babypleasedontgo

Hello,

My current set up is that I employ myself through a UK company and am a contractor for another company in the UK (although, I do not have a contract with them, I am set up as a supplier and they pay me via Purchase Orders).

I entered the USA 03/30 (March) and was processed in to the country. I am looking in to my first tax return and have already contacted a CPA/Lawyer to help me but I wanted to ask here in case anyone has been through this before (I have not yet met up with the CPA/Lawyer and am collating questions and financial information before that happens).

I understand that I need to declare my worldwide income and pay taxes on them (I have already paid taxes in the UK and so understand that I will be double taxed for the moment).

I have an accountant in the UK who is going to help me tie up my business over there so that I can declare to HMRC that I will be paying my taxes in the USA as I now live here (I have not informed them that I am a permanent resident in the USA, yet).

The question at the moment has been prompted by the medical coverage that we received (me, my wife and twin boys) and because I have not yet filed a tax return they wanted me to estimate my income. My mis-understanding meant that I gave them info only on the money I transferred from the UK to my USA bank account for living; I now understand that I needed to base the figures on my world wide income which would include my UK salary and any dividends taken (according to the IRS, I would need to use the exchange rate at the time payment was taken to work out the GBP to USD conversions).

The question.... So, when I come to file my first tax return, will it cover January to the end of December or will it cover from the time I entered the country as a permanent resident i.e. 03/30 to 12/31? This will allow me to more accurately give my gross income to the insurance providers.

I would assume I am not paying taxes in the USA for my income Jan/Feb/March as I was living and working in the UK.

Thank you

Noorah101

From the rest of your post, I assume on an Immigrant Visa?

Nothing wrong with that, it's just very early, in case you weren't aware. You still have about 6 months before you need to file a 2016 tax return.

You will get the UK tax back, as there's a treaty in place preventing double taxation.

Who is "they"?

The tax year is January 1 to December 31, 2016....but since you were not resident for tax purposes until March, I'm going to say your part of the income will be from March 30 to December 31.

Please note that I am by no means an expert on taxes or insurance.

Rene

Cook_County

The structure is unconventional. You have a CFC - so 5471 filing requirements - generating personal service income, so SubPart F kicks in. You are likely to owe quite a lot in both tax and accounting fees (to get the reporting right). You might want to jointly elect to be US residents from 1 January 2016 to get married filing joint tax rates, if this results in a lower US tax liability than married filing separately.

nun

The OP says he has paid UK tax already......as he is working in the US the US has the primary taxation authority in the vast majority of situations and so he should pay the US first and then claim a UK tax credit. The US is under no obligation to give credit for tax paid incorrectly to the UK......he should claim that tax back from the UK to avoid double taxation.

For the UK company you need to look at "controlled foreign corporation" status and another big issue will be payroll taxes. If the work was done in the US he should be paying FICA and Medicare tax. He also needs to consider state tax.

Cook_County

The company is paying UK corporate tax. The company should also already be withholding US payroll taxes (including FICA). The individual will owe US income tax on income - including salary, dividends & Subpart F income. It is unlikely that credit will be available for UK corporate tax unless the entity has made a check-the-box election.

TXLonghorn

I think the Mar through Dec question has already been answered, but I just wanted to add something. You're correct that you will only include worldwide income from Mar through Dec. From Jan through Feb you will have a 1040 NR return. Your first year's tax return therefore will be a dual status return.

However, you can choose to be treated as a full year US resident by taking a 6013(h) election. Why would you want to do that?
1. Dual status filers are not allowed to deduct a standard deduction, and certain itemized deductions are not allowed.
2. Dual status filers are only allowed a prorated portion of personal and dependency exemptions
3. Dual status filers cannot file married filing jointly. You'll have to file married filing separately which has a higher tax rate and limits or removes certain tax credits.

Married expats coming from a high tax country such as the UK are generally better off filing a 6013(h) election the first year and using foreign tax credits to offset any US taxes during the NR period. Your CPA/attorney should do an optimization calculation to see if a 6013(h) election would be more beneficial for you. 99% of tax professionals may not even be familiar with this election, much less how to do an optimization, so you may want to do some of your own research.

babypleasedontgo

From the rest of your post, I assume on an Immigrant Visa?

* I am a permanent resident under category CR1 (green card holder)

Nothing wrong with that, it's just very early, in case you weren't aware. You still have about 6 months before you need to file a 2016 tax return.

* Yes I appreciate it’s very early but I am doing this well ahead of time because I am being asked to estimate my income for things such as medical insurance so I want to give them as accurate a figure as possible.

You will get the UK tax back, as there's a treaty in place preventing double taxation.

* That's good to know. When I get my UK company struck off, I will mention this to my UK accountant.

Who is "they"?

* Florida Blue and Florida KidCare

The tax year is January 1 to December 31, 2016....but since you were not resident for tax purposes until March, I'm going to say your part of the income will be from March 30 to December 31.

* This is what I assume also but trying to get that confirmed. I have a call with a CPA here in Florida on Tuesday so I will ask then. But if someone has this information or could confirm that would really help.

Please note that I am by no means an expert on taxes or insurance.

* Sure, thank you for your help

Rene[/QUOTE]

babypleasedontgo

Thank you for your detailed reply.

If I were to elect a 6030 that would have implications on my wifes education federal loan which she is just going in to a rehab program for (they are requesting my monthly income which is proving a little tricky to calculate). Based on the figures I gave them (world wide income March to end of December) that gave us $0 payments (approx $34k for the year, maybe a little higher).

It also has an affect on our medical insurance. We have a healthy tax credit based on those figures and are paying $103 per month for my wife and I ($500 less $400 credit) and $20 per month for Florida KidCare for our twin boys who are both due surgery's next year. I'm not sure what the max allowed income is for KidCare.

I've been told that an S-Corp may be a better option than an LLC as I work on my own as a contractor for a UK company but I have also been told an LLC is the way to go because I can write off more taxes - obviously not if I am a dual filer as you say because I can't get those tax credits (I have my own company in the UK so that I can be a contractor for another UK company who I have worked for for a very long time).

If I had a Jan to end of Dec income on my tax return that would put me at approx $53k for the year.

That is the reason I am looking in to this early (the federal loan payments and the medical payments - I want them as accurate as possible). I greatly appreciate your input whilst I try to figure out the best course of action.

babypleasedontgo

Something else to quickly add, what I would like to do is set up an S-Corp or LLC so that I can start invoicing the UK client from January 2017, so next years return will be a lot more straight forward.

That means striking off my UK company, declaring the HMRC that I am paying taxes in the USA and that I now live here permanently.

I am in an interim state right now.

nun

You are a US tax resident....nothing interim about that. You should have filed a P85 with HMRC when you left the UK.

Cook_County

[/QUOTE]
You already have a CFC on which you suffering double tax (UK corporate tax on profits plus US income tax on income withdrawn or taxed under Subpart F). You will need the CPA to calculate the Subpart F income for you for the purposes of medical insurance.


The treaty has no effect on the UK company. It is UK resident because it is UK incorporated. Hopefully you have withheld US payroll taxes from any wages paid out by the company since you became US resident.

babypleasedontgo

I am in an interim state whilst I shut down my UK company and start up my US company and invoice from here. I am transitioning over to the USA hence interim. I do not plan on keeping this arrangement for longer than I have to.

babypleasedontgo

You already have a CFC on which you suffering double tax (UK corporate tax on profits plus US income tax on income withdrawn or taxed under Subpart F). You will need the CPA to calculate the Subpart F income for you for the purposes of medical insurance.

* I will bring this up on the phone call

The treaty has no effect on the UK company. It is UK resident because it is UK incorporated. Hopefully you have withheld US payroll taxes from any wages paid out by the company since you became US resident.[/QUOTE]

* I haven't held back money specifically for Social and Medicare taxes as I wasn't aware that I needed to. I understand now and yes I have the money to cover this.

* My early questions were so that I could understand what period will be on my first return i.e. 04/01 to 12/31 so that I could more accurately update my income for this year to our medical insurance providers. The call on Tuesday is to discuss how to resolve my current set up and how best to take this forward so I pay the right taxes.

Cook_County

* I haven't held back money specifically for Social and Medicare taxes as I wasn't aware that I needed to. I understand now and yes I have the money to cover this.

* My early questions were so that I could understand what period will be on my first return i.e. 04/01 to 12/31 so that I could more accurately update my income for this year to our medical insurance providers. The call on Tuesday is to discuss how to resolve my current set up and how best to take this forward so I pay the right taxes.[/QUOTE]
You'll also want to find out what penalties you might face for not operating a US payroll; and if your UK company needs any State licences or registration fees to operate.

babypleasedontgo

Hopefully this will help someone else out in a similar situation to me. You will find the following information very useful:

https://www.irs.gov/individuals/inte...-status-aliens

I am still learning but that answers some of my immediate questions.