Tax return advice and costs
 

Hi folks,

It's been a while since my last post (also on tax returns!), but it's that time of year again and I need to start thinking about the 2013 US return.

A bit of background: I was an L1 visa holder employed for 7 months in the US during the 2013 tax year (January 2013 - end of July 2013) with no other income. I returned to the UK at the end of July. My previous tax return for 2012 was for the period of September-December 2012 from the start of my secondment to the end of US financial year.

As such I believe my tax affairs to be relatively simple. However last years return was completed by the firm my old employers used. I have asked them for a quote for this years return and at around $800 this seems excessive.

Couple of questions:

1) What would you roughly expect a reasonable tax firm/advisor to charge to complete a tax return roughly along the lines I have described (I know there is not nearly enough detail there -but honestly, I have no investments/interest/income other than what I was being paid!).

2) Could I even begin to try and do this myself. Last years return really didn't look that complicated. Or is there an added complexity with the fact that I returned permanently to the UK? The tax firm who gave me the quote kept talking about the 'final' return.

If anyone wants to suggest or endorse anyone who you feel could help (Its not the kind of thing I feel particularly happy about just asking google for!) with returns, I'd be very appreciative. Not least because my affairs need to be correct because in my new job there is a strong possibility I could be return on another L visa.

Thanks!

Re: Tax return advice and costs
 

I've just re-read my old thread and noticed lots more replies including Peter Newton's contact details. Very helpful. But if anyone has more - I'd be grateful!

Re: Tax return advice and costs
 

$800 for a somewhat complicated tax return prepared by a tax professional, it doesn't seem to be entirely in the wrong ballpark. Mrs P and I pay a little less for our personal return, which is too convoluted for us to trust H&R Block (or similar), but not massively complicated either. The tax accountant we use is in a small office in a remote small town, which likely makes his fees/rates lower than than big city accountants.

Re: Tax return advice and costs
 

We are using Peter for our first return. There's a fair amount of work involved as we arrived in June 2013 so are "dual status". Additionally there's some pensions and we rent out our UK property. We have been quoted around $1200. It might be high, but there's no way we want to attempt this ourselves!

Re: Tax return advice and costs
 

I've been using Pete Newton for several years now. I highly recommend him.

Re: Tax return advice and costs
 

Sounds like you'll have exactly the same return as you had last year, so you can always use that as a template. All the forms are available on irs.gov.

The complexity in your case is that you also have foreign income (UK) that the US may want to know about too.

Then again, I don't think you pass the substantial presence test (SPT) and will therefore be taxed at a higher rate as a non resident alien with none of the benefits like exemptions. This is based on some tax volunteering i've done, but please double check everything. You also have the option of using UK based tax preparers as there are many US expats in the UK.

Re: Tax return advice and costs
 

If anyone new on here wants to contact Pete Newton.
www.britishexpatstax.com

Re: Tax return advice and costs
 

Pulaski...why aren't you using TurboTax or similar?

Re: Tax return advice and costs
 

We were in a similar position one year and we had ours done professionally. The amount of paperwork generated by renting out a house was astonishing...

Re: Tax return advice and costs
 

Really? You report the rental profit (or loss) on Schedule E of your form 1040. It's not that difficult.

Normally, a single U.K. rental property doesn't generate a U.K. tax liability (due to the personal allowance) so you shouldn't need to complete a foreign tax credit form 1116 if this is your only non-U.S. income.

In answer to the original question, first year and last year U.S. returns are a lot more complex than usual and the fee doesn't seem unreasonable for what's involved. You also have a more complex U.K. tax situation as you may have remained U.K. resident all along.

But if you were on L1 - whys is your employer not paying?

Re: Tax return advice and costs
 

I have a tax return question, I am married and file jointly we my wife, we both have Bank accounts in England and receive a small amount of interest along with a small pension and a small monthly annuity which we will delcare to the US IRS, the paperwork we have from the bank and annuity show taxable income years 2012 to 2013 as the British tax year is from April to April, do we file this as our 2013 US tax return or figure out what the actual overseas income will be for the next few months or should we file a request for an extention until get the 2013 to 2014 statements?

Re: Tax return advice and costs
 

The Us tax year is January 1st until December 31st. Those are the dates that you need to go by not April to April. You should have your December 2013- January 2014 Statements by February at the latest. Taxes are not due until April 15th so you should have your all your statements well before then. My husband has a few UK bank accounts and the statement dates are different but we normally have them by the end of January. His Uk mortgage statement doesn't come out until mid February so he normally just calls the bank for the info before it's mailed out.

Re: Tax return advice and costs
 

No there was more to it than that for us. But then we had a slightly unusual house ownership situation.

Re: Tax return advice and costs
 

Thank you for your response Penguinbar, I figured it would be that way but glad for the confirmation.

Re: Tax return advice and costs
 

You're welcome.

Re: Tax return advice and costs
 

For bank interest for 2013, I have already logged into my accounts online and added up the monthly interest payments for 2013. For my pension and annunity payments I know what they are gross and just add the total for the year. In 7 years I have never submitted UK P60s, are anything else, with my US tax return and it has so far not raised any issues. Just keep them in case we ever get auditied.

Likewise I know what my pension and annuity payments will be in 2014. Add 2.7% from April for COL increase, estimate what interest I'll get on bank accounts and use that total to work our my estimated quarterly payments to the IRS during 2014. With online banking I can see during the year if my estimated income needs adjusting.

Re: Tax return advice and costs
 

I don't understand why some banks in the UK only have 6 months of bank statements online. We needed to access some old statements a few years ago and had a hell of a time getting them from the banks. This was Santander, and Bank of Scotland.

Re: Tax return advice and costs
 

Probably for the same reason we don't use TT...our tax returns are too complicated.

Re: Tax return advice and costs
 

Same here.

Re: Tax return advice and costs
 

This is exactly what I do.

I keep a spreadsheet each year, and each month I enter the posted interest from the savings account and the gross payment from my UK pension. From this I create a substitute 1099-R for the pension and I make up a 1099-INT for the interest savings.

There was on year I even had to make up a 1099-INT for a US bank checking account because all interest is taxable, but a bank only has to generate a 1099-INT for interest over $10.

Re: Tax return advice and costs
 

That does seem strange. With NatWest I can view my statements for the current year and back 7 full years.

Re: Tax return advice and costs
 

It's ridiculous. My husbands parents send us over the paper statements each month now. Santander was incredibly unhelpful when we tried to get some past statements. A customer service rep on the phone actually said we should have thought of getting them before my husband moved to the US. We made a complaint with the Ombudsman and that actually helped.

Re: Tax return advice and costs
 

It appears Lloyds have online statements for a number of transactions rather than months which in my case was fine for me but I can understand the frustration for others. I have just written to Lloyds for to change my address to my current address in the USA so hopefully that will help in the future. I transferred the balance from my wife's ISA account a while ago leaving a zero balance I also tried to close my wifes ISA account in the UK but got the message back that this could not be done online? I'm not sure how to go about declaring this, is it just regular bank interest from this point?
MY wife has had an ISA for around 5 years (at that time she was undecided is she was going back to the UK) I'm not sure what I need to do to with the US tax over the past 5 years and whether now we have applied to be tax exempt in the UK what the UK tax situation would be as technically she was not a resident in the UK as you should be for an ISA

Re: Tax return advice and costs
 

The interest from the ISA gets declared as bank account interest. I'm not sure about closing it out. My husband closed his before he moved here. If you want too use an accountant who is very knowledgeable in US and US taxes contact Pete Newton. www.britishexpatstax.com. He's done our taxes for about 5 years. We were getting our statements mailed here but twice both banks HAD our address wrong. I noticed they were both putting New York, USA instead of New York, NY USA and one had the wrong zip code. When my husband called them up and tried to correct this and told him we wouldn't always receive the statements. they told him he had to fill out a change of address form. He explained that he did that when he moved here and that we had a copy and they didn't put down the same info as what we mailed them we got major attitude.

Re: Tax return advice and costs
 

Thanks again for your response penguinbar.

Re: Tax return advice and costs
 

You're welcome. :)

Re: Tax return advice and costs
 

It does get tricky with FBAR filings and Form 8938 which get filed at different times. Not many accountants are well versed in these issues.

Re: Tax return advice and costs
 

Pete Newton is. We don't need to do Form 8938 but we do file FBAR. I agree that many accountants are not well versed in these areas.

Re: Tax return advice and costs
 

Any tax accountant should at least be aware of the existence of foreign income and asset reporting requirements.

However there's generally no need to have an accountant in order to understand FBAR and forms 8938. They're just information forms, no calculations etc. required, so there's nothing all that complex about filling it out yourself. Hard to see what value an accountant can add.

Re: Tax return advice and costs
 

Quite agreed - although some people become confused over what gets reported on each, what the value is that needs to be reported and what exchange rates to use. Consequently it can help to manage risk by engaging a professional in some circumstances.

Re: Tax return advice and costs
 

We have never submitted these forms as we were ignorant of this situation, we intend to start this current tax year, we did have minimal interest from some 4 years prior (adds up to under 400.00) Do we just look back and convert the funds at the rates for those years and send them off with a FBAR form for each year?

Re: Tax return advice and costs
 

Are you telling us you under-reported your income? Not sure what you were thinking, since it's always been fairly clear that as far as U.S. citizens and residents are concerned, worldwide income is taxable in the United States. HOWEVER, if you're saying you genuinely believed your tax return was true when you signed it, and any errors are minor, then there is no legal obligation to amend your tax returns. The tax year 2009 is already outside the statute of limitations and 2010 will be soon, assuming you filed on time.

Going forward, you absolutely have to get your tax return correct by including all worldwide income (U.S. definition), whether brought to the U.S. or not. And FBAR, if you are liable to file you must as a minimum start filing for 2012, that's due by June 30 and now must be filed eletronically. There has been some discussion, with no clear consensus, as to whether FBAR should be filed for outstanding years (up to 6 years back). Some do back-file, others just file going forward.

Re: Tax return advice and costs
 

Hi and thanks for your response, yes I (married filing jointly) have always filed on time every year, but have never filed a FBAR or declared the small amount of income from the UK, we at the time understood that my private pension I received starting in 2012 had a 25% tax free withdrawal and the remainder would be taxed at source, I have since found out that the remainder was not taxed at source, however the interest from my wife's inheritance was taxed along with my UK account interest at source by the UK bank, so we thought we were in the clear and doing everything correctly.
Reading your response are you saying that we need to file a FBAR for the years 2011, 2012 and of course the current year? We have applied to be tax free in the UK and therefore now understand we are duty bound to declare all income, shall we file a FBAR for 2011 and 20112, 20113 and see what the IRS response is? What would you do?
Thanks.

Re: Tax return advice and costs
 

I wouldn't be posting details on a public forum.

Re: Tax return advice and costs
 

Not clear how you could have come to the conclusion that the United States didn't care about your U.K. income.

You need to find an experienced tax practitioner CPA to re-calculate your 2010, 2011 and 2012 tax returns, this time including everything. Since you've now mentioned a pension as well, then I'd suggest you probably need to amend your returns since the underpayment will be more substantial. Note that all your "tax free" lump sum is taxable as income in the U.S. You'll also probably need to amend your California tax returns. You may be able to claim a foreign tax credit for U.K. interest, although the expectation could be that you instead reclaim it from the U.K.

And you need to get your 2013 returns correct before you file. You may need to extend your filing deadline if you have not resolved your prior year issues.

You don't necessarily need an offshore tax professional and you should avoid anyone who says you need to make a voluntary disclosure to the IRS.

There should be plenty of competent/experienced tax CPAs in Los Angeles. Select one who has been in business for a long time and preferably already has clients with foreign income/assets. Be aware that many practitioners will not take on new clients until after April 15.

Also sounds like you need to file outstanding FBARs, at least back to 2010, and if your wife's inheritance exceeded $100k then there may be a form 3520 to file. You're not going to work all of this out on a public forum.

Be prepared to pay a reasonable sum of money to sort all this out, between what a CPA will charge and the penalties/interest that the IRS (and California) will levy.

Re: Tax return advice and costs
 

Everybody's situation is different. They need to research and decide what is best for them as far as filing a voluntary disclosure. I happen to know someone who amended their returns and finally filed FBARS. or what is called a "quiet disclosure" They felt like their situation didn't warrant filing a voluntary disclosure. I won't go into details but lets just say they're in a pretty bad situation right now with the IRS.

Re: Tax return advice and costs
 

Most situations don't warrant a voluntary disclosure. Are you telling us he is being prosecuted for tax fraud? That's quite unusual.

There are only THREE ways to correct a past tax problem:

1. File correctly going forward, as long as you're not audited then the statute of limitations will take effect, normally after 3 or 6 years. Usually the best option for minor omissions.
2. Amend tax returns on open years. This is called a "quiet disclosure" but really doesn't deserve that term, since every amended return is examined and any under payment of tax will cause interest and penalties.
3. Voluntary disclosure program. The penalties are severe, the main benefit is immunity from criminal prosecution, however unless you are dealing with hundreds of thousands of dollars, and/or bank accounts in tax havens (Switzerland etc), the risk of criminal prosecution is low.

Thousands of people have been scaremongered into option 3 over the last few years when options 1 or 2 would have been more appropriate.

If someone wants a legal consultation on the different options, one option is Phil Hodgen. http://www.hodgen.com
Without any personal recommendation, however his postings suggest that he gives considered advice on all three options and won't necessarily recommend voluntary disclosure as default in the way many others do. His advice won't be cheap, but may be worthwhile. Certainly get considered advice from an attorney before entering the voluntary disclosure program.

Re: Tax return advice and costs
 

Many thanks to you JAJ, Penguinbar & Jerseygirl for your responses.

Re: Tax return advice and costs
 

Good luck. :fingerscrossed:

Re: Tax return advice and costs
 

It's not me so I don't want to go into details. They didn't have six figures to declare and basically they were told that since they knew that they had accounts overseas that had x amount in them and had interest they should have known to declare them. The " We just found out and so we amended them" didn't fly. They have legal counsel who is helping them and have a rough road ahead of them. It's not juts the big fishes that they are going after. I'm not suggesting to do a disclosure or not do one to anybody but this is just a situation where it was an honest mistake of not knowing, amending returns and having it backfire.