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We are husband and wife, now retiring in Jan 2019 and getting the PR Card for US. We have our investments in Indian Mutual Funds and Fixed Deposits in Indian Bank. When we shift to US, what are the situation with the following points:

  1. Do we have to declare our wealth which in Indian Funds and Banks?
  2. If yes, when? Our application has been approved and waiting for the final interview and medical after which we will be travelling to US in January 2019.
  3. What is the tax liability? Some of our investments attract Indian tax and some are exempt from Tax.
  4. What are the federal and state tax rates - we would be planning to be in Pennsylvania state.

Would be grateful to get your response soon.

Thanks

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  1. You do not have to declare your wealth upon arrival in the US with the exception of currency and negotiable securities that you are carrying with you at the port of entry, and that only if the amount exceeds US $10,000. There is no restriction on how much money you can carry with you (bring as much as you like) and no tax or customs duties to pay on the amount, not right then and there at the customs area, nor at a later date; but a declaration is required if the amount exceeds US $10,000.
  2. As a permanent resident of the US during 2019, you will need to file a Federal income tax return (due by April 15 2020) on which you must declare your world-wide income (not wealth, be sure to distinguish between the two concepts) and pay taxes on it as per law. That the income in India is already taxed in India is irrelevant; the income must be listed on the Federal tax return. If your bank paid you INR 112 in interest and sent INR 35 as TDS (tax deducted at source) to the income tax authorities in India, include INR 112 in your income declaration. (Convert INR into US dollars at the conversion rate as of December 31, 2019). You can get a credit on your US tax return for the taxes paid to the Income Tax Authority of India, so that you are not taxed twice on the same income by filing the appropriate forms.
  3. But what is (relatively) new and sometimes ignored by people from India is that you need to declare the existence of your foreign assets in two different filings. First, you are asked (on Schedule B of your US income tax return) if you have any foreign bank accounts, and if the total value exceeded US $10,000 at any time of the year, to fill out Form 8938 listing the assets and attach it to your Federal income tax Form 1040. Separately, you have to file FinCEN Form 114 with the US Treasury listing your foreign assets. Understand this carefully: There is no tax to be paid on this wealth, not now, and not, if at a later date, you bring some of this money to the US but there are severe penalties for failing to file these reports.
  4. Federal income tax rates are graduated. In most states, the taxable state income is based on the Federal taxable income, and in some states, the tax is not graduated -- you pay a flat x% state income tax regardless of the state taxable income.

And although you did not ask about your accounts in India, you should inform all your banks and brokerages you have become an NRI and convert all your accounts to NRO status. The US government does not care about this but the Reserve Bank of India does.

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