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Few tax questions (NRA, child tax credit etc)

Few tax questions (NRA, child tax credit etc)

Old Sep 26th 2014, 11:45 am
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Default Few tax questions (NRA, child tax credit etc)

Hi,

My fiance and I have been discussing tax etc (oh yeah, we know how to party...) as he says he'll receive a pretty hefty refund next year when he files as married.

Just FYI, my son and I are moving over on K1/2 visas, getting married on 5th November this year. Both me and my son will have SSNs before the end of the year. My fiance earns c. $100k and my earnings for the US tax year will be c. $45k.

Just have a couple of questions that we're a bit confused about:

1) NRA status - We're moving over on 22nd October so won't pass the substantial presence test to file as a resident alien but, from looking at the IRS website, it looks like I can request to be treated as a resident alien (as long as we file married jointly).

Is it better to file as a NRA or a RA? Or even a dual status taxpayer? I can't understand what the benefits of either are.

We're assuming that it's best to file married jointly in either case, is this correct?

2) Child tax credit - using a tool on the IRS website, it says that my fiance won't be able to claim the child tax credit for my son as he won't have spent half the year living with him. But my son will obviously have spent the whole year living with me (10 months in the UK and 2 months in the US). If we file married jointly does this mean that we can claim the child tax credit for my son?

Starting to think we'll need an accountant for this year!

Thanks
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Old Sep 26th 2014, 1:10 pm
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Default Re: Few tax questions (NRA, child tax credit etc)

Usually what you do is to try all available filing methods and see which one means you pay least tax.

If you don't pass the substantial presence test, I suspect your choice will be between married filing joint for the whole year, or your husband married filing separate on his own, with you not filing. It's been a couple of years since I was in your situation, though.

While you should still check, most likely filing married jointly and electing to count as resident for the full year will be the best way. This is because:
1. Married filing jointly usually works out better anyway.
2. You have already paid UK income tax on your income, which you will be able to count against your US taxes.
3. Your question 2 might be true, I don't know. Hopefully someone here can help, otherwise you'll need to find a CPA with experience with immigrants.
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Old Sep 26th 2014, 5:32 pm
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Default Re: Few tax questions (NRA, child tax credit etc)

Originally Posted by Owen778 View Post
Usually what you do is to try all available filing methods and see which one means you pay least tax.

If you don't pass the substantial presence test, I suspect your choice will be between married filing joint for the whole year, or your husband married filing separate on his own, with you not filing. It's been a couple of years since I was in your situation, though.

While you should still check, most likely filing married jointly and electing to count as resident for the full year will be the best way. This is because:
1. Married filing jointly usually works out better anyway.
2. You have already paid UK income tax on your income, which you will be able to count against your US taxes.
3. Your question 2 might be true, I don't know. Hopefully someone here can help, otherwise you'll need to find a CPA with experience with immigrants.
Thanks Owen, yep I wasn't worried about my UK income tax affecting anything, I know there's a tax credit for that. Good point about trying all the variations to see what works best!
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Old Sep 26th 2014, 7:36 pm
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Default Re: Few tax questions (NRA, child tax credit etc)

Don't overlook adding in items that might not be taxed in the UK such as child benefit, employer pension contributions and income in ISAs and to deduct child care costs and moving expenses in your calculations.
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Old Sep 28th 2014, 12:16 pm
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Default Re: Few tax questions (NRA, child tax credit etc)

Make sure you organize your UK finances to be US tax efficient before you become liable for US tax. Things to consider are any UK pensions, investment trusts, ISAs, real estate and endowment policies.
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Old Sep 28th 2014, 5:23 pm
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Default Re: Few tax questions (NRA, child tax credit etc)

Originally Posted by Cook_County View Post
Don't overlook adding in items that might not be taxed in the UK such as child benefit, employer pension contributions and income in ISAs and to deduct child care costs and moving expenses in your calculations.
Hmmm, I'm pretty sure I can't claim the moving costs as it's not a business expense but can I claim childcare costs that I've been paying in the UK? There won't be any childcare costs once we're in the US.
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Old Sep 29th 2014, 4:33 am
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Default Re: Few tax questions (NRA, child tax credit etc)

You are impinging on my username!

Based upon combining your earnings, you and your fiance'/husband may make "too much" to qualify to take childcare costs as an exemption (dependent care costs). In order to take it, you have to file with itemized deductions, which may or may not be the best for you. You'd need to ask your fiance' that.

At this point I'd get your UK finances straightened out and "US tax friendly" as others have said. You will have until 15 April 2015 to file US 2014 taxes - unless you need to file before then for some reason, such as having tax transcripts for USCIS.
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Old Sep 29th 2014, 5:42 am
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Default Re: Few tax questions (NRA, child tax credit etc)

By the way, you will soon discover that the US isn't quite as fond of acronyms as the UK seems to be and that there are some that are very definitely "already taken".

"NRA" is one of them ("IRA" is another) and if you try to use them to mean anything other than what everyone in the US has already decided that they mean you will really confuse people.

So, yes, you should figure out whether it might be advantageous to be treated as a Non Resident Alien for tax purposes but, no, your subscription to the NRA is not tax deductible ...
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Old Sep 29th 2014, 10:13 am
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Default Re: Few tax questions (NRA, child tax credit etc)

Originally Posted by snowbunny View Post
You are impinging on my username!
Oops


Originally Posted by snowbunny View Post
Based upon combining your earnings, you and your fiance'/husband may make "too much" to qualify to take childcare costs as an exemption (dependent care costs). In order to take it, you have to file with itemized deductions, which may or may not be the best for you. You'd need to ask your fiance' that.

At this point I'd get your UK finances straightened out and "US tax friendly" as others have said. You will have until 15 April 2015 to file US 2014 taxes - unless you need to file before then for some reason, such as having tax transcripts for USCIS.
Yes, thanks, my UK finances are pretty straight forward. I think my fiance wants to file as soon as possible in the new year because of the refund, I'll ask him to check about the exemptions - not sure they're worth the hassle of itemised deductions.

Originally Posted by md95065 View Post
no, your subscription to the NRA is not tax deductible ...
Yeah, thanks
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Old Sep 29th 2014, 10:47 am
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Default Re: Few tax questions (NRA, child tax credit etc)

Originally Posted by BunnyGirl View Post


Yes, thanks, my UK finances are pretty straight forward. I think my fiance wants to file as soon as possible in the new year because of the refund, I'll ask him to check about the exemptions - not sure they're worth the hassle of itemised deductions.

Just how straight forward are you finances; just a current account? do you have any ISAs? or pensions?
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Old Sep 29th 2014, 10:57 am
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Default Re: Few tax questions (NRA, child tax credit etc)

Originally Posted by nun View Post
Just how straight forward are you finances; just a current account? do you have any ISAs? or pensions?
Current account, son's savings account, no ISA but a tiny frozen pension that I can't touch until I'm 55 (20 years away). I've already made them aware that I'm leaving the UK and they just said to give them my new address once I'm over there.

I've checked re my son's account and they (Halifax) have said that this can still be paid into (by grandparents etc) but that he'll have to actually go in when he's 18 to withdraw any money from it - he's 5 at the moment so not something we have to worry about for a while!

Halifax have also said that they're not supposed to keep my current account open once I leave the country, but the guy said that they'd obviously only know this if I specifically told them (winking at me...) and recommended just changing my address to my parents, which I've done.

I'm not planning on working for a while (K1 and then we're talking about having a baby next year) so hopefully 2015's return will be a bit easier!

Sound ok?
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Old Sep 29th 2014, 11:14 am
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Default Re: Few tax questions (NRA, child tax credit etc)

Originally Posted by BunnyGirl View Post
Current account, son's savings account, no ISA but a tiny frozen pension that I can't touch until I'm 55 (20 years away). I've already made them aware that I'm leaving the UK and they just said to give them my new address once I'm over there.

I've checked re my son's account and they (Halifax) have said that this can still be paid into (by grandparents etc) but that he'll have to actually go in when he's 18 to withdraw any money from it - he's 5 at the moment so not something we have to worry about for a while!

Halifax have also said that they're not supposed to keep my current account open once I leave the country, but the guy said that they'd obviously only know this if I specifically told them (winking at me...) and recommended just changing my address to my parents, which I've done.

I'm not planning on working for a while (K1 and then we're talking about having a baby next year) so hopefully 2015's return will be a bit easier!

Sound ok?
Yep that all sounds fine. Just watch the amounts in the accounts because if they go over 10k GBPs you will have to file an FBAR form with the Treasury. The pension should be fine as it will be protected from current US taxation by the treaty, you might want to file an 8833 to claim the treaty exemption, but many people say that it's not really necessary. If the pension gets to be large you might beed to declare it for FATCA so be aware of that.

Finally you should consider making voluntary National Insurance contributions while in the US so you can get full UK pension when you retire and file a P85 with HMRC before you leave.
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Old Sep 29th 2014, 11:29 am
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Default Re: Few tax questions (NRA, child tax credit etc)

Originally Posted by nun View Post
Finally you should consider making voluntary National Insurance contributions while in the US so you can get full UK pension when you retire and file a P85 with HMRC before you leave.
Thanks, yes I've got 16 years (maybe 18 actually, need to check that) of NI contributions so it seemed to be worth continuing for such a low yearly amount.

And definitely filing a P85, think I'm going to use that for our AOS... Do you know how long it takes HMRC to process the P85?
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Old Sep 29th 2014, 7:34 pm
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Default Re: Few tax questions (NRA, child tax credit etc)

Do add in any UK child benefit as taxable income in your thinking. Seeing your son's age he may well have a UK child trust fund, so do remember to start filing annual Forms 3520-A and 3520 if appropriate.

Similarly, if your small UK personal pension is a foreign grantor trust think about similar annual US filing...and don't forget to include your son's account on your annual FBAR
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Old Oct 1st 2014, 1:30 am
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Default Re: Few tax questions (NRA, child tax credit etc)

Originally Posted by Cook_County View Post
..... Seeing your son's age he may well have a UK child trust fund, ....
Sorry, I can't work out from a brief review of your posting history what your knowledge of and connection to the UK is, but IMO/IME very few children in the UK have trust funds.

Generally speaking trusts in the UK are not big business, and for family financial planning purposes most of the tax benefits of trusts have long since been eliminated.
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