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-   -   UK vs US Tax year alignment (https://britishexpats.com/forum/usa-57/uk-vs-us-tax-year-alignment-923525/)

thinkscientist Mar 24th 2019 10:55 pm

UK vs US Tax year alignment
 
Hey folks,

Have searched around the threads but can't seem to find something specific so thought I would ask.

Moved to USA in Oct 2017 on a L1 visa and for 2017 was classified as non resident alien.

Now for 2018 I am classified as a permanent resident and I'm trying to get my head around my tax return here.

I have a rental property over in the UK and completed my UK self assessment in Jan for UK tax year ( 6th April 2017 - 5th April 2018 ) and paid my taxes due there for that tax year.

I am trying to understand now how I can apportion the amount of tax I paid in the UK for my rental property and declare it as a deduction on my US Tax return as a foreign tax credit.

Additionally, when I do my US tax return next year would I basically do the same thing as I won't have paid UK taxes for April 2018 - Dec 2018 until then?

Hope my post makes sense.

durham_lad Mar 25th 2019 2:10 am

Re: UK vs US Tax year alignment
 
I can’t comment on rental property in the UK but for many years I have had UK income from pensions and interest. I keep a spreadsheet to record all income from those UK sources on a calendar year and report that annual income on my IRS return. (The P60s are of no use for my IRS return)

lansbury Mar 25th 2019 2:35 am

Re: UK vs US Tax year alignment
 
I do the same as durham_lad, keep my own record in a spreadsheet.

Cook_County Mar 25th 2019 1:25 pm

Re: UK vs US Tax year alignment
 
Foreign tax is not apportioned. It is claimed in 2018 if you paid it to HMRC by 31 December 2018.

durham_lad Mar 25th 2019 4:13 pm

Re: UK vs US Tax year alignment
 

Originally Posted by Cook_County (Post 12660052)
Foreign tax is not apportioned. It is claimed in 2018 if you paid it to HMRC by 31 December 2018.

excellent point.

Even though my HMRC self asessment is not due until Jan 31st I always do it before Dec 31st so that I have the tax paid in the calendar year.

thinkscientist Mar 25th 2019 4:42 pm

Re: UK vs US Tax year alignment
 

Originally Posted by Cook_County (Post 12660052)
Foreign tax is not apportioned. It is claimed in 2018 if you paid it to HMRC by 31 December 2018.

Right, so if I paid HMRC in January 2019 or in my case got a refund because I overpaid taxes then I don't claim that as foreign tax credit until my US 2019 return is due?

So that would mean that next year I am claiming foreign tax credit between 2 UK tax years ( assuming I also file my self assessment with HMRC for this year before 31st Dec 2019 )

tht Mar 26th 2019 7:28 pm

Re: UK vs US Tax year alignment
 

Originally Posted by thinkscientist (Post 12660176)
Right, so if I paid HMRC in January 2019 or in my case got a refund because I overpaid taxes then I don't claim that as foreign tax credit until my US 2019 return is due?

So that would mean that next year I am claiming foreign tax credit between 2 UK tax years ( assuming I also file my self assessment with HMRC for this year before 31st Dec 2019 )

A refund would be income, not a foreign tax credit., that is credit for foreign income tax withheld.

https://www.irs.gov/individuals/inte...ign-tax-credit

thinkscientist Mar 26th 2019 9:34 pm

Re: UK vs US Tax year alignment
 

Originally Posted by tht (Post 12661005)


A refund would be income, not a foreign tax credit., that is credit for foreign income tax withheld.

thanks, a bit confused by that statement. HMRC refunded me because I had overpaid taxes to them last year as I lived there for half that tax year.

My accountant here is telling me I need to declare my rental income on my UK property to balance out the taxes I paid HMRC there

lansbury Mar 26th 2019 9:57 pm

Re: UK vs US Tax year alignment
 

Originally Posted by thinkscientist (Post 12661072)

My accountant here is telling me I need to declare my rental income on my UK property to balance out the taxes I paid HMRC there

You need to declare all worldwide income on your US tax return.


tht Mar 26th 2019 11:01 pm

Re: UK vs US Tax year alignment
 

Originally Posted by thinkscientist (Post 12661072)


thanks, a bit confused by that statement. HMRC refunded me because I had overpaid taxes to them last year as I lived there for half that tax year.

My accountant here is telling me I need to declare my rental income on my UK property to balance out the taxes I paid HMRC there

The foreign tax credit is somthing you claim on your US tax return for certain eligible foreign taxs withheld. Say you have an income of 100 and have 30 of income tax withheld in the UK, you may get a credit of 30 on your US tax return to offset federal tax owed, say that was 20 you would carry forward the extra 10 to future years. Then you would pay your state and it any local taxs due and would not be able to use that credit for those. If you then got a refund of 20 in the UK related to that tax you reported withheld you would need to make an adjustment to record you only paid 10 after your refund. In that senario I don’t know if you would have to refile the previous year or include it on the next years return as income similar to how you do with some refunds that were not included in your tax return. It’s not simple when you have to take in to account the different tax years and FX rates etc. And while it helps with not being double taxed between some foreign countries and federal if you live in a high tax state like NY, CA etc you are still going to be hit with more tax you can’t offset. And to make things worse assuming your get a lot of offset you are still likely to get hit by AMT if the IRS don’t get enough actual cash from you...

thinkscientist Mar 27th 2019 1:42 am

Re: UK vs US Tax year alignment
 

Originally Posted by tht (Post 12661125)


The foreign tax credit is somthing you claim on your US tax return for certain eligible foreign taxs withheld. Say you have an income of 100 and have 30 of income tax withheld in the UK, you may get a credit of 30 on your US tax return to offset federal tax owed, say that was 20 you would carry forward the extra 10 to future years. Then you would pay your state and it any local taxs due and would not be able to use that credit for those. If you then got a refund of 20 in the UK related to that tax you reported withheld you would need to make an adjustment to record you only paid 10 after your refund. In that senario I don’t know if you would have to refile the previous year or include it on the next years return as income similar to how you do with some refunds that were not included in your tax return. It’s not simple when you have to take in to account the different tax years and FX rates etc. And while it helps with not being double taxed between some foreign countries and federal if you live in a high tax state like NY, CA etc you are still going to be hit with more tax you can’t offset. And to make things worse assuming your get a lot of offset you are still likely to get hit by AMT if the IRS don’t get enough actual cash from you...

What a great insight, I didn't see it that way.

Does anyone know any good accountants in the USA who can help me with filing my US taxes taking into account UK income and taxes. H&R block seem useless.

Thanks for the advice, I guess

thinkscientist Mar 28th 2019 2:13 am

Re: UK vs US Tax year alignment
 
The plot thickens, I went to see a different accountant today who told me since I didn't file my UK Self Assessment until January 2019 for Tax Year April 2017 - April 2018 then I don't need to claim a foreign tax credit this year and only next year as I didn't sum up with HMRC till January this year.

Looking for a second opinion from some people on here

durham_lad Mar 28th 2019 3:55 am

Re: UK vs US Tax year alignment
 

Originally Posted by thinkscientist (Post 12662023)
The plot thickens, I went to see a different accountant today who told me since I didn't file my UK Self Assessment until January 2019 for Tax Year April 2017 - April 2018 then I don't need to claim a foreign tax credit this year and only next year as I didn't sum up with HMRC till January this year.

Looking for a second opinion from some people on here

That seems right to me. From the start I was advised to file with HMRC before Dec 31st each year, which I do. When I file with HMRC I know exactly how much tax I have been been assessed, and so far each year I owe HMRC but I don’t need to pay the balance until Jan 31st so there really is no penalty in filing early, but has the advantage of being able to claim the foreign tax credit in the earlier IRS calendar year.

phish Feb 1st 2020 11:15 pm

Re: UK vs US Tax year alignment
 
This seems to be incredibly similar to my scenario, but I couldn't see an answer within the thread.
  • Moved to US Oct '18, filed as NRA for 2018 tax year
  • Had rental income from Oct '18-present. Filed self assessment with HMRC late last year for 18-19 tax year and paid outstanding tax due on rental income
  • Due to not taking any UK salary from October 18, I had overpaid some income tax but owed HMRC tax on the rental income from Oct 18-Apr 19.
Judging by Cook_County's comment, I don't apportion this 3 months worth of rental tax, I would state the whole amount of tax paid.

However, I would also need to state foreign income earned. At the moment this amount is $0 for 2019, with the exception of rental income. In order to claim a foreign tax credit, I would need to state foreign income earned - is this right? Even if I did not earn any foreign salaried income in 2019.

Cook_County Feb 2nd 2020 8:34 am

Re: UK vs US Tax year alignment
 

Originally Posted by phish (Post 12800123)
This seems to be incredibly similar to my scenario, but I couldn't see an answer within the thread.
  • Moved to US Oct '18, filed as NRA for 2018 tax year
  • Had rental income from Oct '18-present. Filed self assessment with HMRC late last year for 18-19 tax year and paid outstanding tax due on rental income
  • Due to not taking any UK salary from October 18, I had overpaid some income tax but owed HMRC tax on the rental income from Oct 18-Apr 19.
Judging by Cook_County's comment, I don't apportion this 3 months worth of rental tax, I would state the whole amount of tax paid.

However, I would also need to state foreign income earned. At the moment this amount is $0 for 2019, with the exception of rental income. In order to claim a foreign tax credit, I would need to state foreign income earned - is this right? Even if I did not earn any foreign salaried income in 2019.

For 2019 you'll report UK rental income & expenses on Schedule E and Form 8858. You'll claim UK tax paid to HMRC on rental income during 2019, most likely on the passive Form 1116. Because of depreciation expense, the foreign tax may not result in a great deal if any reduction in US tax payable for 2019.


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