (increased from $5,450 million in 2016). In plain terms, $5.49 million would be exempt from federal estate tax. So that any person dying in 2017 with a total estate value of $5.49 million or less would not have any federal estate taxes due. The rules vary depending if the deceased person was married or single.
In another example, a U.S. citizen or Green Card holder who dies in 2017 with an estate valued at $8.49 million would receive an exemption of $5.49 million (the federal estate tax exemption amount for the year he/she died). This means that $3 million of their estate would be subject to federal estate taxes with a top federal estate tax rate of 40%. This could mean that up to $1.2 million of the $3 million subject to federal estate tax would be due to Uncle Sam.
So then what rules apply to the immigrant with a visa status? Under federal tax laws, a visa status immigrant receives the title of “nonresident alien.” For the immigrant classified as a nonresident alien the federal estate tax exemption drops from $5 million to a mere $60,000.
Let’s look at another example: a single visa holder immigrant (or a nonresident alien) buys a house in Texas, and works hard to make a living. He dies with his home valued at $250,000. After the $60,000 federal estate tax exemption, the deceased person’s estate would have to pay a tax on $190,000 worth of assets. In all, this deceased nonresident alien’s estate may end up paying a federal estate tax up to $76,000. This type of tax liability would likely force the family to sell the house to pay the taxes due.
But what if the deceased nonresident alien was married? What if the surviving spouse, and children were still living at the house? What if the family still needs to keep living there? Finding liquid assets with which to pay the taxes gets complicated, and can often make an already challenging situation even more difficult.
Careful planning with a qualified attorney can make it possible for nonresident aliens to plan for the deferral of the federal estate taxes due.
If you have questions about your particular situation, please give us a call to schedule a complimentary consultation.
Thanks for reading!