Gingerert

Hi All,

Question: I work as a freelance copyeditor, proofreader and author, although to date the vast majority of my assignments have come from a single London-based publishing house. As I'm a UK citizen and a US resident, I have been receiving these payments into my UK bank account over the last year. Thing is, I now want to transfer all my earnings over to the US but as I've only been self-employed since March, I'm not sure where I stand on taxes.

I haven't paid any taxes to the UK government, nor have I paid any to the US. I also haven't made any National Insurance or Social Security payments to either. None of the money has been spent, so I still have enough to make these payments if necessary, and the total I'll be bringing over is less than $80,000 (the cut-off for foreign earnings in the US, I believe).

I've tried searching for some advice but while I might be good with words, some of the lingo I've found has me baffled. Any advice?

If I don't need to pay taxes then I'll just send the money direct when I'm back in the UK next week via a banking transfer. However, we are applying for my ten-year residency in Feb and I REALLY don't want anything to screw that up.

Thanks!

chartreuse

Seems to me that, regardless of who or where the client is, the work was performed in the USA, therefore the earnings are subject to US taxes (plus self employment tax).

I don't think you could claim it as foreign earned income, because (a) it wasn't and (b) you'd fail the bona fide residency and physical presence tests.

So I would transfer it over when the exchange rate looks good to you and declare it on your 1040 (plus schedules) by April 15th next year.

AdobePinon

You should determine if you are resident for tax purposes in the US - if you are, you are usually taxed on your worldwide income. Generally speaking, if you have a green card, or pass the 'substantial presence test', you are resident for taxes. (It is quite common to be resident for taxes, yet nonresident for immigration.)

BritishGuy36

Yeah sounds right to me, definitely passes the substantial presence test and was performing the work while in the USA, so file in the USA.

Gingerert

Great! That makes more sense now. I'm a green card holder, so I do meet the residency requirements.

So I'll just transfer it over next week and set aside a good chunk for tax purposes. We've just had a brand new kitchen installed, so I'm keen to get at least some of it over and spend it.

NOT THAT I'M PLANNING TO DO THIS, but... what would happen if I brought it over and didn't declare it? Are there ways of finding this out? There must be other people who've done this.

I believe in public education, the fire service and roads, so I will always pay my taxes - just for the record.

AdobePinon

You'd probably get audited after you spend all the money, and then you would be hosed.

Gingerert

What happens when you get audited? Do they look at bank statements and stuff, not just earnings? I suppose if they found a large transfer in an account, it would look a tad suspicious.

Gosh, I'm so naive about these things.

Ho hum... at least I'm an honest person.

BritishGuy36

But that doesn't necessarily mean you must file taxes with the IRS.

I was a GC holder at the end of 2008, but only for 6 weeks (so didn't pass the substantial presence test). I didn't file.

But if you are a GC holder at any time during the year, you can choose to file for the whole year as if you were resident.

I know it doesn't apply to you, just clarifying.

lansbury

You find out that until that time you had never know what real fear is

Bluegrass Lass

Yes, they'll look at bank statements and see that large deposit. Btw, the IRS is automatically notified by the bank of any xfer over $10k so they'll know that you received those funds anyways. Only way you could get around paying taxes would be to make sure you don't leave a paper trail. i.e buy $80k in traveler's checks in $$ or something like that and then cash those checks slowly...and I'm not sure if even something like that could work.

chartreuse

But doing that, with the intention of avoiding reporting by the bank, is called structuring (AKA smurfing) and is, itself, a felony.

Gingerert

A felony! Cripes!

Thanks for your advice, everyone. I really appreciate it.

lansbury

If you moved that amount of money from the UK on your person you should declare it to HMRC on departure. Then prove it had been lawfully obtained and all due taxes paid on it. If they have any doubts they confiscate it and you have to go to court to claim it back.

Of course how many people do declare it is another matter.

chartreuse

Good point. IIRC, you also have to declare any amount over $10,000 to CBP, upon arrival in the USA.

As a side note, a couple of years ago the feds started getting very worried about (particularly non-US) pre-paid credit and debit cards, as they figured they could be used to bypass these controls.

Bluegrass Lass

Oh, I never said it was legal. I personally would not attempt, though the thought briefly crossed my mind awhile back.

I've never heard the term 'smurfing' or structuring though. Always thought it was basically tax evasion.