# U.S. tax planning tools > Legal U.S. tax planning tools for Americans abroad: FEIE, foreign tax credit, totalization, entity classification, CFC/PFIC review, trusts, pre-immigration and expatriation planning. Author: Олег Рябцев — партнёр, Family Office (https://wiki.private.law/authors/ryabtsev) Last modified: 2026-06-06T06:49:00.000Z Canonical: https://wiki.private.law/en/us-tax-planning Topics: investments, migration, structures Jurisdictions: usa Product tags: tax-regime, wealth-planning, cfc, trust Semantic tags: tax-regime, wealth-planning, cfc, trust --- --- ## Concept > 🔗 **Related** > [U.S. person status](https://wiki.private.law/en/us-person-tax-status) · [worldwide income](https://wiki.private.law/en/us-worldwide-income) For Americans abroad, U.S. tax planning is a legal design process, not a secrecy exercise: fix U.S. person status, report worldwide income, choose the right exclusion or credit, classify entities correctly, avoid toxic investments, document foreign taxes, and keep enough evidence to survive bank and IRS review. > 💡 Legal U.S. planning is design, not concealment: choose the right elections and timing, keep the U.S. connection fully visible. These tools interact, so they cannot be chosen one at a time: a residence election changes the credit math, an entity election changes the reporting, and an investment choice changes both. Model the whole set together against real facts, before the transaction rather than on the return. > 🍓 Almost every tool here only works if it is chosen before the event — before the foreign company is formed, before the fund is bought, before the green card, before the move. Run the model first; planning after the transaction is usually cleanup, and cleanup is more expensive. ## Income tools > 🔗 **Related** > [More: FEIE and foreign tax credit](https://wiki.private.law/en/us-feie-foreign-tax-credit) For earned income, the first choice is between two reliefs. > 💡 Scenario: an American founder abroad — choosing FEIE vs the foreign tax credit, plus an entity classification election, before the year starts beats fixing it on the return. More: FEIE and foreign tax credit **Foreign earned income exclusion** The foreign earned income exclusion (up to $132,900 for 2026, $130,000 for 2025) can help where income is earned abroad and the taxpayer meets the tax-home and presence tests. It does not eliminate every U.S. tax item and does not remove self-employment tax. **Foreign tax credit** The [foreign tax credit](https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit) often works better where the foreign country has high income tax. Baskets, sourcing, timing and carryovers all matter, and FEIE-excluded income cannot also generate a credit. For self-employed founders and consultants, review the IRS rules on [self-employment tax for businesses abroad](https://www.irs.gov/individuals/international-taxpayers/self-employment-tax-for-businesses-abroad) and totalization agreements. Social security coordination through a totalization agreement can be as important as the income tax answer, because FEIE does not switch off self-employment tax. ## Entity tools > 🔗 **Related** > [U.S. CFC rules](https://wiki.private.law/en/us-cfc) · [foreign entity forms](https://wiki.private.law/en/foreign-entities-forms-8865-8858-926) Entity planning starts with classification. [Form 8832](https://www.irs.gov/forms-pubs/about-form-8832) — the check-the-box election — can set the classification for an eligible entity, but the consequences may include deemed transactions. A foreign company can trigger U.S. CFC rules, while foreign partnerships, disregarded entities and transfers can trigger foreign entity forms. Where a controlled foreign corporation is in play, the section 951A regime drives the planning: taxed as GILTI through 2025 and renamed net CFC tested income (NCTI) for tax years beginning after 2025. Under OBBBA the base hardens — the 10% QBAI routine-return carve-out is gone, the section 250 deduction falls from 50% to 40% (an effective corporate rate near 12.6%), and the deemed-paid foreign tax credit rises from 80% to 90%. Common responses are a section 962 election (taxed at corporate rates with that credit), the high-tax exception and treaty positions, all of which need numbers, not labels. ## Investment tools > 🔗 **Related** > [PFIC and Form 8621](https://wiki.private.law/en/pfic-form-8621) · [Crypto](https://wiki.private.law/en/crypto-private-wealth) · [Roth carried abroad](https://wiki.private.law/en/roth-abroad-treaty) The cleanest PFIC planning is avoidance before purchase. Many non-U.S. mutual funds and ETFs can create PFIC and Form 8621 work. If a U.S. person already holds PFIC assets, the review should consider available elections, historic data and whether the fund provides the information needed for a qualified electing fund election. > ⚠️ PFIC damage is done at purchase: a single non-U.S. mutual fund or ETF can trigger the punitive default regime — screen investments before buying, not at filing. Crypto, private funds, insurance wrappers and foreign pensions need separate classification. Do not assume that local tax deferral is respected by the United States; even a Roth carried abroad depends on a treaty to keep its shelter. ## Trust and family tools > 🔗 **Related** > [foreign trusts and Form 3520](https://wiki.private.law/en/us-foreign-trusts-form-3520) · [substantial presence](https://wiki.private.law/en/us-tax-residency) Trusts can support governance, succession and asset segregation, but a U.S. person needs a trust status review before funding or distributions, and a domestic U.S. trust is often cleaner than a foreign one. The IRS pages for [Form 3520](https://www.irs.gov/forms-pubs/about-form-3520) and [Form 3520-A](https://www.irs.gov/forms-pubs/about-form-3520-a) show why a private family arrangement becomes a formal U.S. reporting obligation; the detail sits in foreign trusts and Form 3520. Pre-immigration planning — including basis step-up and entity or trust restructuring — should happen before a green card, substantial presence or a move to the United States, because most of it cannot be undone afterwards. ## Reporting tools > 🔗 **Related** > [FBAR](https://wiki.private.law/en/fatca-fbar-form-8938) · [Forms 5471, 8865 and 8858](https://wiki.private.law/en/foreign-entities-forms-8865-8858-926) · [3520 and 3520-A](https://wiki.private.law/en/us-foreign-trusts-form-3520) · [defined cleanup track](https://wiki.private.law/en/us-tax-enforcement-cleanup) Reporting is its own layer, separate from the tax computation. A U.S. person abroad usually files FinCEN Form 114 — the FBAR — once foreign accounts cross $10,000 in aggregate at any point in the year, and Form 8938 with the return once the higher [FATCA thresholds](https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements) are met. The two overlap, but neither replaces the other, and entity or trust positions pull in Forms 5471, 8865 and 8858 and 3520 and 3520-A on top. > ⚙️ Information-return penalties run on their own clock and are often larger than the tax itself; a missed Form 5471 or 3520 can stay open for years. When filings have slipped, fix them through a defined cleanup track rather than a quiet catch-up. ## Checklist - Confirm U.S. person status before choosing any planning tool. - Model FEIE versus the foreign tax credit by year and income category. - Check self-employment tax and totalization before setting compensation. - Classify every foreign entity and document each Form 8832 election. - Model section 951A, a section 962 election and the high-tax exception before holding a CFC. - Screen funds, ETFs and insurance wrappers for PFIC risk before purchase. - Review trusts before funding, adding U.S. beneficiaries or making distributions. - Run pre-immigration basis planning before a green card or substantial presence. - File the FBAR and Form 8938, and reconcile them with the 5471, 8865 and 3520 series. - Keep a written memo for each major election and non-election. ## Common mistakes - Treating FEIE as a complete exit from U.S. tax. - Claiming a foreign tax credit without matching income category, timing and source. - Forming a foreign company before checking CFC, section 951A and Form 5471 consequences. - Buying non-U.S. funds through a private bank without PFIC review. - Using a foreign trust to hold U.S.-connected family assets without Forms 3520 and 3520-A analysis. - Missing pre-immigration basis planning until after the move. - Planning expatriation before cleaning up five years of filings. - Reporting income correctly but missing the FBAR, Form 8938 and the 5471, 8865 or 3520 returns. ## Advisor trigger > 🔗 **Related** > [gift](https://wiki.private.law/en/gift-tax-lifetime-gifting) · [inheritance](https://wiki.private.law/en/us-estate-tax) · [expatriation](https://wiki.private.law/en/us-expatriation-exit-tax) Use professional advice before any relocation, green card, equity grant, foreign company, trust, fund portfolio, crypto structure, large gift, inheritance, sale of a business, or a citizenship or expatriation decision. ## Q&A ### FEIE or the foreign tax credit — which is better It depends on the foreign tax rate and the income type. FEIE tends to fit low-tax or no-tax countries; the foreign tax credit tends to fit high-tax countries and can carry over. They cannot both be claimed on the same income, and FEIE does not remove self-employment tax, which is where a totalization agreement matters. ### What does a check-the-box election on Form 8832 do It sets the U.S. tax classification of an eligible foreign entity — corporation, partnership or disregarded entity. It can simplify reporting or change the CFC and credit position, but the election itself can create deemed transactions, so it should be modeled before filing. ### How does section 951A affect a U.S. owner of a foreign company A controlled foreign corporation can bring the section 951A regime — taxed as GILTI for years through 2025 and renamed net CFC tested income (NCTI) from 2026. A section 962 election, the high-tax exception or a U.S. C-corp blocker can change how that income is taxed, each with its own trade-offs. ### Why is a foreign ETF a planning problem A non-U.S. fund is usually a PFIC, and the default PFIC regime is punitive. The cleanest answer is avoidance before purchase; once held, the review turns to elections and whether the fund supplies qualified-electing-fund data. Form 8621 reporting applies either way. ### When should pre-immigration planning happen Before the green card, substantial presence or move. Basis step-up and entity or trust restructuring are largely unavailable once a person is inside the U.S. system, so the window closes on the date residency starts. --- ## FAQ ### What does a check-the-box election on Form 8832 do It sets the U.S. tax classification of an eligible foreign entity — corporation, partnership or disregarded entity. It can simplify reporting or change the CFC and credit position, but the election itself can create deemed transactions, so it should be modeled before filing. ### How does section 951A affect a U.S. owner of a foreign company A controlled foreign corporation can bring the section 951A regime — taxed as GILTI for years through 2025 and renamed net CFC tested income (NCTI) from 2026. A section 962 election, the high-tax exception or a U.S. C-corp blocker can change how that income is taxed, each with its own trade-offs. ### Why is a foreign ETF a planning problem A non-U.S. fund is usually a PFIC, and the default PFIC regime is punitive. The cleanest answer is avoidance before purchase; once held, the review turns to elections and whether the fund supplies qualified-electing-fund data. Form 8621 reporting applies either way. ### When should pre-immigration planning happen Before the green card, substantial presence or move. Basis step-up and entity or trust restructuring are largely unavailable once a person is inside the U.S. system, so the window closes on the date residency starts. --- ## Factual claims - Where a controlled foreign corporation is in play, the section 951A regime drives the planning: taxed as GILTI through 2025 and renamed net CFC tested income (NCTI) for tax years beginning after 2025.