mcsqueeb

I became a US Resident in May 2009, prior to this I had not lived or worked in the US (my wife is a US citizen but we had only lived in the UK).

I am now filing my US 2009 Tax return. I understand that I need to declare and pay tax (where owed) on foreign income earned after I became a US Resident but I am not sure if this is the case on income I earned in the UK prior to getting a green card.

H & R Block are doing may taxes and told me I do have to declare income earned prior to May 2009 but I can not find any documentation supporting this. I also don't have a lot of confidence in the person doing my taxes especially after they asked what the 2 letter country code for the UK was.

Does anyone have any experience regarding this or know if I do need to declare income earned prior to May 2009.

Thanks in advance.

ian-mstm

You are required to declare worldwide income, yes - even for the time you were not in the US. If you have already been taxed on that income, you will not be required to pay twice... but you must declare the income. You add it in at the beginning of the return, and subtract it out later on. You will pay tax only on any untaxed income.

Ian

Zonie

I am assuming you had no immigration status in the USA until you became a permanent resident in May 2009. If that is the case, for the year in which you emigrated to the US, 2009, you should file a Dual Status tax return to the IRS http://www.irs.gov/businesses/small/...=96433,00.html

The IRS are only concerned with your non USA income from when you became a permanent resident.

mcsqueeb

Hi Zonie

That is exactly the information I am looking for. I have forwarded it on to my tax guy.

Thanks for the quick response.

lifehouse51

Be careful with the date that you start declaring yourself as a resident...from what I remember, if you have been in the U.S. for other purposes between January and May in 2009, you start date as a resident for tax purpose may begin sooner (I think Tourist status is exempt though)

One drawback with Dual status filing is that you can't use the Standard deduction, but have to itemized deductions. For some people, the itemized deductions are more than the Standard deduction anyway, so it doesn't matter. (For filing as a resident, you can choose one type of deduction only, usually the one with the higher amount of deducted amount)

Remember that for the part of the year you're a nonresident (Jan to May in your case), you still have to declare income from all U.S. sources (Eg. Bank interest with a U.S. based bank, investments with a U.S. company, etc.)

Jaxbar

But its not that simple, for example if you earned interest on an ISA you would have to pay tax on the whole years interest that you became resident. I'm with Ian on this one, I declared everythng but did not pay tax twice.

chuckles67

This was the profesional advice I received
http://britishexpats.com/forum/showthread.php?t=649576

My worldwide income has been stated on both my Federal and California State tax returns for 2009.

I only spent 8 days in US prior to my move here in Dec 2009, and I am set to get a Federal tax refund because my december US income was taxed at source at full-rate
=> my worldwide income prior to arriving will not be taxed at federal rates.

By contrast, I am set to pay more California State tax despite having had december state tax deducted at source.
=> my worldwide income prior to arriving will be pro-rata'd for december and taxed at State rates

Advice
1. check how many days you spent in the USA before arriving, if it's more than 10days, you may get federal tax backdated on worldwide income

2. check your state tax rules on worldwide income for the tax year (in California is pro-rata from your data of arrival). California state is bankrupt, so I guess they need to screw every last dollar from eager new arrivals!

3. move to USA on 1st January (or early in the New Year), then you won't have to worry about this!

4, also see Cynick's post which implies if you move in the last 182 days of the year you can apply not to be taxed at federal rates even if you spent a lot of time in USA in the first half.
http://britishexpats.com/forum/showthread.php?t=649576

Zonie

The IRS state:
For the part of the year you are a nonresident alien, you are taxed on income from U.S. sources only.

Legally you cannot have an ISA if you are not resident in the UK, if you emigrate it should be closed the day you leave.

Ozzidoc

I want to agree with you, as this is what I thought. However, this is not what the UK tax office told me. (The "leaving the country" or overseas division or whatever it's called.)

sangiano

If you are not considered a UK Resident for Tax Purposes in a year, you may not make make further additions to the ISA in that year.

Continuing to hold the ISA is perfectly legal.

Zonie

How long can you hold it for whilst remaining a non resident?

henryh

indefinitely

sangiano

With the caveat that tax law can and does change (although I am unaware of any affecting this), the answer would be indefinitely.

To give some background:

I had occasion to speak to HMRC about this subject a few years ago.

Under certain, specific circumstances, it it is possible for a person to be considered Resident and Ordinarily Resident in the UK, even though they may not have spent a single day there. My wife was in this position.

I talked to someone specifically about this circumstance and its effect on ISA eligibility.

The special treatment was not extended to the spouse , so we had the situation where one of us was considered a UK tax resident and the other a non resident.

The official very patiently explained that my wife was eligible to make use of her ISA allowance for the tax year, that I as a Non-Resident could not and specifically confirmed that continuing to hold an existing ISA, built up whilst in Resident status was unaffected by my Non-Resident status.

When submitting forms to the ISA provider, my wife had to make them aware of the special circumstances that allowed her to make ISA contributions whilst having a foreign address. She had no problem with this and continued to make ISA contributions whilst allowed to. Those circumstances changed when we moved to the US and she is now considered a Non Resident.

The problem with holding an ISA and being resident for tax purposes in the US, as I understand it (I haven't researched it myself, so I could be wrong), is that the IRS doesn't recognise the ISA's tax free status. This means that whilst you wouldn't pay any tax in the UK, any gains would be fully taxable in the US. With no foreign tax to claim back, they lose their appeal.

I'm sure someone will correct me if I'm wrong on this last point (and I hope they do).

Zonie

Interesting stuff. I would agree that it doesn't seem worth having an ISA once you become subject to the IRS worldwide income umbrella. (Unless the interest rates are substantially higher in the UK perhaps).

Jaxbar

When we were getting 5% it was worth it and ultimately you are going to pay tax on any interest anywhere.