On investing [non-US resident] Dad's money

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malbec84
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Joined: Mon Oct 15, 2018 12:43 am

On investing [non-US resident] Dad's money

Post by malbec84 » Mon Oct 15, 2018 1:29 am

Some context here:

Dad:
  • non citizen & non us resident (lives abroad)
  • Made some Real Estate operations in Florida (5ys ago) that lead to ~$200k net earnings
  • Dad has an ITIN # and operations were made through an LLC (EIN). Earnings already paid tax.
  • Cash is sitting in a BoA business checking account
Me:
  • citizen and us resident
  • 32% tax bracket
Long story short: Cash has been sitting in a 0% APR account for quiet a few. Dad wants to put the money to work in low risk instrument (online saving account/CD/...). I'm very happy with my Ally saving account that I use for my emergency fund (1.9% APR) but I'm having trouble opening an account under his name using his ITIN number. Same thing with Capital One online saving accounts. Seems that opening online accounts for non residents is not straightforward.

Questions:
  • What tax consideration should be aware if I send the $200k to my Ally saving accounts. I guess I will need to report the interest in my tax returns. Any other possible tax implication that could harm me?
  • Does anyone has experience opening an low risk account with some decent APR using ITIN or EIN?
  • I am missing something? Is there any easy way where he can place the cash?
Thanks!

elderwise
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Joined: Fri Jul 22, 2016 10:27 am

Re: On investing [non-US resident] Dad's money

Post by elderwise » Mon Oct 15, 2018 11:12 am

Not sure if this seems beyond reasonable, but could you get your dad a Green Card (parents are immediate family get within 1 years time).

He gets SSN and can open this directly in his name? or even if he wants to do under your name he can gift (legally under the estate $5mm limit).

lastly, I thought US citizens getting gift from NRA's parents, cousin or anyone NRA no tax.But if exceeds 100K need to file a form, this way you can invest it for him however he pleases without major tax issues? since your citizen / resident all taxes would be paid anyways.

TedSwippet
Posts: 1864
Joined: Mon Jun 04, 2007 4:19 pm

Re: On investing [non-US resident] Dad's money

Post by TedSwippet » Mon Oct 15, 2018 1:44 pm

elderwise wrote:
Mon Oct 15, 2018 11:12 am
Not sure if this seems beyond reasonable, but could you get your dad a Green Card (parents are immediate family get within 1 years time).
Unless dad plans to move to and live in the US, this would be a really bad idea. As a Green Card holder, he would have to endure the full awfulness of US tax reporting and liabilities.
elderwise wrote:
Mon Oct 15, 2018 11:12 am
But if exceeds 100K need to file a form, ...
IRS form 3520, US person receipt of gift or bequest from foreign donor that exceeds $100k.

malbec84
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Joined: Mon Oct 15, 2018 12:43 am

Re: On investing [non-US resident] Dad's money

Post by malbec84 » Tue Oct 16, 2018 3:36 am

Indeed, making him liable to US tax system is not part of our plans. Huhh...I'm surprised that investing cash (already in the US banking system) would be that hard...

Looks like the most effortless workaround would be send the cash to my Ally account in two transactions < $100K (before/after Dec 31) to not exceed the limit. If anyone has a better idea please let me know.

Thx!

heikejohn1
Posts: 52
Joined: Wed Apr 23, 2014 6:02 am

Re: On investing [non-US resident] Dad's money

Post by heikejohn1 » Tue Oct 16, 2018 5:41 am

Do you not have to pay income taxes on that money at that time?

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Watty
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Re: On investing [non-US resident] Dad's money

Post by Watty » Tue Oct 16, 2018 6:03 am

You should really get professional tax advice since non-resident alien taxes can be very complicated and the details can vary depending on which country he is in because of different tax treaties with different countries.

Moving money to your accounts to avoid taxes could be tax fraud in some cases.

If the money is still in a US account when he dies then the estate taxes for a non-resident alien can be ridiculous if he has more than $60,000 in the US when he dies.

Moving the money out of the US would be worth considering.

Chris K Jones
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Joined: Sat Jan 20, 2018 6:54 pm

Re: On investing [non-US resident] Dad's money

Post by Chris K Jones » Tue Oct 16, 2018 7:39 am

Watty wrote:
Tue Oct 16, 2018 6:03 am
You should really get professional tax advice since non-resident alien taxes can be very complicated and the details can vary depending on which country he is in because of different tax treaties with different countries.

Moving money to your accounts to avoid taxes could be tax fraud in some cases.

If the money is still in a US account when he dies then the estate taxes for a non-resident alien can be ridiculous if he has more than $60,000 in the US when he dies.

Moving the money out of the US would be worth considering.
I think the above is very good advice. What if you put his money in your account and YOU die? The money is then part of your estate and he can't get to it. See a lawyer or have him take the money out of the US. Best wishes.

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galeno
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Re: On investing [non-US resident] Dad's money

Post by galeno » Tue Oct 16, 2018 1:06 pm

If USA domicled money gets sent to a non-USA domicile does not 30% USA-NRA have to be withheld and given to the USA tax authorities?
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

TedSwippet
Posts: 1864
Joined: Mon Jun 04, 2007 4:19 pm

Re: On investing [non-US resident] Dad's money

Post by TedSwippet » Tue Oct 16, 2018 2:10 pm

galeno wrote:
Tue Oct 16, 2018 1:06 pm
If USA domicled money gets sent to a non-USA domicile does not 30% USA-NRA have to be withheld and given to the USA tax authorities?
It is (of course) complicated.

Chapter 3 US withholding is for tax. That would be 30% or lower treaty rate on dividends, and 0% on interest, capital gains, and principal. Special rates apply to US situated real estate under FIRPTA.

Chapter 4 US withholding is for FATCA. That would be 30% of dividends and interest, reduced to 0% where the country has a FATCA IGA (intergovernmental agreement) with the US. Planned for next year is an extension of this to cover "gross sale proceeds" of anything than can produce dividends or interest (and yes, for non-IGA country investors this could easily cut into principal).

If both of the above apply, the total US withholding is 51%. It remains to be seen whether the US really can enforce the upcoming 30% on "gross sale proceeds" of non-IGA country investors without losing a whole heap of inward investment in the process. FATCA passed into law in 2010, and the fact that it is still not fully implemented as of late 2018 reveals much regarding its basic unworkability.

As for the OP's dad... just move the money out of the US now and put it to good use elsewhere. No sense leaving it to rot in the US, as far as I can see. And I certainly would not get fired up about a possible 1.9% APR in US interest if it meant facing all of the hurdles the US puts in place for NRAs. Surely a comparable rate can be had risk-free in pretty much any other country, and without the worry of all the US tax traps set for NRAs.

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galeno
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Re: On investing [non-US resident] Dad's money

Post by galeno » Tue Oct 16, 2018 2:21 pm

Let me simplify my question.

A USA person wants to pay me (non-USA person in country w/o US tax treaty) $1000 for services rendered.

Would not the USA person send me $700 and then send the US tax authorities $300 to be completely legal?
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

TedSwippet
Posts: 1864
Joined: Mon Jun 04, 2007 4:19 pm

Re: On investing [non-US resident] Dad's money

Post by TedSwippet » Tue Oct 16, 2018 3:24 pm

galeno wrote:
Tue Oct 16, 2018 2:21 pm
Let me simplify my question. A USA person wants to pay me (non-USA person in country w/o US tax treaty) $1000 for services rendered. Would not the USA person send me $700 and then send the US tax authorities $300 to be completely legal?
Maybe. Simple US tax questions rarely have simple answers. It depends on what these services were, how, when and where you rendered them, whether you operate as a single-person corporation, whether you are an employee of a non-US government, or an ordained minister of the church, or a seaman operating in waters above the US continental shelf, or an artist or athlete, and on and on and on.

The 55-page behemoth that is IRS publication 515 shows you a selection of the details. I am sure you have better things to do with your time than wade through that. I know I have.

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galeno
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Re: On investing [non-US resident] Dad's money

Post by galeno » Tue Oct 16, 2018 6:30 pm

No thanks. I've learned more than I'd ever want to know about US laws. By participating on US-based financial boards for 20+ years.
TedSwippet wrote:
Tue Oct 16, 2018 3:24 pm
galeno wrote:
Tue Oct 16, 2018 2:21 pm
Let me simplify my question. A USA person wants to pay me (non-USA person in country w/o US tax treaty) $1000 for services rendered. Would not the USA person send me $700 and then send the US tax authorities $300 to be completely legal?
Maybe. Simple US tax questions rarely have simple answers. It depends on what these services were, how, when and where you rendered them, whether you operate as a single-person corporation, whether you are an employee of a non-US government, or an ordained minister of the church, or a seaman operating in waters above the US continental shelf, or an artist or athlete, and on and on and on.

The 55-page behemoth that is IRS publication 515 shows you a selection of the details. I am sure you have better things to do with your time than wade through that. I know I have.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

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