Roadster280

Can anyone shed some light on whether I have the right end of the stick:

I came to the US on VWP in April for 3 months. Went home in June for 3 weeks. Came back late June on VWP for 3 months. Went home in Sept for 5 weeks to get L1A. Came back in Oct. Was paid by our UK company right up to Oct 20, now paid here. Will be here for the foreseeable.

I am sure I meet the "substantial presence test" for the IRS, having been physically present for 183 days, and 31 days from 5 April.

I think I should declare all UK earnings, for 1 Jan to 20 Oct, and then all US earnings from 21 Oct to Dec 31, and work out the tax due. Then produce evidence of UK income tax paid up to 20 Oct (much higher than US tax for the year) as tax credits (as opposed to deduction), giving me a refund of the tax withheld by the US company between Oct 20 and Dec 31? Do I have it right?

Or, do I declare earnings here only since 21 Oct to 31 Dec and pay tax on that? If so, is the personal exemption pro-rated for the fraction of the year (about 25%) I was resident here?

I don't wish to evade any tax, just avoid paying too much!! The somewhat cryptic IRS website is as much use as tits on a fish for this, I think its a really simple question that must occur to anyone coming here on a L1 or H1.

As ever, sensible replies gratefully received.

dbj1000

If you meet the Substantial Presence Test, which apparently you do, then you'll need to declare your UK earned income during the tax year, and then use the Foreign Earned Income Exclusion to exclude up to $80,000 of UK-earned income from you US tax.

What I'm less clear about is what you do if you earned more than that in the UK during the year. Because of the tax treaty between the UK and the US, I believe that the IRS does not require you to be taxed twice on this income, but I don't know how you would go about excluding more than $80k.

Remember to claim tax deductions for all the things you couldn't in the UK. For example, you can deduct any mortgage interest payments in the UK from your US tax. We also deducted our childcare costs, Council Tax (as Property Tax), and the large early-repayment penalty on our UK mortgage, which is classed as an advanced interest payment.

I hope this helps. I had a tough time, even with a CPA, working out my taxes in my first year here, but in the end I was able to deduct far more than I expected, and received a very large tax refund due to all that tax paid in the UK!

Roadster280

Thanks for the help. As it goes, I would probably not hit the 80k figure for the UK income. Additionally, I paid a HUGE amount of mortgage interest, AND paid TWO mortgage redemption penalties (idiot wife decided (after remortgaging) to run off with friend, so had to sell house!). However, since UK tax is deducted at source, is there any possibility that the IRS might end up refunding some of the tax paid in the UK? Doesn't seem right somehow, but I guess if it is reciprocal, then occasionally Gordon may have to refund some IRS payments..

dbj1000

That was exactly my situation (minus the wife running off, that is). The IRS refunded tax based on me deducting the mortgage interest and redemption penalties paid in the UK. In the end, my IRS refund was very nearly the same as the TOTAL tax that I had paid in the US that year. As you say, it doesn't seem quite right, but in theory it all balances out in the end due to the reciprocal tax treaty.

Your problem will be finding a CPA who knows what the f**k you're talking about when it comes to these complexities. Even though I was an expert in my tax status by the time I filed, i still wasn't confident enough to file all on my own, and ended up using H&R Block Premium so that I could have their "Peace of Mind Guarantee" that covered me in the case of an IRS audit. Since they also have a "Right First Time or it's Free" guarantee, I also got the tax preparation for free, but that's another story.

Roadster280

Am I right in thinking that if the credits add up to more than the tax withheld, it can be carried forward?

dbj1000

Absolutely no idea mate, but the IRS website is actually pretty good for researching questions like that.

mdyoung

Don't know if you looked at this on the IRS Website, but it's where I would start.

Publication 519 (2004), U.S. Tax Guide for Aliens:

http://www.irs.gov/publications/p519/index.html

Roadster280

Thanks, I did look at that, it horrendously long and complex. There's an interesting example of the tax return, but I need to print it out to get the benefit. I will do that at work tomorrow. I can't afford the ink to print out 50 pages! I just thought some may have gone through a similar situation already. (Like dbj, thanks!)

mdyoung

Call 1-800-829-1040 and tell them to send you one.

Roadster280

D'Oh! The simple solutions are the best ones! Thanks.

BritGuyTN

if in doubt - call the IRS, I found them surprisingly helpful on several complicated matters

dbj1000

I think it's the luck of the draw with the IRS phone lines though. I had some very good advice on complex matters, but I also had some stupid, ill-educated guesses at equally complex questions which, had I taken their advice, could have cost me $$$ or jail time if I'd followed it.

They're probably on a quota system, and in some cases they seem prepared to tell you absolutely anything to get you off the line, even if it's completely untrue.

But for all that, on balance I found them to be more helpful and accurate than any of the CPAs I've dealt with over here.

dbj1000

Feel free to donate Karma to anyone who may be helpful!

Roadster280

I tried, but since your advice on the SSN thing (and the resulting Karma!), the system won't let me before "spreading it around"! I did try. Thanks again for your help!

mdyoung

What's the deal with giving people Karma?