theOAP

The IRS only requests 3 years of back returns. No additional years are necessary. The SOL (Statute of Limitations) is only 3 years.

Since you are resident abroad, your tax return for year 2014 is not due until 15 June 2015, although if you owe any tax, the tax is due on 15 April and will generate interest if not paid by then.

OEIC! Damn! An OEIC is comparable to a mutual fund in the US. For the US citizen abroad, there are certain investments which are toxic. These include mutual funds and Stocks and Shares ISA's. You are certainly allowed to hold these investments, but Congress has made it difficult (protectionism) to report foreign mutual funds on a US return. IMHO, these are a PFIC (a Passive Foreign Investment Company, and not individual shares you invest in) and require a Form 8621 for each separate block of investments. The IRS estimated time to complete 1 form is 40 hours.

How's your appetite for intense paperwork? They can be completed by an individual, but they are not a simple form filling exercise.

You've some decisions to make. You can't undo the past, so if you wish to become compliant for the past 3 years, you'll have to file these forms. You could start simply filing going forward (start with 2014 and file it only) but this could be risky.

My suggestion, and it will not be cheap, is to find a qualified, competent US/UK tax advisor. Just about all are located in London. DO NOT let anyone talk you into anything other than filing a quiet disclosure (just send in the past 3 years) or filing under the Streamlined Programme. DO NOT consider the OVDP programme. There are other routes, but they carry risks as well. How do you feel about closing these investments out for future years? How do you feel about retaining US citizenship?

kevinmayor

Forms 1040 and 1116

If I get to the end of a UK tax year and have to pay the additional UK tax can I

1. Claim is as a tax credit in addition to my wages.
2. Is it treated as paid or accrued.
3. Am I supposed to pro-rata this over 12 365 days and take only the portion of the US year it applies to.

4. If I paid for my daughters accommodation since she is in University can I claim this on line 34 of 1040. This is her first year of University and would not want to miss this if its a viable offset.

5. If the student load is in her name. can I paid some of the interest and claim on Line 33, or does this really belong to her. She is still a dependant.

6. In general does paid vs accrued effect Tax Credit and if my UK tax is larger than US Tax, carrying forward unused credit sounds a great I idea, just a little confused on how to put this into motion.

theOAP

Does it increase the amount of US tax due on the prior years US tax return? If so, you may want to file a 1040X for the prior year with a new 1116 with the altered UK tax paid amounts (prorated).

Does it decrease the amount of US tax paid on the prior years US tax return? If so, you may want to file a 1040X for the prior year with a new 1116 with the altered UK tax paid amounts (prorated) to claim a refund.

Is there no change to the prior US tax amount due? Then consider claiming the additional UK tax paid as part of total UK tax paid for the year in which you paid it. Is this correct? No, but it seems pointless to file yearly 1040Xs when there is no change to the US tax due. Keep accurate records as to when you paid the UK tax.

I can't answer this, perhaps someone more knowledgeable will be able to assist.

Generally, one ticks the 'PAID' box in Part II (h) of 1116. This usually indicates you are calculating on a 'cash basis'; declare all income in the US tax year and declare all tax paid in the US tax year. If you are resident in France, for example, you might consider filing 'ACCRUED' (for tax calendar year of 2014, no tax is paid on 2014 income until 2015).

hughesdog

Wife is dual citizen, Irish and USA, just found out she needs to do IRS tax return (ahhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh).

Self employed in UK, never lived in USA since a child. but works for USA business as a consultant. Because she needs to do catch-up on tax years does anyone know if she can use the streamlined catch up system being paid by a USA business while being self employed in the UK?

She earns way less than the $100,000 limit

Any good idiot guides to all this (pleeeeeeease god.......)

Thanks

theOAP

We'll assume your wife is resident in the UK?

As a UK resident and paying tax on the arising basis (sole trader?) your wife will file a UK tax return on all her worldwide income if she is required to.

As a US citizen your wife will file a US tax return on all worldwide income if she is above the basic income threshold for her filing status. Any amounts of UK tax paid could be considered (FTC), or she may qualify for the FEIE (Foreign Earned Income Exclusion) on earned income only, which relates to the $100,000 you mention. Your wife will be entitled to neither unless she files a return.

For the US return, it is of no consequence that the work is done for a US business unless the US business withheld any funds for US income tax or FICA.

Your wife may use the Streamlined Program even if self-employed. Again, where the client is located is of no consequence.

There was at one time, on the American Citizens Abroad site, but it is no longer there (unless perhaps for members only).

Try Publication 54 for your answers.

https://www.irs.gov/pub/irs-pdf/p54.pdf

Be particularly aware of all forms of investments, joint accounts, and pensions when preparing the returns. Be aware of informational returns (FinCEN 114, form 8938, etc.). Your wife will likely file as 'married filing separate' (or perhaps 'head of household' if she qualifies).

Assuming you are NOT a US Person (and are an NRA), if you also wish to become liable to the IRS for tax on all your worldwide income, yearly, she could file 'married filing joint', but you would need to apply for an ITIN. Very few USCs with an NRA spouse file 'joint'. They love their spouses too much and wouldn't dream of doing such a thing to them.

hughesdog

Hi, I really appreciate the time you have taken to reply to my post, we are a bit flustered by this, paying Hmrc is bad enough never mind irs

My wife is a sole trader yes and does self assessment in the uk, she only works part time, enough income to
Pay kids through university. I am assuming for now that since her income is well less than $100,000/yr and no other income other than a small amount of interest on savings no tax will be liable on her primary earned income. Does FEIE apply to interest from a standard savings account, she currently pays tax on the interest at 20%. What situations would exclude FEIE for somebody earning well less than $100,000 if that's not a complicated question. Just flapping IRS will want money from us. We are not wealthy, really worried about this

Thanks again

theOAP

If these are the only sources of income, then there will likely be no tax due.

No, interest is not earned income. Your wife will be allowed (filing 'MFS') a standard deduction and a personal exemption on her US return. These are somewhat comparable to the tax free 'personal allowance' in the UK. Once she qualifies for FEIE, the only income left will be the interest. The 2 above 'allowances' will more than likely be greater than the interest, so her final taxable income should be '$0'.


Given the information in your first post, your wife has been resident outside the US for a (far) long enough period to qualify for FEIE, probably under the Bona Fide residence test on form 2555.


If all the above information concerning her income is correct, then the IRS should not want any money from you IF you file under the Streamlined Program. Although not a nice place to be in right now, be assured there are a great number of USCs resident abroad (thousands of them) who are going through exactly the same situation you find yourselves in, and are filing through the Streamlined Program. You're not alone and will not be a surprise (or special) to the IRS. It's not a sure thing, but the odds are overwhelmingly in your favour.

hughesdog

Hi, your reply is very reassuring and appreciated

I think I have the main parts of this in my head now. Hopefully not too much confusion when I get into the forms!

I am going to get my teeth into this over the weekend. It will take some pulling together as the UK and USA tax years are not the same.

Many thanks again!!

hughesdog

Hi the OAP, sorry to bother you again. I have nearly pulled all the financial info together for the back filing. Needed info from long gone bank accounts!!

Still a bit phased by this and exactly what is required and just want to get this done and dusted to get into compliance, we are not the kind of people who want this hanging over us.

Because of the complications and looming 2015 deadline we are thinking of using a tax advisor to help get us into full compliance

I checked Google and can see some businesses offering this service. Do you know of any really good reputable firms that offer this service based in the UK, Yorkshire region and reasonable fees would be good.

Many thanks

theOAP

Just about all US/UK advisors are located in London. Reasonable - is subjective. Fees are moderate and higher.

This thread from UK Yankee might help:
US Citizen, UK Resident w/ Limited Company - Looking For Accountant

The top three recommendations for quality (and they likely charge accordingly) are:

Welcome to British American Tax - British American Tax
Liz Zitzow is mentioned on the above UK-Y thread.

American Tax Returns - US and UK Tax Experts Tel: 020 8946 0523
A regular contributor to the UK-Y site.

Frank Hirth | Transatlantic Tax and Accounting

Others mentioned in the thread are:

https://www.westletondrake.com/
Kristina Searle was listed as working here.

Mount Moore Consulting
Anthea Taeuber is the major in this company.

There are links to other firms within the UK-Y thread. Good luck with your search.

nun

One thing to watch out for as a US citizen sole trader resident in the UK is self employment tax. Make sure you are NOT paying this twice. You must pay UK National Insurance, but you must avoid paying the 15% US Self Employment tax as well. You will need a certificate of coverage from the UK and to make sure you fill out the US sole trader income schedule correctly ie NO self employment tax.

caliexpat

Hello

Dual UK/US Citizen permanently residing in the UK.

In the process of preparing my tax return and just wondering what I should do about my cash ISA? It has a small balance (under £2500) and interest received thus far equates to less than £50 - can tax credits be used to set off the interest received so that I don't owe anything on my return?

Having read around, it looks like I am better off getting rid of my ISA savings, but I hadn't realised when I opened the account that US citizens are taxed on ISA interest...

Any suggestions on how to proceed re filing and thereafter?

theOAP

No,... and possibly.

If it's your only interest income, then no, there will be no foreign tax credits (FTC - form 1116) since the ISA is not taxed in the UK. If you have a lot of other taxed interest (or passive) income, and using FTC (1116), then there may be enough foreign tax credits available from those to help offset all the cash ISA amount also.

If you are using FEIE (form 2555) generally, but not always, the interest income will eventually be done away with as you work your way through form 1040. The standard deduction plus the personal exemption generally is sufficient to offset the interest income by the time you arrive at a taxable amount (by then, usually $0).

All your other income has a bearing on any answer to this question, so the 'generally' will have to suffice.

It could be argued for a USC resident in the UK, it's not worth having any savings accounts at all thanks to the new 'tax free' amounts on normal savings accounts (on £1,000 @ 20%, or £500 @ 40%) if you wish to benefit as other UK residents. Again, it all depends on your other amounts of income and which method of offset you use (FEIE or FTC). If you use FTCs and have a total of £5,000 in interest (£500 from a cash ISA plus £4,500 from normal savings accounts) the amount of interest on the taxed £3,500 (@ 20%) of normal interest may be enough to offset the £500 tax free from the ISA plus the £1,000 tax free from the normal savings at US tax rates and result in no US tax due.

It's all swings and roundabouts.