MrScotland

I was in this situation about 7 years ago when I still owned a house in Scotland which was rented out. From a US tax perspective your situation is fairly simple. You are almost certainly considered tax resident in the US for 2006 if you move here in Jan '06. Income is treated the same way no matter where you earned it and the tax software or the IRS don't really care where your rental property was located. I've used HR Block Taxcut for many years and haven't had any problems.

A couple of things to know however. If you have over $10000 in cash in a foreign (in your case British) account that will trigger and additional form that has to be sent to a different government agency. Taxcut will give you the details when you answer that question.

If you have a lot of cash in the UK that's earning interest you are probably getting tax withheld in the UK for that. You should contact your bank to inform them that you are resident in the US and they may be able to stop that. Otherwise it will likely be taxed twice. You will have to declare the interest on your US tax return.

For your rental property be sure to claim all your expenses as tax deductable. Basically all maintenance and costs you incur to rent the property are deductible. Any remaining profit will be taxable income.

For share sales, any cash profits need to be declared for the year the shares were sold. Profits are taxable but losses are tax deductable. There are also different tax rates depending on how long you owned the shares themselves. Just make sure you have all the information on the transaction dates, including when you acquired the shares originally.

I would recommend buying Taxcut or Turbotax and try going through the process in the SW and see if you manage to capture all your information. It's only going to cost you $30-$50 and may be all you need. If you have all your financial info to hand you can do this in a couple of hours. If it doesn't seem to be capturing your information effectively I would get a CPA. At one point I had a UK and a US accountant working on my case. It would have been costly had my company not paid for it.

Another problem I had was convincing the Inland Revenue in the UK that I had indeed left the country and should no longer be taxed in the UK. It took several phone calls and they kept sending me penalty notices to my US address.

Hope this helps a little.

Longy

I took a look at Turbotax last night. It is more or less the same as Taxact, although I thought it was a bit more user friendly.

Can I ask how you enter the foreign income? Does it just go in as if it was regular income? So for example for wages you just say I got paid but did not get a W-2. Property rental goes in to the property rental section as if it was a place in the US? Interest goes into interest which you didn't receive a 1099-INT for, etc ,etc. And then you fill in the foreign tax credit section with the taxes you have paid in the UK?

I would have assumed there would be a separate section to put in non-US income, but perhaps that is why I am so confused.

How do you deal with things that you don't know how much you are getting for this year (such as interest which doesn't get paid until April)? Or do you just take what you were credited with last year? How does that work with sales of shares. I know how much I got, but UK tax wise I won't know until after I do my UK return.

virginiadare

Can I ask how you enter the foreign income? Does it just go in as if it was regular income? So for example for wages you just say I got paid but did not get a W-2. Property rental goes in to the property rental section as if it was a place in the US? Interest goes into interest which you didn't receive a 1099-INT for, etc ,etc. And then you fill in the foreign tax credit section with the taxes you have paid in the UK?

There is definatley a section in Turbo tax that goes through foreign based income...it guides your right through it and you have to enter the country where you earned the income and then a few more questions. I forget where it is but they do take you through it.

How do you deal with things that you don't know how much you are getting for this year (such as interest which doesn't get paid until April)? Or do you just take what you were credited with last year? How does that work with sales of shares. I know how much I got, but UK tax wise I won't know until after I do my UK return.[/QUOTE]

As for interest or other things i guess I am lucky....I don't really have any assets so the ony thing I need to declare is the income from my job and I had our staff account work out what I should declare...it is such a minefield! I'm just keeping my finger crossed and hoping for the best.

Longy

OK thanks, a lot of that makes sense.

I actually lost money on my rented property last year and got some money back from the Inland Revenue for it. I guess that confuses things even more. I still don't understand how people who may only be here just temporarily for perhaps a year or two would be telling the Inland Revenue they have left.

The shares are the things that are going to be really confusing and I am worried they are going to really screw me. Basically they were a work sharesave scheme where I was paying into over a number of years, buying shares each month, and then they would be doubled up after a certain amount of time. Then the company sold our division so we got a lower tax rate on them as well. I am thinking dealing with this alone may be worth going to a CPA.

abboy

Since you arrived January,You are a resident by tax purposes. You dont need to use dual status , so you dont need to file two forms, 1040NR (only when your foreign income is connected with Us business, if not, just write a statement about your information and the income is not US related. )and Form 1040 (for the period when you are a resident) .
You only declared all income you received after Dec.31 2005. If you received earned income ( wages, bonus, tips) within 2006 year and did not receive W2, just fill it in one of the W2 forms, there should be a section asking you if its a foreign employer.. Same as when you have W2, except you dont have FICA taxes. Yes, with all others( rental property-make sure to deduct all the expenses, report it in 1040- schedule Eand form 4562(if you have depreciation on the property), interest income, just fill it in the same US income. Then fill up the foreign tax credit section. Make sure to convert them to US dollar, use the exchange rate the time you receive them. Check the IRS site for link. With your share transaction, you can either estimate or just wait for your UK return. Then you have to file for extension for your US Tax return.

abboy

This is also related to taxes, ,just found out about such tax called Alternative minimum tax, this is the tax added to your regular tax if your regular tax is above a certain amount. Mostly, it will hit the high income tax payer and the ones with investment. It can also hit the people with foreign income, since I just realized that foreign tax credit is not dollar per dollar credit.

There is also another one called expatriation tax, anyone thinking of getting green card or citizenship and is still want to go back home to UK or their own country will need to consider it.

MrScotland

Yes, the shares are going to be complicated. If you were given shares (the doubling piece) last year that actually vested last year (meaning you were able to sell them sometime last year), then the value of those shares is all taxable income but could be treated in different ways depending on the IRS rules. There's no such thing as free money from the IRS point of view.

I think there is a piece in the tools to report foreign income which someone else was asking about. This starts to get really complicated.

You have another issue in that it sounds like you paid UK taxes up to April '06 last year. The agreement between the UK and US should mean that you do not need to pay taxes in both places for the same earnings. This is further complicated by the fact that you got a refund from the UK IR which could be considered taxable income by the IRS, the same way as they treat state refunds in the US. And of course the two tax years don't match up, UK ends April and US is the calendar year.

I think the bottom line here is that a few hundred dollars for a tax consultant is probably worth the money given your complications. I would however recommend finding one that has experience in expat moves. If you go to HR Block or typical high street places i doubt if they'll have that experience.

Did you move to the US with the company that were working for in the UK?

Longy

Yes I did, but since I moved over, my division was sold to a US Company. I have asked about whether the company can help and was told that it would have had to be in a package we agreed when I moved to the US. Taxes was not something I even thought about at that point.

MrScotland

If it's a big enough company I would speak to your HR department. They might not be willing to fund it but they may have tax companies they use for this kind of thing who may be willing to help for a discount if they already have a relationship with your employer. I was in exactly the same situation, but I had a written agreement for tax help.