littledorrit

Hi,

Hoping someone can help...

I am planning (hoping) to move to the USA in the Summer (marriage based visa). In the UK I have been a self-employed consultant for the last few years. When I move to the USA, my (uk based) clients would like me to continue doing work for them.

So I understand that from the date I land in the USA (with my green card) I am a resident alien for tax purposes. But am hoping to dual file in the first year (so I can exclude my UK earnings for the 1st half of this year).

My question is - if I have a UK based client and do work for them from the USA, and they pay me in £ into my UK account, I'm assuming I just declare this to the IRS on my annual return and pay USA income tax (as self employed) on it?

Is there anything else I need to be aware of - or any potential problems with this?

Thanks in advance for any advice - I just want to make sure it's worth my while doing this work in the first place!

Nutmegger

I consult for clients in Europe. although I have them wire my fees into my US bank account in dollars. As they don't provide a 1099 for tax purposes, I just keep a spreadsheet of my earnings, declare them on my annual return, and pay the tax as you note above. However, being self-employed, one needs to file a quarterly estimated tax return with the IRS and the state (provided your state has an income tax).

Steve_

We just had this thread: http://britishexpats.com/forum/usa-5...-876161/page2/

You would be a dual-status self-employed person. Have fun with that.

Have a read of IRS publication 519. The 2011 version has a step-by-step example of how to do a dual-status return.

I always remember going to an IRS seminar on non-resident alien filing years and years ago, back before everything was on the web. They get to questions and some guy with an E visa asks about filing as a non-resident alien self-employed person.

"Oh Fred (or whatever his name was) processes those, any advice Fred?"

"Yeah, don't file as a non-resident alien self-employed person, it's audited more than any other category because usually only people on E visas who live abroad are supposed to do it. Plus it gives me more work to do."



Although I did discover later that students on OPT can do it too.

Nutmegger

The situation in the thread you cited seems to be rather different as that OP has to remain a direct employee as his/her company won't subcontract. I can't see why the OP in this thread can't just be a subcontractor without the need for any specialized tax setup once a full time US resident (after the first split year).

littledorrit

Would I maybe be better off starting a company in the U.S.? And Billing through that?
I did have a limited company here - but wound it up a while ago as it seemed like it would be more simple once I moved to the states (rather than having to declare / unpick my relationship to it once in the states).
It's hard to know right now the level of billing - whether my UK clients will get used to me being that remote).
However the invoice / payment structure is fairly straight - forward and there aren't a load of transactions - just a handful of invoices and payments a year...
And I'm not a direct employee at all (or ever have been) of any of my clients...

slices

Situation has changed somewhat initaly it was the contract with their client not allowing it. Now they've had a conversation along the lines you want the project delivered on time then make an exception. So my situation is now slightly simplier than the one in this thread given I have only one client and they are willing to pay into my US account. We're also negogating a rate in USD so they take a risk on the exchange rate not me. I spoke to a CPA yesterday and acrually seems more straight forward than I thought.

nun

When you become US tax resident and start working for yourself in the US you should set up a US sole proprietorship. This requires no paperwork, you just have to keep records and file the federal and state "sole proprietor" tax forms. Most people will also apply for a special tax ID number (ind addition to their personal SSN) for the sole proprietorship and that is done on line and takes 5 mins.

So once you leave the UK DO NOT do any business through your old UK company. Open new bank accounts and I would make those US based. You'll have to file a split year/dual status taxes in the first year. Also you will stop paying UK NI and you will pay 15% US self employment tax on any earnings form work you do while a US tax resident......don't forget state tax filing too.

littledorrit

That's great - thanks. I already wound down my business in the UK (for simplicity) so am billing as self employed (in the UK) at the moment.

What you describe is how I was hoping it would be. SO I'll set up a 'sole proprietorship'. Does that 15% tax rate have any limit? (Just in case I'm raking in the money! )

I recently set up a US bank account, so can I ask my UK clients to pay into my UK account and transfer the money across to my US account in intervals? Or would that make things too complicated? (I'm not sure how my UK clients would feel about paying me directly into a USA account?)

I will be in Florida, so think there's no State tax.

I was also concerned that my move date would dictate whether I could dual file this year. It seems a little ambiguous on the IRS site. I would qualify under the Green card test, but I couldn't work out wether if I was there early enough to meet the substantial presence test, if that would take precedence and would mean I couldn't dual file?

Nutmegger

That is up to you -- and your tax adviser. I have around half a dozen clients and have never found it necessary or beneficial to do it through any kind of company. I just send out an invoice when the project is over and get paid via wire direct into my US bank account. I specify payment in US dollars on my invoice so that I get the exact amount I bill and there are no wire fees. (Your mileage may vary with different banks.)

tantrum

It's much simpler if you don't get foreign income while in the US, but if you do via your
UK limited company you declare it but shouldn't have to pay US tax on it by citing Tax Treaty Article 7 on your US tax return.

Steve_

Well yes it is but I don't have a good anecdote for every situation.

He wouldn't actually be at any point a non-resident alien self-employed person, he'd be a non-resident alien for the first part of the year and a self-employed person for the second half of the year.

People tend to get confused about what "non-resident alien" means for tax purposes, so I was just emphasizing that you should never file as a non-resident alien self-employed person. Except in really rare circumstances.

Steve_

You're asking exactly the same sort of questions as this thread: http://britishexpats.com/forum/usa-5...-876161/page2/

Unless you immigrate on January 1st, you file dual-status. Substantial presence test is irrelevant, as a matter of fact - you are resident in the US for tax purposes. The test is only if you're arguing that you aren't and in any event it's totally irrelevant as it is overridden by Article 4 of the tax treaty.

If you've got a green card, the date they stamp your passport when you enter - you're resident for tax purposes. And moreover, you remain resident for tax purposes in the US indefinitely, even if you move abroad. You'd either have to file I-407 or become a US citizen to be able to move your tax home abroad after that point.

nun

The "saving clause" negates Article 7. The OP will be living in the US and working in the US and so will be liable to US tax.

Steve_

Yeah under no circumstances do you want your UK corp (which you own) to transact business while you reside in the US because technically you having an office in the US could then become a "permanent establishment" in the US and the corp will become liable for filing an 1120-F.

Even if you owe no tax, it's a bugger of a form to fill in.

littledorrit

Thanks for all the advice!

I'm still a bit confused by it all, but getting better!

So...For simplicity (and because it happens to work out for the type of work I do), I am closing out everything in the UK (so closed my business here, finished any current contracts and filed final UK self-assessments etc.) in June.

Then (in August) I will 'start up' in the USA. So I will have a sole proprietorship in the USA, as a USA alien resident, and will have some clients who happen to be in the UK. Who will pay me for my services into my USA account.

Hoping that'll work just fine