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Income Earned In UK BEFORE moving to USA - Taxable?

Income Earned In UK BEFORE moving to USA - Taxable?

Old Jan 2nd 2015, 2:02 pm
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Default Income Earned In UK BEFORE moving to USA - Taxable?

Hi everyone,

And happy new year!

So this will be my first time filing taxes in the US So far I'm thinking it's going to be pretty simple as I'll be filing as single and my only form of income has been from my US employer. I have no other ties to the UK.

I figured that I pass the substantial presence test for 2014 since I arrived here March 5th 2014 so that's way over 183 days so I will be filing as resident alien for the year 2014. (someone please correct me if I have misunderstood this rule?!)

Since I will be filing as resident alien, the IRS website states I must follow the same tax laws as US Citizens so I need to declare worldwide income earned in 2014. Before moving to the US, I had my UK salary paid into my bank account for January and February before moving out here. Does this mean I have to declare this to the IRS or does it not matter since it was paid to me before arriving in the US?

Thanks for your help!
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Old Jan 2nd 2015, 2:12 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by Ash14297 View Post
Hi everyone,

And happy new year!

So this will be my first time filing taxes in the US So far I'm thinking it's going to be pretty simple as I'll be filing as single and my only form of income has been from my US employer. I have no other ties to the UK.

I figured that I pass the substantial presence test for 2014 since I arrived here March 5th 2014 so that's way over 183 days so I will be filing as resident alien for the year 2014. (someone please correct me if I have misunderstood this rule?!)

Since I will be filing as resident alien, the IRS website states I must follow the same tax laws as US Citizens so I need to declare worldwide income earned in 2014. Before moving to the US, I had my UK salary paid into my bank account for January and February before moving out here. Does this mean I have to declare this to the IRS or does it not matter since it was paid to me before arriving in the US?

Thanks for your help!

No - because you activated your PR status when you arrived on March 5th 2014. Only count income earned from then and yes tick the resident alien box.

The substantial presence test is to do with the amount of time you have spent in the US as a resident for tax purposes. As you were not previously a US citizen/resident etc, you don't have to take into account income earned before then for the year 2014 (unless it was US income, then that is different).

Hoffage

Last edited by hoffage123; Jan 2nd 2015 at 2:16 pm.
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Old Jan 2nd 2015, 3:46 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by Ash14297 View Post
Since I will be filing as resident alien, the IRS website states I must follow the same tax laws as US Citizens so I need to declare worldwide income earned in 2014. Before moving to the US, I had my UK salary paid into my bank account for January and February before moving out here. Does this mean I have to declare this to the IRS or does it not matter since it was paid to me before arriving in the US?
You will need to file a 'dual status' tax return. This will allow you to not declare your income prior to entering the US to the IRS. You will have the mundane task of printing out your return and mailing it to the IRS as you cannot e-file dual status returns.

FWIW, IMHO you should have an accountant perform your first years tax return for you. My tax return for last year (when I was dual status) was around ~60 pages.
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Old Jan 2nd 2015, 3:54 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by hungryhorace View Post
You will need to file a 'dual status' tax return. This will allow you to not declare your income prior to entering the US to the IRS. You will have the mundane task of printing out your return and mailing it to the IRS as you cannot e-file dual status returns.

FWIW, IMHO you should have an accountant perform your first years tax return for you. My tax return for last year (when I was dual status) was around ~60 pages.
Urgh, really ... I did not know this and just looked it up (thanks Horace for alerting us all) Taxation of Dual-Status Aliens
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Old Jan 2nd 2015, 4:03 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

What happens if you have not been in the country yet for 183 days, what do you file then?

ANy recommendations for a tax accountant in NY?
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Old Jan 2nd 2015, 4:29 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by unique_boy View Post
What happens if you have not been in the country yet for 183 days, what do you file then?

ANy recommendations for a tax accountant in NY?
Peter Newton.

US - UK Tax Preparation and Advice | BritishExpatsTax.Com
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Old Jan 2nd 2015, 4:31 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by unique_boy View Post
What happens if you have not been in the country yet for 183 days, what do you file then?

ANy recommendations for a tax accountant in NY?
Then I believe you need to file a Form 1040NR/1040NR-EZ, U.S. Nonresident Alien Income Tax Return.

Taxation of Nonresident Aliens

Someone please correct me if I'm wrong.
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Old Jan 2nd 2015, 4:32 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by hoffage123 View Post
Urgh, really ... I did not know this and just looked it up (thanks Horace for alerting us all) Taxation of Dual-Status Aliens
The biggest annoyance with being dual status is having to itemise any deduction, rather than being able to use the standard deduction.

It also means that your spouse can _not_ take the standard deduction either and must itemise, regardless as to your filing status.
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Old Jan 2nd 2015, 4:55 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by hungryhorace View Post
The biggest annoyance with being dual status is having to itemise any deduction, rather than being able to use the standard deduction.

It also means that your spouse can _not_ take the standard deduction either and must itemise, regardless as to your filing status.
Well that just sucks!! Thanks for the information
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Old Jan 2nd 2015, 4:56 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by Ash14297 View Post
Well that just sucks!! Thanks for the information
Like I said, get a CPA to do your dual status return. It's going to be far easier for you. Then next year, when you've been here for the whole year your tax return will be nice and 'standard'.
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Old Jan 2nd 2015, 4:59 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by Ash14297 View Post
Then I believe you need to file a Form 1040NR/1040NR-EZ, U.S. Nonresident Alien Income Tax Return.

Taxation of Nonresident Aliens

Someone please correct me if I'm wrong.
If some has a green card, then they have to file as a resident (Form 1040) dual status. The substantial presence teat only applies to non immigrants.

The Green Card Test and the Substantial Presence Test
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Old Jan 2nd 2015, 5:32 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by hungryhorace View Post
Like I said, get a CPA to do your dual status return. It's going to be far easier for you. Then next year, when you've been here for the whole year your tax return will be nice and 'standard'.
Yes I think I will do that. My company have advised I get a consultation with Deloitte at my companies expense and they also pay for my first years tax return. I'm just waiting to confirm exactly what this covers.

One question though... definition of Dual Status tax filing explains the following "For the part of the year you are a nonresident alien, you are taxed on income from U.S. sources and on certain foreign source income treated as effectively connected with a U.S. trade or business"

I arrived in the US on March 5th. The 183rd day is September 4th so this is the day I became a resident alien. Based on the explanation on the IRS website, does this mean for tax purposes I file as Non Resident for March 4th through September 4th and then resident from September 4th through December 31st?
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Old Jan 2nd 2015, 5:45 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by Ash14297 View Post
Yes I think I will do that. My company have advised I get a consultation with Deloitte at my companies expense and they also pay for my first years tax return. I'm just waiting to confirm exactly what this covers.

One question though... definition of Dual Status tax filing explains the following "For the part of the year you are a nonresident alien, you are taxed on income from U.S. sources and on certain foreign source income treated as effectively connected with a U.S. trade or business"

I arrived in the US on March 5th. The 183rd day is September 4th so this is the day I became a resident alien. Based on the explanation on the IRS website, does this mean for tax purposes I file as Non Resident for March 4th through September 4th and then resident from September 4th through December 31st?
I believe you file as a resident for the whole year (form 1040) and declare both foreign (form 2555) and US income for the whole year. You then take foreign tax credits for earned income up to March 5th and foreign tax credits for unearned income throughout the full year (form 1116) to offset US taxes owed and write "Dual Status" on the top of the tax return.
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Old Jan 2nd 2015, 5:54 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by Ash14297 View Post
Yes I think I will do that. My company have advised I get a consultation with Deloitte at my companies expense and they also pay for my first years tax return. I'm just waiting to confirm exactly what this covers.
We had our first year taxes done by Deloitte through a corporate relocation deal. What they did was run the calculation all possible legal ways - filing as non-resident (we hadn't met substantial presence), filing dual status, and electing to file as resident for the whole year - then picked the one that gave us the financially best result.
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Old Jan 2nd 2015, 6:00 pm
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Default Re: Income Earned In UK BEFORE moving to USA - Taxable?

Originally Posted by Michael View Post
I believe you file as a resident for the whole year (form 1040) and declare both foreign (form 2555) and US income for the whole year. You then take foreign tax credits for earned income up to March 5th and foreign tax credits for unearned income throughout the full year (form 1116) to offset US taxes owed and write "Dual Status" on the top of the tax return.
That makes sense as this is what I have read and understood so far:

Because I am classed as Resident Alien on the last day of the tax year, I have to file Form 1040 and write DUAL-STATUS RETURN on the top and attach a statement that shows the income earned for the part of the year I was a non-resident. For the purpose of the statement I can attach Form 1040NR-EZ but must clearly write at the top DUAL-STATUS STATEMENT.

So does this mean in theory I am taxed as a resident even though I'm filing as dual status? The only exception is that I can't claim the standard deductions, I HAVE to itemise? How does this affect my refund eligibility? Why do I have to fill form 2555 to declare foreign income since I have not earned any income from the UK since I've been here. I received it before entering the US, does this matter? Definitely not going to attempt filing by myself for my first year, I'd rather not mess anything up!
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