Tax planning for 1st year resident H1-B>LPR
 

OK, I thought I had my tax position pretty well simplified, but some stock options/IPO have caused me to second guess and wonder if I can improve things. Here is the scenario.

I have just moved to the USA about a month ago. My "base" could be argued to be Massachussets, but I am temporarily in California for a contract (which is within the terms of my H1-B). I expect to get a Green Card later this year (around August latest). I have property in the US already and have kept some property in the UK and Spain, with bank accounts in various countries and currencies. So - before I entered the USA I simplified as much as possible and dumped some investments that would cause overly complex calculations. All fine.

Then an old stock option investment I had made just recently turned into real money via an IPO. My gain (if I were to sell today) is several hundred thousand dollars - so enough for me to gulp at the CGT (Federal 20% and CA 13%).

My question is whether I have any options to mitigate some of the tax liability through either

1. Choices I may be able to make as a first year resident
2. Time the sale of the stock before or after I adjust status if there is anything beneficial.

Thanks in advance for any ideas. Obviously option B is just take it on the chin and put it down as a contribution toward the US economy.

Simon

Re: Tax planning for 1st year resident H1-B>LPR
 

Wait to sell until you count as resident in MA for tax purposes, or better still a state with zero state capital gains?

I don't think there will be any advantage to doing it in the first year if you're already going to be liable for capital gains at the higher rate.

Bear in mind there is also a further 3.8% due from the Medicare passive investment tax if your income exceeds $200k ($250k if married filing joint). Here's some more info from the first webpage I pulled up:
I don't see how there would be an advantage connected to your adjustment of status.

There are others here definitely more knowledgeable than me, but that's my take on it.

Re: Tax planning for 1st year resident H1-B>LPR
 

Thanks for the input. I hadn't realised about the extra 3.8%. Sheesh.

As you say, I think it would almost pay me to establish residency in Florida (I already own property there) and time the sale accordingly. Even to save 13% it would be worth it....

Thanks again.

Re: Tax planning for 1st year resident H1-B>LPR
 

Is there an option to cash in the options over several years and spread your tax burden?

Re: Tax planning for 1st year resident H1-B>LPR
 

Yes - I already exercise the options a few years ago, but up to now they have not been tradeable - because the company was not publicly traded. However, I can sell the shares over any period of time I like, but I believe as a capital gain I would still have the same tax liability (i.e. I don't think there are annual "allowances" that I could leverage).

Re: Tax planning for 1st year resident H1-B>LPR
 

There are no allowances, and (at least as the tax law is now) you would pay federal capital gains and state income tax on the profit whenever you sold it, however depending on your other income cashing in say $50K a year might save you a few percent in state tax if your marginal tax bracket is lower.

Re: Tax planning for 1st year resident H1-B>LPR
 

Yes I see what you're saying - thanks for that input.

Re: Tax planning for 1st year resident H1-B>LPR
 

So what's actually happened here? You exercised options a few years ago, perhaps acquired stock in a private entity (not easily tradeable) and now you have stock in a public company?

Some thoughts to consider, including but not limited to:

1. This is important enough to pay for expert professional advice, for example, experienced tax attorney.
2. Are you U.S. tax resident at this point? You don't have U.S. citizenship or a green card, so do you meet the "substantial presence test"? If you have become U.S. resident, on what date did that occur?
http://www.irs.gov/Individuals/Inter...-Presence-Test
3. If you're not U.S. resident then non-U.S. income and gains are not taxed by the United States, federally.
4. You may need to consider State income tax issues separately from federal.
5. Try to identify what is the taxable event(s) in the process.
6. You may also have an income tax and/or Capital Gains Tax liability in your existing/previous country of residence, and/or the location of the company.

Re: Tax planning for 1st year resident H1-B>LPR
 

To your points.

1. Most certainly I will, however, I wanted to check with a group of people who had experience of the immigration aspects (which is pretty unusual for a US tax attorney).
2. That is a good question - I'm not sure of the answer. So far, I don't exceed the 180 days, but I will this year - so I suppose that means I will become resident at some point - and if that is the case I may be able to sell before the test is reached - thus paying a much smaller tax amount. That is worth investigating with a decent tax attorney.
3. Understood.
4. Understood.
5. I am assuming it will be the sale - but again - I'll check that with a pro.
6. Understood. They have paid me some fairly substantial dividends over the last few years and those have been with a 15% withholding so if I were treated as NOT tax resident, that is what I would expect to pay - a 20% plus saving, which is significant.

Thanks for the comments. I just need to find a decent tax attorney now...

Re: Tax planning for 1st year resident H1-B>LPR
 

Although long term capital gains is not liable for alternate minimum tax (AMT), it can effect other income being liable for AMT. From a tax standpoint, a CPA can determine whether it is better to sell them in different years or possibly sell them all at once and take an immediate hit on taxes if the number of years is longer then you are willing to hold them. Sometimes taking an immediate tax hit can be better since it eats away at deductions and exemptions and taking capital gains all at once only effects deductions and exemptions for one year instead of possibly many years. You can probably also determine that yourself by running numbers through a tax preparation program.

Will you be liable for tax in the country where the stock is listed or your country of citizenship?