US Income Tax Clarification
 

Hi all,

Hoping somebody is able to help me as I can't seem to find any definitive answers!

I will (hopefully) be moving out to California in January. I have just managed to get my head around federal tax and state tax brackets and what percentage I pay on each part of my salary! The one thing I can't seem to get my head around is exemptions and deductions. Am I entitled to claim these?

The other question that lies around this and determines what you are entitled to is classification of 'resident alien' and 'non resident alien'. I will be on a L1A visa employed on a permanent basis so I am assuming I will fit into the 'substantial presence test' to be classified as a resident alien?

Any help is appreciated! :confused:

Ash

Re: US Income Tax Clarification
 

Depends on the exemptions and deductions.

You'd be resident for tax purposes, most likely.

Great questions to ask the tax person the company arranged for you to use in your relocation transfer package.

And if you didn't get one, well opps.

Re: US Income Tax Clarification
 

Usually you would be resident, and usually you would be entitled to standard exemptions/deductions. However first year tax returns can be complex, and California taxes don't automatically follow federal taxes.

Assuming your employer is paying for tax assistance (usual for expatriation as a company transfer), have you consulted with the assigned person? There is also some pre-move tax planning that you should normally do, as there are certain things you may wish to do to restructure your finances to fit better with U.S. taxes. It may (or may not) be advantageous to realize capital gains in the calendar year before becoming U.S. resident. You very likely need to do some U.K./U.S. tax calculations and make some decisions.

Re: US Income Tax Clarification
 

Recommend for you first year taxes to hire a pro, should just be a few hundred dollars.
Thereafter do it with TurboTax or similar, yourself.

If you can afford it start contributing to a 401k asap, and also after tax dollars to Roth IRA.
Find a finance pro to consult with.

Re: US Income Tax Clarification
 

If you move in January, and you pass the substantial presence test, you won't be filing a tax return until March 2015 - so don't stress too much about it now. There are some payroll calculators online if you want to find out how much your take home pay will be.

I second the suggestion to hire an accountant to do at least your first year's returns. It's not expensive and will save you a headache. The tax code is byzantine.

Re: US Income Tax Clarification
 

Really? Speaking to other expat's, and from my own experience, the cost is in the thousands, not hundreds.

Re: US Income Tax Clarification
 

There is absolutely no reason for the typical person, including those with foreign income/assets, to pay thousands of dollars for tax preparation.

Re: US Income Tax Clarification
 

My accountant's fee for personal taxes was $400 (5 years ago.) The ROI was huge.

Re: US Income Tax Clarification
 

I can only report what I found.

Re: US Income Tax Clarification
 

I don't see any benefit of 401k on L1A visa. Why would you suggest that?

Re: US Income Tax Clarification
 

To get the company match otherwise you are leaving money on the table. When the job ends it can be rolled to an IRA and then to a ROTH. If no match then I agree that it's probably not worth the hassle.

Re: US Income Tax Clarification
 

..and stuck in the USA until retirement.

Re: US Income Tax Clarification
 

Correct, but is not the purpose of putting money into a retirement account to save until needed for retirement. If the OP is not interested in putting money away for retirement then that is different. A ROTH will grow tax free and no taxes will ever be paid in either the US or UK after the contribution to the ROTH.

In my case I came over on a 2 year visa and was advised to contribute to get the company match which I did. As it happened I ended up getting a 2nd visa for another 2 years and then getting green card so I am very pleased to have taken the advice.

Re: US Income Tax Clarification
 

Is it possible to take up 401k and avoid penalties (happy to pay the tax) at the end of job and going out of US?

Re: US Income Tax Clarification
 

Probably have to pay a 10% penalty as well as the tax.

http://www.brightscope.com/financial...sh-out-my-401k