E3only

Wife and I, slowly but surely are settling down in CA. The jet lag has been a killer but hopefully will get better…….

1. I am married and wife won’t be working so from what I understanding I am claiming 2 allowances for De-4 and 3 for W-4. Would that be correct? Are there any other things that I need to consider for my DE4 and W4? I just don’t want HR to withhold less and as such want to put conservative allowances (that does not mean 1 allowance though)

2. Is 401(k) contribution tax deductible? (My research tells me 401(k) contribution is taken away from gross income to calculate taxable income. So if one earns 100k and pays 5% 401(k) then the taxable is 95k i.e. 401(k) is paid pre tax dollars)

3. Is insurance premium (private health) tax deductible? I am going to pay roughly $300pm in premium for my wife and I. My research tells me I can only deduct expenses (premium + out of pocket) if is exceeds 7.5% of AGI. Have I got that right? If that is the case the 300pm will fall within the 7.5% and as such not tax deductible.

4. any other advice to help me settle down here would be appreciated.

Thx!!!

Michael

1. During the first year in the US, it will be very difficult to determine the correct number of allowances since that will depend on your filing status (resident or non resident) and tax credits for foreign earned income (if filing as a resident) while not a resident. I would think that you will likely get a refund when you file your taxes for this year.

2. When you get your w-2 form from your employer, 401k contributions will not show in your gross income (already deducted from your gross income) so you don't have to worry about it.

3. No deduction unless you exceed 7.5% of AGI.

E3only

Thanks...

So it won't be too much trouble to put 2 allowances for DE4 and 3 for W4?

I have rental property overseas (tax treaty exisits) that I am renting out but will not cover my mortgage interest payments (so a loss). I will also have some dividend payments (in most of the cases it's franked so tax paid to an extent)

E3only

Hi,

Actually wouldn't I have to file a resident tax return given I will satisfy the SPT?

Jscl

No, I believe if you meet the residency test for this year but did not meet it for the previous year then your residency (tax wise) starts on your day of entry to the US, and you are a dual-status alien for tax purposes. But you would want to check that with someone more knowledgeable than I am.

I wanted to say you can change your W4 and DE4 at any time, so don't worry right now if you're not sure whether to have 2 or 3 allowances. After you get your first few paychecks you can use your numbers to estimate your tax for the year, and work out if you need to change the withholdings on either form. If you find out you haven't withheld enough, there's an option to withhold an extra $50 (or whatever) amount on any paychecks going forward, to make up the difference.

Also for your point 3, see if your companies offers a "cafeteria plan" for your medical premiums. Some companies allow you to make your medical insurance premiums using pre-tax dollars, and then you get the tax advantages without having to worry about the 7,5% thing.

And while I'm at it - you might hear a lot of people telling you things "are deductible" on your tax return. Most of the things they talk about are only deductible if you submit an extra form with your taxes, your "itemised deductions." Unless you own a house (because you're allowed a deduction for mortgage payments) you probably won't be itemising your deductions, so you won't get the benefits of the "deductible" expenses. (Charities do this a lot, as do medical places - even though the expenses can be tax free, most people cannot get that advantage.)

E3only

Thanks for that.

1.So will there be any advantages/disadvantages being a dual status vs. resident status given my personal situation.

2. Take your point on DE4 and W4

3. Oh, so unless we itemize deductions we won't be able to claim donations? So I donate 1k a year and I won't get any benefit of that? (given I don't itemize deductions.

I will ask about the cafeteria plan. I am not sure if that is available although I know they just have medical plans via Anthem.

Jscl

IF you are a dual status alien (and you have to check with someone other than me, as I'm not sure!) then it's a pretty unfavourable tax situation as you're married, as you cannot file a joint return. Unless you are married to a US citizen/resident?? This page might help:

http://www.irs.gov/businesses/small/...=96433,00.html

If you do end up being a dual status alien you cannot claim the standard deduction (about $10K off the top of your income) and WILL have to itemise your deductions to get any benefit from them. So that $1K charitable donation will benefit you this year (but not in future years unless you have more itemised deductions than your standard deduction).

Michael

1. You will need to fill it out both ways to determine which is best.

3. When filing as a resident, the standard deduction is $11,400 for a married couple. Therefore if you don't have deductions of greater than $11,400, there isn't any tax advantage. However you can still deduct certain things such as a total loss in stocks ($3,000 maximum) or losses in a business (restrictions apply) that can be taken and still get the standard deduction.

E3only

So I have an option on the status I declare? The post prior to yours else is scary

Jscl

Sorry to have scared you! I don't know whether you can choose, I just know that the dual status alien tax position is pretty horrible! As you're here more than the 183 days just in this year, things might be different for you than they were for me. If you're able to claim as resident, you'll be taxed on worldwide income for the whole of 2010 (i.e. you'll be taxed on all income you made in the UK) and will have to take credits for the tax you have already paid in the UK. Dual-status you wouldn't have to bother with that, but the tax on your income while here would be less favourable. If both options are available to you you'd want to do a rough version of each return to see which works better.

Michael

I think on your case, you will automatically be classified as a resident since you will have more than 183 days in the US in 2010. People that have less than 183 days in their first year can possibly choose either resident or non resident (First Year Choice).

http://www.irs.gov/businesses/small/...=96352,00.html

When filing as a resident, your foreign based salary for the part of the year prior to entering the US is subject to U.S. taxes. You report the income on Line 21 of Form 1040. Assuming you paid foreign income taxes on that salary, you can claim a Foreign Tax Credit using Form 1116.

http://www.irs.gov/pub/irs-pdf/f1040.pdf
http://www.irs.gov/pub/irs-pdf/f1116.pdf

You should see a tax accountant when you file your first year taxes. The first years taxes can be complicated plus you should get advice about filing for you losses on your property (certain rules apply that may possibly allow you to write off loses on property but the rules are complex).

http://www.apartment-building-real-e...deduction.html

Since your withholding (and therefore marginal tax rates and standard deduction) is based on full year, you probably won't owe any taxes when you file. Even if you do, you won't likely have a tax penalty because of the following rule.

Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.

http://www.irs.gov/taxtopics/tc306.html