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Tax questions

Tax questions

Old Aug 1st 2005, 2:38 pm
  #1  
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Default Tax questions

I'm still thinking over everything we would need to consider if we decide to return to the UK and I have just spent a couple of hours getting totally confused about tax stuff. I was wondering if anybody can let me know if I'm understanding things correctly.

I am currently a US permanent resident married to a US citizen. If I get my citizenship before leaving my wife and I will both have to file a tax return every year from the UK but will not have to pay any US tax unless our income is over $80,000. If I do not become a citizen and let my resident status drop, only my wife will have to file a return, but will not have to pay tax on income under $80,000. Is that correct?

Also, I am assuming that my dual citizen children would also have to file returns from the UK once they start working.

Thanks!
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Old Aug 1st 2005, 3:44 pm
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Default Re: Tax questions

Originally Posted by jeremai
I'm still thinking over everything we would need to consider if we decide to return to the UK and I have just spent a couple of hours getting totally confused about tax stuff. I was wondering if anybody can let me know if I'm understanding things correctly.

I am currently a US permanent resident married to a US citizen. If I get my citizenship before leaving my wife and I will both have to file a tax return every year from the UK but will not have to pay any US tax unless our income is over $80,000. If I do not become a citizen and let my resident status drop, only my wife will have to file a return, but will not have to pay tax on income under $80,000. Is that correct?

Also, I am assuming that my dual citizen children would also have to file returns from the UK once they start working.

Thanks!
If you are a US citizen you have to file a 1040 every year. You get an exemption of $80k for foreign income. Even then, because of the tax UK/US treaty there are ways to avoid double taxation.

If you have a Green card and spend even one day in the US during the tax year you are liable to US tax. I think you have to actively rennounce the Green Card to not be resident for tax purposes. However, I also believe that if the IRS thinks you are doing this to avoid taxes they might not let you do this and may still require you to file a 1040. In the UK you and your wife will be required to pay taxes per your UK status, ie as UK residents.

I think the complications of dual citizenship and taxation is one situation where a qualified tax specialist is really useful. There are just too many potential pitfalls and a few hundred dollars spent on getting an expert to file your taxes is worth the saving in worry and the avoidance of dual taxation.
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Old Aug 1st 2005, 5:50 pm
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Default Re: Tax questions

Originally Posted by jeremai
I am currently a US permanent resident married to a US citizen. If I get my citizenship before leaving my wife and I will both have to file a tax return every year from the UK but will not have to pay any US tax unless our income is over $80,000. If I do not become a citizen and let my resident status drop, only my wife will have to file a return, but will not have to pay tax on income under $80,000. Is that correct?
As far as I know that's broadly correct, although there may be different treatment of unearned income and capital gains.

I think you may be approaching the issue the wrong way. You should be asking yourself whether you want to keep open the option of living in the US at any time in future, should you wish to do so. US citizenship can also be beneficial (because of NAFTA) should you ever decide to seek work in Canada.

If you want to keep open your options regarding the US, you really need to take citizenship and then deal with the tax issues as they arise.

There's information on the IRS website, and also on the website of the US Embassy in London (the latter is geared towards US citizens in Britain).

Also, I am assuming that my dual citizen children would also have to file returns from the UK once they start working.

Thanks!
Correct. If you have sons, they will also need to register for Selective Service
http://www.sss.gov


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Old Aug 1st 2005, 5:54 pm
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Default Re: Tax questions

Originally Posted by JAJ
I think you may be approaching the issue the wrong way. You should be asking yourself whether you want to keep open the option of living in the US at any time in future, should you wish to do so. US citizenship can also be beneficial (because of NAFTA) should you ever decide to seek work in Canada.
Thanks both of you for your replies. Yes, I am considering citizenship so that I don't burn my bridges and can return to the US. I'm not basing my citizenship decision on what the tax situation would be; it's just that I don't reach my five years until April 07, and if the citizenship takes 1 - 2 years I may not be able to get out of here until 2009! Maybe by that time I'll be happier here though... who knows.
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Old Jul 12th 2006, 5:24 pm
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Default Re: Tax questions

Originally Posted by Always21
Thanks both of you for your replies. Yes, I am considering citizenship so that I don't burn my bridges and can return to the US. I'm not basing my citizenship decision on what the tax situation would be; it's just that I don't reach my five years until April 07, and if the citizenship takes 1 - 2 years I may not be able to get out of here until 2009! Maybe by that time I'll be happier here though... who knows.
I know this is an old thread but did you get final answers on this? My understanding is you only have to file a US tax return if you are moving to the Uk form a state which has income tax (WA doesn't)

Also as a dual citizen raised and working in England I never filed a US tax return until I moved here and started working. That would be crazy if your kids were stuck filing forever more!
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Old Jul 12th 2006, 5:38 pm
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Default Re: Tax questions

Originally Posted by Hayley
I know this is an old thread but did you get final answers on this? My understanding is you only have to file a US tax return if you are moving to the Uk form a state which has income tax (WA doesn't)

Also as a dual citizen raised and working in England I never filed a US tax return until I moved here and started working. That would be crazy if your kids were stuck filing forever more!

AFAIK you're understanding is incorrect. You have to file a federal tax returnin all events, but if you were resident in a state that levies state tax, you also have to file a state tax return.

Also, non-citizens are severely discriminated against if they leave the US, in that they have to pay hefty capital gains tax on any US property they sell. I believe it is something like 28% - does anyone know whether this is correct. And does it just apply to real estate, or equities and other investments as well?

IRS are almost as bad as USCIS
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Old Jul 12th 2006, 5:43 pm
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Default Re: Tax questions

Originally Posted by Hayley
I know this is an old thread but did you get final answers on this? My understanding is you only have to file a US tax return if you are moving to the Uk form a state which has income tax (WA doesn't)
This IS an old thread although less than a year old; it's amazing how much I've achieved since then. I still thought I had to wait five years to get citizenship instead of three! Three months later I was a citizen.

Nun's reply above is correct. All US citizens abroad still have to file a federal tax return every year. The state issue is completely separate and very confusing as there are income tax / non-income tax states and then domicile / non-domicile states. Maryland is the hardest state to establish domicile outside of, but our accountant has advised us that buying or renting a house in the UK will be proof enough to establish domicile outside of MD so we won't have to file a state return or pay state tax on our UK income (which would be ridiculous).

Also as a dual citizen raised and working in England I never filed a US tax return until I moved here and started working. That would be crazy if your kids were stuck filing forever more!
That's interesting. My understanding is that once my kids turn 18 (or is it 16?) if we're still in the UK they will have to begin filing a tax return every year.
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Old Jul 12th 2006, 5:55 pm
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Default Re: Tax questions

Nun's reply above is correct. All US citizens abroad still have to file a federal tax return every year. The state issue is completely separate and very confusing as there are income tax / non-income tax states and then domicile / non-domicile states. Maryland is the hardest state to establish domicile outside of, but our accountant has advised us that buying or renting a house in the UK will be proof enough to establish domicile outside of MD so we won't have to file a state return or pay state tax on our UK income (which would be ridiculous).
Holy crap. Didn't know anything about this agghh! :scared:

That's interesting. My understanding is that once my kids turn 18 (or is it 16?) if we're still in the UK they will have to begin filing a tax return every year
Perhaps I am in trouble then!! :scared:
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Old Jul 12th 2006, 6:14 pm
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Default Re: Tax questions

Originally Posted by Hayley
Holy crap. Didn't know anything about this agghh! :scared:


Perhaps I am in trouble then!! :scared:
They only go back 3 years. So, I wouldn't worry.
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Old Jul 13th 2006, 12:36 am
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Default Re: Tax questions

Originally Posted by Always21
My understanding is that once my kids turn 18 (or is it 16?) if we're still in the UK they will have to begin filing a tax return every year.

Correct, although there must be an age limit below which mandatory filing does not apply.

If male, they will also have to register with Selective Service at 18: http://www.sss.gov
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