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Moved to US in tax year question

Moved to US in tax year question

Old Mar 2nd 2017, 7:13 pm
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Default Moved to US in tax year question

Hi everyone,

I'm sure this has been asked many times but I had a quick look and I'm not sure I found the answer I was seeking. I relocated to New York in August last year to join my wife who is an American citizen who moved ahead of me to New York in May. Whilst living in the UK I was employed and salaried after moving to the US I continued to work for the company I had worked for in the UK but as a self-employed contractor, I was paid in GBP. My wife was a student in the UK and is now working as a freelancer in the US. I've also sorts of questions on the best approach to my (or possibly our) tax return and felt the best thing to do was to hire a professional.

The quote I got back was £750 for the Federal return and £300 joint NY return. Then £650 to file the return to HMRC at the end of the UK tax year in April. I would be interested in other people's experiences as that felt high to me but I've not got much experience employing tax professionals. Or does anyone have recommendations for someone who could help me file a return for NY for 2016 and to the UK for 2016-2017.

Thanks so much!

Olf
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Old Mar 2nd 2017, 8:28 pm
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Default Re: Moved to US in tax year question

Why do you want to elect to file jointly for the complete year? Does this save you money?


Your total Federal, NY State, NY City & SECA tax rate could be close to 50%, depending on your income levels. Have you negotiated this increased tax rate plus the saving in UK NIC into the rate you are being paid for your self-employed work?
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Old Mar 2nd 2017, 8:35 pm
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Default Re: Moved to US in tax year question

Hi, thanks for your speedy reply. The question of whether to file jointly or separately was one of the key questions I wanted to ask the tax professional. I wasn't sure of the best root. As we moved at different times it didn't seem like an easy answer from my own research. The initial response I've received suggests that there wouldn't be much harm in filing jointly as the income I received in the UK before moving would be subject to the foreign earned income exclusion.

Yes, I did negotiate an increase from my salaried rate with the UK business I moved to working for them as sub-contractor after relocating to the US. Not quite so much as 50% though. I shouldn't think I would fit into the top tax brackets.
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Old Mar 2nd 2017, 8:48 pm
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Default Re: Moved to US in tax year question

Hopefully the engager of your work has some legal advice as to their position in terms of corporate tax and employment law in New York State. From your perspective, it is questionable whether electing to claim the foreign earned income exclusion is permissible or could save tax compared to not claiming it. Hopefully you have addressed or will file your FBARs for 2016 soon.
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Old Mar 2nd 2017, 9:40 pm
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Default Re: Moved to US in tax year question

The answer to the question is that you file dual-status, as explained in IRS publication 519, but effectively it means you file a blank 1040NR for the first part of the year (dual-status statement) and a pro-rated 1040 for the second part of the year (dual-status return).

It's going to be tricky because you are self-employed as well, which means you've got to do schedule SE and schedule C. And plus you live in NYC, so that means a State and local return as well.

That's literally about as complex as an individual tax return can get, unless you've got a corp abroad or an ISA or something then you get into 5471, 8621 and maybe 3520-A and 3520.

I don't know of any software that can do a dual-status self-employed return, maybe TaxACT.

Look on the bright side, at least you'll be an expert by the time you've done it.

You can't elect to be resident for the whole of 2016, because you were employed outside the US, so that would mean you had to pay US tax on your foreign earnings which is not something you want to do.
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Old Mar 3rd 2017, 8:17 pm
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Default Re: Moved to US in tax year question

Thanks Cook_County and Steve_ for your helpful advice. Do you (or anyone else) know of any good accountants to speak to?
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Old Mar 5th 2017, 1:38 am
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Default Re: Moved to US in tax year question

Er... no, and I wouldn't bother, I'd take the time to figure it out yourself. You need all your business receipts to claim the expenses, unless you want to take the standard deduction - which will have to be pro-rated.

Future tax years will be easier. Like I said, I think TaxACT can do it, but then you spend ages figuring out the software.

The 2011 edition of IRS publication 519 has a step-by-step example of how to do a dual-status return.

https://www.irs.gov/businesses/small...-self-employed

Publication 334 is the main bit. After the first year, you have to do installment payments using 1040-ES.

All that happens if you ask an accountant is they ask you a ton of questions and by the time you've figured out the answers you could have done it yourself, imo. There are some common tricks and methods that aren't immediately obvious I suppose, for example, you're probably better off using an S-corporation but the 2016 tax year is done now.

You will realize quite rapidly what all self-employed people realize - you're not actually self-employed, you work for the government.
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Old Mar 5th 2017, 8:31 am
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Default Re: Moved to US in tax year question

You may want to ask the engager of your work if they will pay a professional to sort this out for them and for you as they have the larger risk.
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Old Mar 7th 2017, 9:01 pm
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Default Re: Moved to US in tax year question

Originally Posted by Steve_ View Post
The answer to the question is that you file dual-status, as explained in IRS publication 519, but effectively it means you file a blank 1040NR for the first part of the year (dual-status statement) and a pro-rated 1040 for the second part of the year (dual-status return).

It's going to be tricky because you are self-employed as well, which means you've got to do schedule SE and schedule C. And plus you live in NYC, so that means a State and local return as well.

That's literally about as complex as an individual tax return can get, unless you've got a corp abroad or an ISA or something then you get into 5471, 8621 and maybe 3520-A and 3520.

I don't know of any software that can do a dual-status self-employed return, maybe TaxACT.

Look on the bright side, at least you'll be an expert by the time you've done it.

You can't elect to be resident for the whole of 2016, because you were employed outside the US, so that would mean you had to pay US tax on your foreign earnings which is not something you want to do.
This is exactly what I had to do this year.

My accountants in NJ have cost me about $750 to file for myself and my wife (got married in this tax year to complicate matter further).

They have filed a 10040NR for the 4 months I lived in the UK, a full 1040 for the remaining 8 months including all the schedules for my self employed income, single member LLC income and UK rental income.

They've also filed my wifes 1040 (lowest liability was filing as MFS for last year otherwise my income from before moving would be liable for US tax if MFJ) and they've dealt with all FBAR/Fatca forms etc.

Just having them do the nuances for depreciating the rental property etc was worth it let alone the time and stress it saved me.
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Old Mar 8th 2017, 6:58 pm
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Default Re: Moved to US in tax year question

Originally Posted by NoOfficialComment View Post
This is exactly what I had to do this year.

My accountants in NJ have cost me about $750 to file for myself and my wife (got married in this tax year to complicate matter further).

They have filed a 10040NR for the 4 months I lived in the UK, a full 1040 for the remaining 8 months including all the schedules for my self employed income, single member LLC income and UK rental income.

They've also filed my wifes 1040 (lowest liability was filing as MFS for last year otherwise my income from before moving would be liable for US tax if MFJ) and they've dealt with all FBAR/Fatca forms etc.

Just having them do the nuances for depreciating the rental property etc was worth it let alone the time and stress it saved me.
These seems unusual. Why not elect to file jointly to maximise excess foreign tax credit carrying forward to the next 10 years?


Did they classify the UK rental income as general or passive on Form 1116?


Did they use 40 years straight line for depreciation? Did they use the spot rate on purchase to calculate the basis? What percentage of the purchase price have they allocated to the land?


Is a different firm handling your annual UK self-assessment tax returns?
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Old Mar 8th 2017, 7:27 pm
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Default Re: Moved to US in tax year question

Originally Posted by Cook_County View Post
These seems unusual. Why not elect to file jointly to maximise excess foreign tax credit carrying forward to the next 10 years?

Did they classify the UK rental income as general or passive on Form 1116?

Did they use 40 years straight line for depreciation? Did they use the spot rate on purchase to calculate the basis? What percentage of the purchase price have they allocated to the land?

Is a different firm handling your annual UK self-assessment tax returns?
I'm afraid I can't answer these as we have not sat down to review the final submission yet.

Given the ridiculous change in value of the properties due to exchange rate fluctuations between when I bought them and now (1.9 - 1.25!) I'm really interested to see how it has all been resolved.

With regard to filing married separately - After sitting down and going through my circumstances with them I was advised this was the option that would reduce my liability the most.

The income I have subject to UK tax is only from rentals and is not actually that significant. After interest deductions (those nasty landlord tax changes don't affect me yet) and the furnishing allowance it falls well below the personal allowance.

My first self assessment tax return in the UK is not due till Jan next year but will be solely limited to the rental income so I suspect I'll deal with it myself some time after April.
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Old Mar 10th 2017, 2:16 am
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Default Re: Moved to US in tax year question

It's not a good idea to elect to be resident for the whole year if you had income prior to moving to the US, because then the IRS can tax it. Obviously it depends on the amount.

Whether they actually would or not for someone coming from the UK, not sure, but they definitely have done it to Canadians. The CRA and the IRS have a frightening amount of information sharing.
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Old Apr 10th 2017, 6:09 pm
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Default Re: Moved to US in tax year question

Thanks for all the continuing advice everyone. I've been gradually pulling together my tax return and I think I have almost all of it sorted. With one question that I'm still not quire clear on after reading through all the advice.

When filling in the 1040NR for the part of 2016 where I had not yet re-located to the US, how should I list my salary from the job I was doing prior to leaving the UK in the Schedule NEC? Or should I in fact not list it there at all but instead list it under Schedule OI section L, 'Income Exempt from Tax' because the income tax on my salary will be exempt because this was already deducted by my employer whilst in the UK and the UK and US have a tax treaty. If the later can someone direct me to the appropriate bit of the tax treaty?

Thanks so much all!
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Old Apr 10th 2017, 7:11 pm
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Default Re: Moved to US in tax year question

Originally Posted by olf View Post
Thanks for all the continuing advice everyone. I've been gradually pulling together my tax return and I think I have almost all of it sorted. With one question that I'm still not quire clear on after reading through all the advice.

When filling in the 1040NR for the part of 2016 where I had not yet re-located to the US, how should I list my salary from the job I was doing prior to leaving the UK in the Schedule NEC? Or should I in fact not list it there at all but instead list it under Schedule OI section L, 'Income Exempt from Tax' because the income tax on my salary will be exempt because this was already deducted by my employer whilst in the UK and the UK and US have a tax treaty. If the later can someone direct me to the appropriate bit of the tax treaty?

Thanks so much all!
You don't include your UK salary on your 1040 at all if you are filing a dual status return......you will only be liable to US tax on your worldwide income after you be came a US resident.
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Old Apr 10th 2017, 8:50 pm
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Default Re: Moved to US in tax year question

Hi.

We moved mid year too (me in July, my USC husband in June). I was self-employed in the UK until July.

And in my simple layman terms...

We just worked with a CPA in Florida to file our taxes. We filed for the full year in the US, married joint. We also had to adjust for a (ridiculous gain) on the exchange rate for our mortgage settlement.

For us, it worked out much better to carry all tax to the USA. And as we've been self-funding healthcare and other expenses, our tax bill was completely reasonable. However, we didn't have ISA's in the UK or anything else too complicated to manage...
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