LooPtruy

Hi All

A question on tax implications with regards to my investments.

I currently live and work in Switzerland but am relocating permanently with my company to the US in the coming 2 weeks.

I have some investments with a Swiss broker, some having had a nice capital gain since I bought the securities and funds. Some others, I had capital losses.

I am a long term, passive style investor (very few stock and hardly any trades, rather all invested periodically in index funds)

As I am relocating to the US and I am aware that in Switzerland capital gains are 0%, from a tax perspective I think it makes sense to actually sell it all, specially the winning stocks.

What would be your thoughts? Does this actually make sense?

My goal would be to not have to deal with the current USA 15% capital gain (maybe 20% in the future) should I need to sell the stock in the future.

Thanks!

Hotscot

If you are absolutely coming here permanently and will become a US citizen that seems to make sense to me.

You should also research 401k's, and IRA's, especially the Roth, for ways to protect your assets when you come here.
(I believe you can use some of your money to fund a 2012 contribution to a Roth as long as you do it before April 15th 2013, and you can also use more of your money to fund the 2013 contribution from Jan 1st.)

If you have any losing stocks I believe you could sell those later and reduce your tax liability because of the loss.


(Some others here are far more knowledgeable on these matters than I.)

LooPtruy

I am moving here permanently, with a perm contract (for what that is worth )

We plan to stay here in the States 3 to 5 years before moving on to the next job, maybe in Asia (although you never know what life brings you)

Would you then recommend making the sell and maybe transferring all the cash from Switzerland to the States, then investing in the States?

Hotscot

If you're only staying for such a short time that suggests you won't become a citizen.
In which case you may prefer to leave your investments untouched during your time in the US.
I believe you will still have to declare any dividend income on your US tax forms.

Please note, I know enough about these things to be a danger to myself

Cook_County

These are all foreign funds so are all PFICs - so are inappropriate to be held by a US resident from a US tax perspective. Coming in with cash is a safer bet.

Hotscot

When you say inappropriate...he can still keep his investments though can't he, but under the burden of reporting?

nun

Yes he can keep them, although he would be a fool to do so. Sell all the PFIC investments before becoming US tax resident. Pay the capital gains (if any) in Switzerland and move the money to a low cost US broker if you want to continue to invest passively in index funds. If a US resident owns PFIC investments they might mark-to-market each year and pay tax on capital gains at their marginal income tax rate or they can pay under the excess distribution rules, also not a good outcome. The compliance and tax rate issues should be sufficient to convince any US citizen or tax resident NOT to own foreign mutual funds.

http://www.aicpa.org/publications/ta...-story-07.aspx

http://hodgen.com/pfic-mark-to-market-same-year/

RedDragon2008

I dont understand the risks here?

If I were to say relocate to the US for 3 or 5 years with no intention of taking up longer term residency, would the tax legislation be so harsh to make it worth selling up all overseas investments???

Especially if we are talking tens of millions?

nun

So you would be a US tax resident. The risks are fines for non-compliance and the taxation of capital gains at marginal income tax rates.

If you are ok paying capital gains tax on those investments at your marginal income tax rate then go ahead. Most people would want to pay capital gains tax at the 15% rate. You could wrap them up in an insurance policy or other structure to shield them from US taxation and probably pay mightily for it as well, but most regular investors would be better served to realize any gains while non US resident and then reinvest the money in the US. Remember all your offshore funds will be subject to US taxation and if we are talking millions they have to be declared on FBAR and 8938 forms.

RedDragon2008

So basically need to remain non tax resident? so less than 180 days in a tax year?

nun

Be careful the if you are on a non-immigrate visa you will be tax resident if you meet the substantial presence test, and that is NOT being in the US less than 180 day in a year

"To meet the substantial presence test, you must have been physically present in the United States on at least 31 days during the current year, and 183 days during the 3 year period that includes the current year and the 2 years immediately before. To satisfy the 183 days requirement, count all of the days you were present in the current year, and one-third of the days you were present in the first year before the current year, and one-sixth of the days you were present in the second year before the current year."

If you can prove that you are still tax resident in another country you might even get around the substantial presence test.....but I'd have a tax lawyer on hand to convince the IRS.

If you are moving to the US to work and will be making your home here and becoming US tax resident then SELL your PFICs before you come to the USA.

RedDragon2008

Thanks for the heads up

LooPtruy

Ok, so I sell it all, the winners and the loosers as most of them are securities or funds not domiciled in the US. Then I have a decent sized amount of cash, let´s say 300k USD.

As I have sold them in Switzerland, where there are no capital gains, I pay 0 taxes on the winners. Great.

Question now is, what does the IRS say when I transfer over 300k USD of cash to either a broker in the US or a bank account in the US?

nun

What the IRS says depends on when you sell and your US tax status. IRS says nothing if you do the sale before you move to the US and put the money into a Swiss back account, then move to the US and open a mutual fund account and then move the money to that account; the only US tax you might have to pay would be on any interest the cash earned while in the Swiss account. You'd only pay that if you file your first US tax return as a US resident alien and you'd get credit for US tax paid against any Swiss tax on the interest. You'd have to file 8938 and FBAR. If you file as a US non-resident alien in the first year there'd be no US tax due on the Swiss interest, no FBAR, but 8938 would still be required.

http://hodgen.com/form-8938-can-appl...sident-aliens/

LooPtruy

thanks nun for the input, very useful as usual!