Tax-Saving Strategies for Families Visiting the USA

When family visits the USA, it’s a perfect time to plan and potentially save thousands in taxes. Today, let’s explore a tax-saving strategy that every Silicon Valley resident should know about: donating stocks!

Understanding the Basics: Donating Stocks

Here’s a quick overview: parents classified as Non-Resident Aliens (NRA) can avoid capital gains tax by donating stocks, while still facing a portion of the dividend tax. Each year, they can donate up to $19,000 per person. 💰

Key Tax Concepts

• Dividend Tax: Normally, dividends are subject to a 30% withholding tax. However, through a Tax Treaty, this can be reduced to just 10%.
• Capital Gains Tax: Generally, this tax applies at both the federal and state levels, amounting to approximately 45% for workers in Silicon Valley. If someone surpasses $1M in profit, they face extra taxes – it’s quite a hit!

If your parents are not tax residents in the USA, they are exempt from US taxes. This presents the perfect opportunity to open accounts with brokers like IB or Charles Schwab, where they won’t incur capital gains tax on any sold stocks or funds! This means that all gains from US stocks are 100% tax-free! 💯 Dividends will only incur the lower 10% tax rate.

The Donating Process

By utilizing this strategy, married couples can effectively donate a total of $76,000 per year ($19,000 x 4 people). For Silicon Valley residents, this process can result in savings of over $30,000!

Steps to Follow

1. Open a Bank of America Checking Account: This process is straightforward; you only need proof of a US address. A real-world tip: an Amex additional card envelope can serve as proof!
2. Set Up a Charles Schwab International Account: This is also a simple process, requiring a proof of your address in your home country and a completed form. Domestic utility bills work great for proof!
3. Initiate Stock Transfers: Call your broker and start transferring stocks from your account to your parents’ accounts.

What About the Kids?

You might wonder, “What about the kids?” While children residing outside the US are considered Resident Aliens (RA), they also have an annual tax exemption. If you are married with three children, you can gift each of them $19,000, while your spouse can do the same. This means you can transfer a whopping $114,000 ($19,000 x 6) to your kids without triggering any tax obligations or gift tax filings!

Moreover, the kiddie tax (which applies to gains under $2,600) is relatively low, but every little bit adds up over time! You might consider selling the stocks once the kids reach adulthood. The accounts for children are known as custodial accounts, and there are also options like 529 plans or Roth IRAs to consider. More on this in future posts!

Conclusion

Taking advantage of stock donations is a valuable strategy for families visiting or living in the USA. By understanding and utilizing these methods, you can potentially save a significant amount in taxes while maximizing the benefits for your family. Stay tuned for more tips on enhancing your life in Silicon Valley and beyond! #SiliconValleyLife #NewYorkLife #ChicagoLife #EssentialForWorkers #SkillsDevelopment #USA TaxSavingStrategies #LivingInAmerica