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UK to US: dual status for tax purposes, state tax implications

UK to US: dual status for tax purposes, state tax implications

Old Aug 31st 2023, 1:18 pm
  #1  
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Default UK to US: dual status for tax purposes, state tax implications

Hi,

Brief background: I moved from UK to US(California) in July 2023 on a CR1 (marriage visa), so I am now a permanent resident and thus subject to US taxes going forward.

I am trying to get a bit ahead of the game and understand our options for filing US taxes in 2023 when the time comes. My wife is a US citizen and was already in the US (California resident), so when we come to file 2023 taxes, her residency will have been US/California for all of 2023.

Broadly speaking, I believe we have two options:
  1. treat me as dual status (federal) and part-resident (CA), and file as married/separate for 2023. So in that case I file as per my affairs as at the date of my arrival onwards. Simplest, but it seems to mean that we can't utilise my half of the standard deductible for federal (or CA, which seems to have its own in addition), and I don't think I'll have much or any valid itemized deductions to claim.
  2. elect to treat me as a resident alien for 2023 when filing federal taxes, file as married/joint, and thus make use of the joint standard deductible. I have a feeling that my wife will end up earning quite a bit more than me this year, so on the face of it this is an appealing option. However, I am less clear on the implications of this for state (California) taxes and I can't find much definitive online so far.
Basically, my understanding is that California will also tax worldwide income, and moreover that there is no foreign tax credit/FEIE mechanism that can be utilised at state level. So it appears if we go with option (2) then I could potentially utilise foreign tax credit or FEIE at a federal level, and make use of the joint standard deductions, but then it appears I might end up paying CA tax on my UK income earned prior to my arrival in the US.

My key question: does anyone know if it's possible to elect to be treated as a full year US resident for federal taxes, and file as married/joint, but then still file as a part-resident for CA state taxes? (It appears that California permits married filing jointly even if one party is considered a part-resident.)

(I realise I am only talking about income tax here, and there is more to it as I had some ISAs that I liquidated etc. before arriving in the US, so it may be that dual status ends up being the best call in any case - but I'll ignore that here in order to get a better understanding of the above.)

I will I am sure end up speaking with an accountant about this but I want to get my head around it as best I can first, and I do intend to run the numbers in turbotax or similar, but still in the brainstorming stage for now.

Thanks for reading, any thoughts or similar experiences very welcome!
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Old Sep 1st 2023, 1:16 am
  #2  
tht
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Default Re: UK to US: dual status for tax purposes, state tax implications

No experience with CA, but I had similar calculations to do when I moved to NYC. My situation was more complicated as I commuted to London for work after I became an LPR.

As you have noted, the credit for UK tax only applies to Federal not state / city tax and be careful to under stand what counts as tax, e.g. NI does not and only tax’s that are required count.

In my case I ended up with large tax credits I could never use (you need active foreign income that is not taxed or taxed at a lower rate to use the credit). Most of it has expired unused now 10 years later.

You can gather all the data, pay for the top tier of Turbo tax and then run all of the different permutations to see what works best for you. Once you have your data input it and save multiple copies so you can play with each one.

One key thing to remember is that the UK has a different tax year, so you need for split that data in to 2 US tax years and it has to be based on actual day of receipt (cash basis) and a refund may then have to be declared as income in the next tax year (when received).

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Old Sep 7th 2023, 10:27 am
  #3  
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Default Re: UK to US: dual status for tax purposes, state tax implications

Originally Posted by tht
No experience with CA, but I had similar calculations to do when I moved to NYC. My situation was more complicated as I commuted to London for work after I became an LPR.

As you have noted, the credit for UK tax only applies to Federal not state / city tax and be careful to under stand what counts as tax, e.g. NI does not and only tax’s that are required count.

In my case I ended up with large tax credits I could never use (you need active foreign income that is not taxed or taxed at a lower rate to use the credit). Most of it has expired unused now 10 years later.

You can gather all the data, pay for the top tier of Turbo tax and then run all of the different permutations to see what works best for you. Once you have your data input it and save multiple copies so you can play with each one.

One key thing to remember is that the UK has a different tax year, so you need for split that data in to 2 US tax years and it has to be based on actual day of receipt (cash basis) and a refund may then have to be declared as income in the next tax year (when received).
Thanks for that, yes I was planning to play around with Turbotax and see how the numbers work out.

And yes, I'm aware of the different tax year dates. Thanks for the reply - it all gets rather interesting, doesn't it...
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