MrScottB

Hi,

My company are moving my position from the UK to NYC USA and they want me to relocate with it on an E2 visa. They have agreed that I can be home based as most of my time will be spent flying around different states each week meeting new and existing clients.

My wife and 2 children (7 & 9) recently visited new jersey and found a town that really worked for us, plus the trans Atlantic travel time is easier for my family and friends - should they ever visit.

We now have to make a decision on whether we can financially afford to move and I notice that there seem to be a number of tax deductibles that can help us, given the cost of living. I have listed a few questions below and hope people may be able to provide me with direction ?

1) If my rent is $3,000 and $1,000 of this is property tax, can I claim this tax back ? Is the tax claimed back yearly or deducted against my monthly salary ?

2) We only need 1 car but I will use this car for business every now and again each month. Can I claim a proportion of my monthly lease cost back or will I only be able to claim mileage at set $0.56 per mile ?

3) As my home will be a home office, do I claim heating, water, electric etc... as a % i.e. if my house has 4 rooms and I use 1 as a dedicated office then I claim back 25% of the utility bills.

4) As I have 2 dependents, can I claim any allowance for them ?

5) My wife will be unable to work, so will stay as a home mum for the time being. Is there possible tax deduction support there ?

6) I will be initially renting out my UK home, just in case anything goes wrong, but suspect the rent will not cover my mortgage payments (£200 short). Can I claim this loss back against my earnings ?

7) Do you pay taxes every month like in the UK, is this paid quarterly or do you have to pay them upfront for the upcoming month/quarter ? I have read and understand the various tax bands but not how they are paid...

All I am looking to do is see which tax deductions are available from the system that I will be paying into from Jan 2014, and whether the cost of living will prohibit this opportunity.

Thanks in advance for any support!

Giantaxe

On 1), property tax is paid by the landlord and is a business expense for them. It has no bearing on your tax situation.

You need to think about health insurance and medical costs. That may be a bigger issue than most of the things you list here, even if your employer is providing coverage.

Sally Redux

'Deductions' doesn't mean you get the whole amount back anyway, you offset it against your tax liability. I wouldn't bank on making the move work like that. Look at the salary itself, and, as Giantaxe said, health insurance + costs.

rpjs

That sounds strange - I would have thought an L1 would be more appropriate - I think it can be used by personnel setting up a US branch of a UK company so long as the UK company is still going. An L1 would be more advantageous for a number of reasons - it gives you a path to a Green Card and your spouse can work with authorisation.

Bear in mind that if you live in one state (NJ) and work in another (NY) you have to file tax returns in both and then credit the tax paid in the state you live in to the state you work in - i.e. you only pay tax to one state.

No, you aren't paying the property tax, your landlord is, so you can't deduct it.

I believe you do the pro-rata by the square footage of the room used for business vs the square footage of the property as a whole (not including utility areas like basements).

Yes. You'll need to obtain ITIN (individual tax identification numbers) for them from the IRS.

Yes if your spouse is not working I believe you can claim them as a dependent.

This could get very complex. The IRS would normally seek to tax rental earnings, even though they're not in the US. If you declare and pay tax to HMRC for the rental earnings you can apply that tax paid as a credit to your US tax payment, so you're not double taxed. Alternatively you could tell HMRC you're no longer UK domiciled but then you would have to declare and pay tax to the IRS. The IRS does allow mortgage interest payments to be deducted from taxable income, but I have no idea if they'd allow that for a non-US property.

If you are going to be paid a salary by your employer, they will be responsible for deductiing ("withholding") income tax, social security / medicare (like NI) from your paypacket, and you file a tax return at the end of the year. If you are going to be treated as self-employed contracting with the company you need to file a quarterly tax return and are responsible for paying the various taxes yourself.

Assuming you're going to be a regular salaried employee be aware that the withholding amount is not exactly calculated like a PAYE deduction is in the UK. Within limits, you get to chose the withholding amount yourself, but this can mean you may find yourself either getting a tax bill or a refund when you file your taxes at the end of the year. My experience has been that getting the withholding amount right is quite a trial and error process.

I'd strongly suggest taking advice from a qualified CPA who understands ex-pat tax affairs. Pete Newton on Long Island is often recommended on this forum and was recently reported as taking new business again.

Noorah101

I don't know if this applies just in AZ where I live, or if it's Federal, but as far as I know, you can't claim a portion of your home as a business expense unless you have a separate outside entrance to your home office (i.e., your office has to have a door to the outside where clients can enter without going through the house). I don't know if this is specific to certain kinds of home business, but definitely something to check out.

Rene

HartleyHare

Hi,

We have also recently moved to NJ and are renting out our UK house. We have a 12 year old and also bought our dog over to.

You may not have any rental tax due in the UK if you have no other source of UK income after you move. If, for example you are receiving £12k a year on rent, by the time you deduct mortage interest, maintenance, estate agent fees and your personal tax allowance there is often no tax due. In our case as the property is in joint names we can use both tax allowances so there will not be any tax due. You should be able to work out whether it not any tax will be due, there is info on the HMRC website. As we will not owe any tax we have notified HMRC that we are in the US and we receive our rent payments without tax deducted.

In the US though, that 12k will also be subject to some deductions for depreciation, running costs and mortage interest, but you cannot deduct your whole mortage payment (if you have a repayment type). Whatever amount is "left" (which in some cases is only on paper) is added to your salary and you pay tax at whatever your tax rate is. Things like depreciation are quite complicated and as stated above, you would need a qualified CPA to complete your tax return. I think we may owe tax, but I won't really know until it's time to get our tax return completed. As recommended above, we also hope to use Peter Newton for our tax affairs (if my OH remembers to call him!).

BTW, we are in Ridgewood in Bergen County. It is a lovely town with excellent schools, train and a great walkable downtown area. We also looked at Westfield, Summit and Madison. If you need any other info on moving to NJ in general, free to ask me.

Nutmegger

Perhaps that is for your state tax. I have a dedicated office in my home in CT, with no direct door to the outside, and I can take the relevant deductions. But my business does not involve clients coming to the house, so perhaps it is industry related!

MrScottB

As I have only been with the company for under 1 year I am not allowed an L1, unfortunately.

My employer has agreed to issue a homework contract, so that I live and work in the same state - though I do appreciate the comment.

They have also agreed to cover healthcare for my family as a whole, are there any other healthcare costs that I should be mindful of other than co-pay ? and what would be an expected budget I should set aside each month ?

Point 3 & 6: greatly appreciate the point made and will investigate along with trying to locate Pete Newton.

Thanks.

Michael

For federal, the space has to be exclusively used for business purposes in order claim the space as a deduction. There is no requirement for having a separate entrance.

Michael

If eventually you decide to sell your home in the UK and purchase a home in the US, sell the UK home within 3 years other wise it is considered an investment property and does not have the $500,000 exclusion from capital gains taxes for married filing jointly. The exclusion only pertains to a primary residence (must have lived in the home for 2 of the previous 5 years).

Nutmegger

How long do you have to go to get to the one year mark? The L1 is a much better visa than the E2 and it really might benefit you to hold off on the move until you can take the L1 route.

MrScottB

Just so I am clear in my head. As the room will be exclusive for office use and configured that way, can I claim the sq footage of this room back against my monthly rent ?

MrScottB

5 months, I am already traveling 2 weeks of every month to the USA and back and this will continue so until any visa is issued; therefore, the L1 route will take another 7 months, plus a further 2 months going via the expedited process and interview.

Giantaxe

Whatever fraction of the house the square footage of your room represents multiplied by your rent will be a business expense and thus deductible against the gross income of the business. What that deduction is "worth" to you will depend on what tax bracket(s) your income falls into.

Caruthers

Don't forget that depends on state law. Why not try an online tax return as a run through.

I know here in Cali you can offset loads of stuff against tax. I also know property tax in NJ is one of the highest in the country.