UK Tax Reform: What US Expatriates Need to Know - Spring Budget 2024 Insights
 

Last update: 20th March 2024
Author: Alistair Bambridge is a Chartered Accountant with specialization in US expatriate tax and Covered Expatriate status, boasting over 20 years of experience. He has been awarded for excellence in High Net Worth and Expatriate Tax services. A recognized tax advisor, he's been featured on CNN and BBC. A leader at Bambridge Accountants, he guides many on renouncing US citizenship.

On March 6, 2024, the UK government unveiled the Spring Budget 2024, bringing significant tax reforms that impact US expatriates in the UK. As experts in U.S. expatriate taxation, we've been fielding many questions about how these changes, especially the overhaul of the non-domiciled (non-dom) status, will affect US citizens living in the UK. This update aims to break down the main points of the Spring Budget 2024, helping US expatriates understand how these changes might alter their tax responsibilities and financial planning while living abroad.

UK Reform of Non-Dom Status

The Chancellor's announcement confirmed the anticipated overhaul of the non-dom regime, a cornerstone of the Spring Budget 2024. Traditionally, the non-dom status allowed individuals residing in the UK but with a domicile elsewhere to opt for a remittance basis of taxation. This meant they were taxed only on the income they brought into the UK, potentially leading to significant tax savings on foreign income and gains.

Transition to a Residency-Based System

In a move to modernise and simplify the tax system, the existing non-dom regime will be phased out. From April 6, 2025, the UK will adopt a "residency-based system," aligning more closely with tax models in jurisdictions like Italy and New Zealand. This shift signifies a departure from the domicile-centric approach, to foster a fairer tax landscape and maintain the UK's competitive edge.

Implications for US Expatriates

For US expatriates leveraging the non-dom status, this reform marks a pivotal change. Once the transition comes into effect, individuals who have been UK residents for more than four years will be subject to UK taxes on their global income and gains, irrespective of whether or not these funds are brought into the country.

If you are unsure if you are a UK resident for tax purposes our UK resident test article

Key Considerations:

  • Four-Year FIG Regime: A new four-year foreign income and gains (FIG) regime will be introduced for individuals becoming UK tax residents after ten years of non-residence. During the initial four years of UK residency under this regime, individuals will not be taxed on foreign income and gains, provided these are not remitted to the UK.

  • Statutory Residence Test: The determination of tax residence will hinge on the Statutory Residence Test, overlooking treaty residence or non-residence considerations.

  • Transition Provisions: The budget outlines several transitional provisions, including Capital Gains Tax rebasing for specific foreign assets and a Temporary Repatriation Facility, introducing a 12% tax rate for certain remittances in the tax years 2025/26 and 2026/27.

Action Steps for US Expatriates

Given the significant overhaul of the non-dom regime, US expatriates nearing or surpassing their fourth year of UK residency must reassess their tax strategies. Engaging with a tax professional is advisable to navigate the complexities of these changes and to optimize your tax position under the new residency-based system.

Book a tax planning consultation with our expat US accountants

Enhancements in NICs and Living Cost Support

Beyond the non-dom reform, the Spring Budget 2024 also brings reductions in National Insurance Contributions (NICs), providing a welcome increase in take-home pay for employed US expatriates. Additionally, measures to alleviate living costs and bolster public services are part of the budget, offering broader support to all UK residents, including the expatriate community.

Conclusion

The Spring Budget 2024 introduces a transformative agenda for tax regulation in the UK, with the reform of the non-dom status standing out as a critical development for US expatriates. As the UK shifts towards a residency-based tax system, understanding these changes and their implications on your financial and tax planning becomes paramount. Staying informed and seeking expert advice will be key in adapting to this new tax landscape, ensuring that US expatriates can navigate the transition smoothly and effectively.

Contact us for expat US and UK tax support

 
Minimising Exit Tax for US Covered Expatriates: A Step-by-Step Guide
 
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Last update: 23rd February 2024
Author:
Alistair Bambridge,  a Chartered Accountant with over 20 years of experience specializing in US expatriate tax and Covered Expatriate status. Recognised for his expertise, Alistair has been awarded “The Best for High Net Worth Clients” by Spears and “The Best for Expatriate Tax.” He is a trusted figure in tax advisory, regularly contributing insights to renowned platforms such as CNN and BBC. Leading Bambridge Accountants, he has assisted thousands in successfully navigating the complexities of renouncing US citizenship, establishing him as a leading authority in the field.

If you find yourself classified as a US "Covered Expatriate," it means you've either renounced your US citizenship or ended your long-term residency. Here's what you need to know and how you can manage your situation effectively.

We are experts in the worldwide treatment of US Expatriates who hold the Covered Expat status. Contact us with any questions you have.

What is "Covered Expatriate" Status?

A "Covered Expatriate" refers to someone who has renounced US citizenship or ended long-term residency, with specific tax conditions: net worth over $2 million, high average annual net income tax, or failure to certify tax compliance for the last five years.

Tax Implications for US Covered Expatriates:

  • Exit Tax: Assets are deemed sold for their fair market value the day before expatriation, leading to possible capital gains tax.

  • Deferred Compensation: Items like pensions or stock options are taxed as if received on the day before expatriation.

  • Non-Grantor Trusts: If a covered expatriate is a beneficiary, distributions received post-expatriation are subject to immediate taxation.

  • Gift and Estate Tax: Covered expatriates may be subject to US gift and estate taxes on transfers of U.S. property to US persons.

  • Compliance Requirements: Filing Form 8854 to certify compliance with all federal tax obligations for the five years prior to expatriation.

  • Future US Income: US-sourced income post-expatriation can still be subject to US tax.

Minimizing Exit Tax

With strategic planning and expert guidance, it's possible to minimise the financial impact of holding the Covered Expatriate Status. Below, we break down essential strategies to effectively reduce the Exit Tax for US Covered Expatriates.

Valuation

Gifts

  • Utilise the annual tax-free gift allowance to reduce your net worth.

  • Gifts can be given to family members or trusts, lowering your taxable estate.

  • Keep within the legal limits to avoid additional taxes.

Timing

  • Plan your income recognition strategically.

  • Deferring income until after expatriation can reduce taxable income in the US.

  • Accelerating deductions before expatriation can lower tax liability.

Retirement Accounts:

  • Understand the tax implications for different types of retirement accounts.

  • Withdrawals from certain accounts may be taxed differently if taken before or after expatriation.

  • Consider the timing and amount of withdrawals to optimise tax efficiency.

By carefully considering these factors, US-covered expatriates can effectively minimise their Exit Tax and manage their financial transition more smoothly.

Required Documentation for "Covered Expatriates"

Filing Form 8854 is a critical step in finalising your expatriation from the U.S. Ensuring you have all the necessary documentation and information will help make the process smoother and help you comply with U.S. tax laws as a covered expatriate.

Personal Details

What’s Needed?

Your full name, Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN), mailing address, and date of birth.

Purpose

To identify you in the IRS system and ensure your expatriation status is correctly recorded.

How to Prepare

Ensure all personal information is current and accurate. If you don’t have an SSN or ITIN, you may need to apply for one before filing.

Tax Compliance Status

What’s Needed

Certification that you have complied with all U.S. federal tax obligations for the five years preceding the year of expatriation. This includes filing all necessary tax returns and paying all due taxes.

Purpose

To verify that you are not expatriating to avoid U.S. tax responsibilities.

How to Prepare

Gather your tax records for the past five years, including copies of filed returns and records of tax payments. If there are any unfiled returns or unpaid taxes, address these before expatriating.

Assets and Liabilities Balance Sheet

What’s Needed

A detailed listing of all your global assets and liabilities as of the day before your expatriation date.

Purpose

To determine your net worth and assess if you meet the net worth test for covered expatriate status.

How to Prepare

List all assets (e.g., real estate, stocks, bonds, and other investments) and all liabilities (e.g., mortgages, loans, and other debts). Use fair market values for assets. If necessary, get professional appraisals.

Income Statement for the Expatriation Year:

What’s Needed

An overview of your income for the year you expatriate, including the total income up to the day before your expatriation.

Purpose

To calculate any exit tax owed based on income and gains up to your expatriation date.

How to Prepare

Compile information on all sources of income, including employment, investments, and any other income. Ensure you have accurate records and statements to support the figures provided.

Ensure you have detailed records and valuations for all assets and liabilities.

Overview of the Process of Filing as a "Covered Expatriate"

Below is a quick overview of the process of filing as a Covered Expatriate. This includes many of the steps we will take to ensure you are both compliant and liable to minimal tax. Ideally, we start the process with planning a few years before you plan to renounce so that we can ensure the most tax-efficient outcome.

Initial Assessment and Data Collection

  1. Client Consultation: Once you have booked in your formal consultation with us, we will arrange a video or phone call to discuss your current tax situation, expatriation intentions, and financial status. This is to determine whether you meet the criteria for being a "Covered Expatriate.

  2. Document Gathering: We will now request all necessary documents, these include previous tax returns, details of all global assets and liabilities, income statements, and proof of compliance with U.S. tax laws for the last five years.

  3. Preliminary Assessment: An evaluation of your net worth and tax compliance status will now be conducted to confirm your "Covered Expatriate" status. You will then be provided with a detailed overview of potential tax liabilities, including the Exit Tax.

Preparation and Filing

  1. Form 8854 Preparation: Form 8854, including your income statement, will now be filled out, ensuring accuracy in reporting personal details, tax compliance status, and a balance sheet of assets and liabilities

  2. Review and Submission: Once you have reviewed and approved Form 8854 and accompanying documentation. We will file the form alongside your final tax return, if applicable, or submit it independently if a tax return is not required.

  3. Confirmation of Filing: We will then send confirmation from the IRS that Form 8854 has been successfully filed. Keep copies of all filed documents for future reference.

Post-Filing Follow-up and Compliance

  1. IRS Communication: We will monitor communications from the IRS regarding your expatriation filing. Responding to any requests for additional information and clarify or correct any issues as necessary.

  2. Exit Tax Calculation and Payment: If applicable, you will now have to pay Exit Tax based on deemed asset sales. We will discuss arranging payment to the IRS or discuss options for deferral if applicable.

  3. Ongoing Compliance: We can now conduct a debrief call to discuss any continuing U.S. tax obligations, such as reporting and paying tax on U.S.-sourced income or fulfilling any deferred tax agreements.

Waiting Times and IRS Interactions

Processing Time

IRS processing times can vary, especially for complex cases. Typically, the review process can take several months.

IRS Notices

You may receive notices or requests for additional information from the IRS. Prompt and accurate responses are crucial.

Finalization

Once the IRS has processed the expatriation filing and any due taxes have been paid, the expatriation process is considered complete. However, the IRS may audit the filings, so maintaining documentation is critical.

Conclusion

Understanding and navigating the US "Covered Expatriate" status requires a detailed approach and awareness of the associated tax implications. At Bambridge Accountants, our goal is to provide clarity and guidance throughout this complex process. Our expertise is rooted in a deep understanding of the unique challenges faced by those renouncing US citizenship or ending long-term residency.

Our process begins with a thorough assessment of your financial situation and tax history to determine your Covered Expatriate status accurately. This includes a comprehensive review of your global assets, liabilities, and past tax compliance. By identifying key areas of concern and opportunity, we aim to ensure a complete and accurate filing, minimizing the risk of future complications.

Once we've gathered all the necessary information, we meticulously prepare and review Form 8854, focusing on every detail required by the IRS. This form is critical in finalizing your expatriation from the U.S. and must be completed with precision. Our team ensures that your personal details, tax compliance status, and financial information are reported accurately, reflecting your situation correctly and favorably

Following the submission of Form 8854 and any related documents, our service extends to monitoring communications from the IRS, addressing any queries, and ensuring that any additional requests are fulfilled promptly and accurately. We understand the importance of maintaining open lines of communication with the IRS and strive to facilitate a smooth, uninterrupted process.

In terms of Exit Tax calculation, our team provides comprehensive support in evaluating your assets and determining the applicable taxes, exploring opportunities for minimization where possible. Should there be any tax obligations arising from the expatriation, we guide you through the payment process, discussing options such as installment payments or deferrals, based on your circumstances.

Our commitment extends beyond the filing process. We provide ongoing advice and support to ensure that you understand and can manage any continuing US tax obligations. This may include advice on how to handle U.S.-sourced income or guidance on complying with deferred tax agreements.

In conclusion, the journey through expatriation and its tax implications can be intricate. By leveraging our expertise at Bambridge Accountants, you can navigate this path with greater ease and confidence. Our approach is tailored to provide clear, comprehensive support, ensuring that you are informed and prepared every step of the way.

For more detailed information or specific queries, feel free to reach out. We're here to assist you through each stage of your expatriation journey.

We are committed to providing you with the support and expertise necessary to navigate the complexities of expatriation smoothly and effectively.

 
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Form 8854: A Comprehensive Guide for U.S. Expatriates Navigating Taxation and Renunciation
 

Renouncing U.S. citizenship or relinquishing long-term residency is a complex process with intricate tax considerations, central to which is the IRS Form 8854. 

What is Form 8854 and why is it important for US expatriates?

Form 8854, officially titled the "Initial and Annual Expatriation Statement," is used by U.S. expats who have renounced their U.S. citizenship or long-term residents who have ended their residency status. The form serves several key purposes in the context of U.S. tax obligations for expatriates:

  • A certification of tax compliance, certifying that the US taxpayer is compliant with all U.S. federal tax obligations for the five years preceding expatriation

  • Determining the Covered Expatriate status, helping the US expat determine which they are regarded as a “Covered Expatriate”. Being classified as a covered expatriate leaves the tax filer a potential risk for “exit tax” or expatriation tax, which is calculated as if the individual sold all their worldwide assets for their fair market value the day before expatriating. 

  • Reporting of Assets and Income, this includes reporting the value of specific assets and liabilities to determine the individual's net worth for the covered expatriate determination. 

  • Legal Requirements and Penalties for non-compliance can result from failing to file Form 8854 when required. The form must be filed for the year of expatriation and in some cases annually thereafter.


Who has to file a Form 8854?

This form must be filed by those who:

  • Relinquished U.S. citizenship or terminated their Long Term Residency (LTR) status in the current tax year.

  • Have specific tax situations such as deferred tax payment, eligible deferred compensation, or an interest in a non-grantor trust from previous expatriations.


How to determine if you have Covered Expatriate Status?

Determining whether you are a covered expatriate is crucial as it influences your obligation to pay an exit tax. Criteria include:

  • A net worth of $2 million or more at the date of expatriation.

  • An average annual net income tax liability exceeding the specified threshold for the 5 years ending before expatriation.

  • Failure to certify compliance with all federal tax obligations for the 5 years preceding expatriation.


Filing Form 8854 as an individual with a net worth below $ 2 million

As an expat with a net worth below $ 2 million, you would likely be deemed as having a non-covered expat status. The main sections you will be required to file are Parts I and IV on Form 8854. Part I collects basic information about you and your expatriation, while parts IV require a summary of your tax compliance for the past 5 years. 

Please note to be regarded as having a non-covered expat status multiple criteria must be established. Contact us for help identifying your covered expatriate status.


Filing Form 8854 as an individual with a net worth above $ 2 million

For individuals with a net worth of over $ 2 million, filing can be extremely complex. On top of the sections required for those with a net worth of below $ 2 million, Part V of Form 8854 requires detailed information about all your assets and liabilities to calculate your net worth accurately. 

A calculation of the exit tax can then be gauged, this is judged based on the individual's worldwide assets if they were sold for fair market value on the day before expatriation. The gain from deemed sales will need to be calculated and reported with consideration for the relevant exemptions. 

For covered expatriates subject to the U.S. exit tax upon renouncing citizenship or terminating long-term residency, the exemption amount is pivotal, setting the threshold for un-taxed gains from deemed asset sales. As of the 2023 tax year, this exemption stands at $767,000, meaning the first $767,000 of gain from the deemed sale of worldwide assets is exempt from the exit tax, with gains exceeding this limit subject to taxation. This amount is adjusted annually for inflation, underscoring the importance of staying informed on current thresholds to accurately assess potential tax liabilities during expatriation.



Case Studies for US ex-pats filing Form 8854

Below consists of two case studies to showcase some of the items we have outlined in this article in practice.


Case Study 1: George- The Compliant Entrepreneur 

Background: George is a U.S. citizen and successful entrepreneur who decided to renounce his U.S. citizenship after moving to Singapore. John has been diligent about his U.S. tax obligations, ensuring full compliance over the past five years.

  • Net worth: $1.5million 

  • Primary Assets: Stocks and a small business sold before planning expatriation

  • Expatriation Process: Files a form 8854, certifying his tax compliance, since his net worth is below the $ 2 million threshold and he has complied with his tax obligations he does not qualify as a covered status.

  • Implications: No exit tax due. His thorough preparation and compliance with tax laws facilitate a smooth expatriation process, showcasing the importance of tax compliance for expatriating individuals with net worths below the covered expatriate threshold.


Case Study 2: Emily - The High-Net-Worth Dual Citizen

Background: Emily, a dual citizen of the U.S. and France living in France for ten years, decides to renounce her U.S. citizenship. Her net worth has reached $3 million, primarily through inheritance and investments. While she has filed U.S. taxes annually, she previously neglected full compliance with foreign account reporting.

  • Net worth: $3 million

  • Primary Assets: Inheritance and investments

  • Expatriation Process: Before filing Form 8854, Emily uses the Streamlined Filing Compliance Procedures to rectify her non-compliance. Despite her efforts, her net worth categorizes her as a covered expatriate.

  • Implications: Emily faces the exit tax due to her covered expatriate status but avoids additional penalties by becoming compliant beforehand, highlighting the importance of addressing tax issues before expatriation.

Case Study 3: Alex - The Inadvertent Covered Expatriate

Background: Alex, a software developer living abroad with a net worth of $1.8 million, plans to renounce his U.S. citizenship. Believing his net worth exempts him from covered expatriate status, he overlooks the necessity of certifying five years of tax compliance.

  • Net worth: $1.8 million

  • Primary Assets: Software development income and savings

  • Expatriation Process: Alex's failure to certify tax compliance on Form 8854 inadvertently results in his classification as a covered expatriate, despite his net worth being under $2 million.

  • Implications: Unexpectedly subject to the exit tax, Alex's situation underscores the importance of fully understanding and complying with all expatriation requirements to avoid unintended consequences.

Avoiding Common Pitfalls in the Expatriation Process and filing the Form 8854 

Careful planning alongside your chartered US tax advisor ahead of filing form 8854 can mitigate the risk of paying unnecessary penalties and exit taxes. 

Key areas where individuals often encounter difficulties include:

  • Inaccurate reporting of worldwide assets

  • Misunderstanding the tax compliance certification requirement. 

Addressing these pitfalls effectively is crucial for a smooth expatriation journey.


Accurate Reporting of Worldwide Assets:

Failing to fully disclose all global assets on your Form 8854 can lead to penalties and incorrect expatriate status classification. To prevent this ensure every asset, including bank accounts, real estate, and investments is accurately valued and documented. This can be done through professional appraisals for precise valuations and to maintain organized records for verification purposes. 


The importance of detailed record-keeping 

Meticulous record management is indispensable for proving compliance and asset valuation. Maintain well-organized records, including digital backups, for all financial documents, tax returns, and IRS communications.


Seeking Professional Tax Advice

Working alongside an expert US expat tax advisor is a crucial component to ensuring that your filings fulfill your tax filing obligations and optimize financial outcomes

We offer strategic US tax planning, delving into the best port of action for those looking to renounce. Book a US tax planning call.


Future U.S. Tax Obligations 

A common misconception among expatriating individuals is that renouncing U.S. citizenship or relinquishing long-term residency absolves them from all future U.S. tax obligations. However, certain financial ties, such as deferred compensation items or interests in non-grantor trusts, can continue to impose tax liabilities even after expatriation. Understanding these long-term tax implications is crucial for a comprehensive financial strategy post-expatriation.

Deferred Compensation Items: Expatriates may still be taxed on deferred compensation, such as pensions or retirement plans, if these assets were not subject to the mark-to-market exit tax. Payments received from these plans after expatriation are typically subject to U.S. taxation, and specific rules determine the tax rate and withholding requirements.

Interests in Non-Grantor Trusts: For expatriates with interests in non-grantor trusts, post-expatriation distributions may trigger U.S. tax obligations. The tax treatment of these distributions can vary, with certain amounts potentially being taxed as if the expatriate had received them before expatriation.


Strategies for Managing Post-Expatriation Tax Obligations

Once you have renounced your citizenship it is worth considering how you will manage your post-expatriation US tax obligations. Below are some methods you can use: 

  • Consultation with Tax Professionals

  • Pre-Expatriate Planning 

  • Regular Review of Tax Status 

In summary, while expatriation marks a significant shift away from U.S. tax residency, it does not necessarily free an individual from all future U.S. tax obligations. A clear understanding of the potential tax liabilities associated with deferred compensation items, trusts, and other financial interests is vital. Through careful planning and ongoing consultation with your US accountant, expatriates can navigate these complexities and achieve a more secure financial future.


Considerations for the best time to file the Form 8854 

For those whose net worth is close to or over the $ 2 million threshold, it is worth having professional tax and financial advice pre-renunciation. This can help gauge valuable insights into the timing of your filing about the market condition and the valuation of your total assets. 

For instance - as an investor in the stock market during a strong bull market when stock values are at their peak, high valuations may push you into the covered expatriate status, resulting in exit tax. The same goes for property owners when property prices are inflated. 

Market Volatility: Both property and stock markets are subject to volatility. Decisions based solely on current market conditions should be approached with caution and informed by a long-term financial strategy


Need More Help?

If you find your self in need of more help, feel free to send us a message. Our team of experts in U.S. expatriate filing requirements will be able to address your queries and and help you navigate your tax situation.


 
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Essential 2024 U.S. Tax Filing Guide: Quick Refernce Sheet
 

This guide serves as a concise yet comprehensive overview for U.S. taxpayers preparing for the 2024 tax season, detailing key deadlines, payment options, required documents, and essential tax considerations, including special filings like the FBAR.

Critical Deadlines

April 18, 2024: Deadline for filing returns and making tax payments.

June 17, 2024: Automatic extension for expatriates to file.

October 15, 2024: Extended deadline for taxpayers who requested additional time.

December 16, 2024: Final extended deadline for special cases, by request.

Please note extensions only extend the filing date and not the due date of any tax. Tax is due on April 18th, 2024.

How will I know if I am due a refund or have tax to pay?

Once we have prepared your return we will let you know how much tax is either due or to be refunded. 

While most tax refunds are issued within 21 days, some may take longer if the return requires additional review.

You can track your refund on this link.

How to pay any tax due: 

IRS Direct Pay: Direct, fee-free bank payments.

Credit/Debit Cards: Accepted through approved processors; fees apply.

Instalment Agreement: Available for taxpayers unable to pay in full.

EFTPS: Free, enrollment-required service for regular payments.

How will I know if my tax return has been received by the IRS?

  • If Expecting a Refund:

    • Use the IRS Where’s My Refund tool online. It allows you to check the status of refunds for the past 3 tax years.

  • For All Filers (Owing or Refund):

    • Access your IRS online account to view the status of your return.

  • Other Methods:

    • Call the IRS: Be prepared with your Social Security number, birthdate, filing status (single, married, or head of household), and any prior IRS communications.

    • E-filing Acknowledgment: Check for email updates or status notifications from your e-filing service.

    • Mail Delivery Confirmation: If mailed, use the tracking service (e.g., USPS Certified Mail) to confirm delivery.

Required Documentation

The documents we will need to prepare and optimise your return. Please note there maybe other documents required in given circumstances

The documents we will need to prepare your US tax return

Fill out our client details form to send in your personal information

Personal Information

  • SSNs for you and any dependents.

  • Your Current Address

  • Your Date of Birth 

  • Your Filing Status (Single or Married) 

  • Copy of Passport

  • Job Title/ Occupation

  • If you rent or own the property you live in 

  • The date you moved to your current country of residence

  • Your place of birth 

All documents must cover the given tax year, for the US 2023 tax year it is 1st January 2023 to 31st December 2023 

Income Documentation

  • Employment income (W-2s, P60s, P45s, Payslips)

  • Pension Contributions from your employer 

  • Any Investment Income (interest, dividends, shares and sales)

  • Cryptocurrency and trading income

  • Property income and expenses 

  • Any other worldwide income

  • Copy of last US tax return ( where applicable) 

  • Dates in the US, of those how many were work days for the given tax year

  • Donations 

  • Medical Expenses 

  • Health Insurance Forms 

  • IRA contributions

  • Estimated tax payments 

FBAR filing FAQ 

You are required to file an FBAR if you held more than $10,000 across all your bank accounts outside the US during the year. This applies to all U.S. persons, including individuals and entities, with financial interest in or signature authority over foreign financial accounts.


Below are the documents we will need to prepare your FBAR:

  •  Account name, account number and highest balance during the year for all foreign bank accounts 

    • Including accounts in your name, joint accounts and accounts where you are a signatory (e.g. a business account or where you have power of attorney)

    • Including the balance on pension accounts for each year

    • Including balances on cryptocurrency accounts

FBAR Deadline: April 15, 2024, with an automatic extension to October 15, 2024, aligning with the tax return extension.
Filing status: Joint vs Single Filing considerations 

There are several factors to consider to identify whether it is most beneficial to file as a Joint or Single filer.

Variables to consider include:

  • Income Levels: Joint vs. individual incomes.

  • Deductions and Credits: Availability and benefits based on filing status.

  • Tax Liability: Overall tax implications for each status.

  • Medical Expenses: Potential for higher deductions when filing separately.

  • Educational Credits: Eligibility variations between statuses.

  • Child Tax Credit: Impact on credit eligibility.

  • Student Loan Interest: Deductibility differences.

  • Investment Income/Losses: Treatment based on filing status.

  • Social Security Benefits: Taxation changes with filing status.

  • IRA Contributions: Deductibility based on how you file.

  • AMT Susceptibility: Filing status influence on Alternative Minimum Tax.

  • Marriage Penalty/Bonus: Financial impact of filing jointly.

  • State Taxes: State-specific considerations.

  • Future Planning: Long-term tax strategy implications.

We offer in depth consultation to assess the best filing status for you- book call 

Please note that is is a general overview and circumstances will vary - get in touch for any support filing your US 2023 tax return 

 
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2023 U.S. Child Tax Credit Update: Why it may be worth waiting to file your tax return
 

Quick Overview:

  • Current Credit: $1,600 per child for 2023 returns.

  • Proposed Increase: To $1,800 per child.

  • Status: Passed the House, pending in the Senate. Likely to pass.

Why It Matters:

The Child Tax Credit (CTC) helps U.S. families by reducing taxes or increasing refunds. For 2023, there's a potential increase from $1,600 to $1,800 per child. This change could provide extra support for your family.

What’s Happening:

The increase is in the final stages of approval. It's already passed the first critical step (the House) and is now with the Senate. As US tax accountants it is our belief that it is extremely likely to be passed and therefore familiar will be able to save and additional $200 per child. 

What You Should Do:

Consider waiting to file your 2023 tax returns if you have eligible children. Filing now means you might miss out on the extra $200 per child if the increase is approved. You'd have to amend your return later to get this benefit. 

Stay Updated:

It's essential to keep up with the latest tax changes. Waiting for the Senate's decision could mean more money for your family. We're here to help guide you through these updates.

Need More Info?

Contact us for help with the CTC or other tax questions. We're experts in making tax season easy and ensuring you get all the credits you're entitled to.

Bottom Line:

The proposed CTC increase for 2023 could mean more money for families. Keep an eye on the Senate's decision and consider holding off on filing your return to potentially maximize your refund.

Your Tax Experts:

We monitor tax changes closely and are committed to helping you navigate them. Reach out for personalized advice tailored to the latest laws and your family's needs.

Please note: this is not advise to delay filing pass your required tax filing deadline. 

 
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What are Pensions and Why do they Matter
 

A Comprehensive Guide to US-UK Pensions: What You Need to Know

Welcome to the "Cross Border Pension Series: Information and Advice from a US and UK certified accountant." This series aims to provide essential insights into the complex world of US-UK pensions, offering valuable knowledge for your financial planning. In this first section, we will address fundamental questions to help you understand the significance of pensions, setting the stage for informed decision-making in collaboration with your US-UK specialist accountant.

Pensions: A Foundation for Long-Term Financial Security

Pensions represent a cornerstone of long-term financial security, regardless of your age. Establishing a pension plan lays the groundwork for a reliable income stream during retirement, ensuring a comfortable and stable post-working life. What sets pensions apart from other investments is the advantageous tax relief they receive in both the U.S. and the U.K. These tax benefits make pensions an invaluable addition to your retirement portfolio, offering financial support that complements other investment strategies.

Auto-Enrollment: Who Does It Apply To?

Auto-enrollment in pension schemes is a requirement in the United Kingdom for all employees, offering a straightforward path to pension participation. However, in the U.S., there is no nationwide auto-enrollment mandate for pension plans, although some employers do provide automatic enrollment options. When evaluating potential employment opportunities, consider the pension schemes offered by companies, as a robust pension plan can significantly impact your retirement timeline.

Tax Benefits: Contributions to Your Pension

Both the U.S. and the U.K. offer tax relief on pension contributions, although the rules and systems differ between countries. In the United States, contributions to qualified retirement plans, such as 401(k) plans and Individual Retirement Accounts (IRAs), are typically made with pre-tax dollars, reducing your taxable income for the year. In contrast, the United Kingdom provides tax relief on pension contributions based on your income tax rate, effectively topping up your contributions with government contributions. Understanding these tax benefits is essential for maximizing your retirement savings.

Investment Choices: Where Your Pension Contributions Go

Pension plan participants in both countries often have some degree of choice regarding where their contributions are invested, though the options vary by plan type. In the U.S., plans like 401(k)s and IRAs offer diverse investment options, including stocks, bonds, and mutual funds. In the U.K., personal and workplace pensions provide a range of investment funds catering to varying risk preferences. For those concerned about ethical investing, both countries offer options to align your investments with personal values. It's vital to research and consult financial advisors for guidance in this area.

Early Access: Rules and Considerations

Accessing your pension early varies depending on your country and pension plan type. In the United States, early withdrawals before age 59½ are subject to penalties, with some exceptions for specific circumstances. In the United Kingdom, you can typically start accessing your pension from age 55 (changing to age 57 in 2028), but early access can impact your pension's size and tax implications. It's crucial to weigh the long-term financial impacts before deciding to access your pension early.

State vs. Private Pensions: Understanding the Difference

State pensions and private pensions differ in their funding, management, and benefits in both the U.S. and the U.K. State pensions are government-run and funded through various mechanisms, providing a safety net in retirement. In contrast, private pensions are managed by private entities, offering more control and potential for higher returns, albeit with more risk. Understanding the nuances of each is vital for effective retirement planning.

Inheritance Tax Benefits: Private Pensions

Private pensions in both the U.S. and the U.K. can offer significant inheritance tax benefits. However, the specifics depend on various factors, including pension type, jurisdiction, and individual circumstances. It's essential to explore these potential advantages with a financial advisor for personalized guidance.

Inheriting State Pensions: A Comparative Overview

Inheriting state pensions differs significantly between the United States and the United Kingdom. Each country has specific rules, eligibility criteria, and considerations for surviving family members. Understanding these rules is crucial, as state pension inheritance can provide valuable financial support during challenging times.

Reach out to us with any questions

We are expert in advising for all areas of US and UK pension tax matters- contact us with all your questions.

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What the Autumn Statement 2023 means for US expat pensions and retirement
 

Pensions and retirement have taken centre stage in the Autumn Statement 2023. Many Americans living in the UK will be aware of the complexities of navigating the US and UK pensions on their yearly tax return. Unfortunately, this is an area where we often see the largest portion of mistakes when new U.S. U.K. tax filers come to us.

To keep you ahead of the curve we have created this resource delving into the key aspects of the 2023 UK Autumn Statement and how they directly impact your pension and retirement plans for US expatriates.

Much of this information will also be relevant to those who are not US citizens living in the UK, however we have put extra focus on disclosing the changes through the US UK tax eye.

As a bit of an introduction for those who have not came across us before- we are a US-UK-certified accountancy firm specialising in international taxation.

  • Publication Date: 24th November 2023
  • Last Update: 24th November 2023
  • Author: Alistair Bambridge
  • Location: London, United Kingdom

UK State Pension Increase: Triple Lock System Explained

The state pension will increase to 8.5% from April 2024. This translates to a weekly amount of £221.20 for the full new flat-rate pension and £169.50 for the full basic state pension.

A “triple lock” has also been confirmed. This means that the state pension will increase annually in line with the highest inflation, average earnings, or a minimum of 2.5%.

This means that Americans Living in the UK who qualify for the State Pension will experience a boosted retirement income.

For those who have contributed to both the UK State Pension and US Social Security systems, it is always important to note the two are treated systematically to ensure you remain in line with tax obligations and avoid unnecessary reduction due to Windfall Elimination Provision (WEP) or Government Pension Offset(GPO) in the US Social Security System. We have also noted a crackdown of US pension treatment from the HMRC in recent months. A higher overall UK state pension wil affect final calculations.

Although not impacted by the State Pension Increase- the current fluctuations in exchange rates should also be considered for those receiving the UK State Pension who have moved back to the U.S. or elsewhere.

Class 1 National Insurance Rate Cut: Impact on U.S. Expats in the U.K.

A 2% cut to the Class 1 National Insurance rate from January 6, 2024. This cut will apply between the primary threshold and the upper-earnings limit, potentially saving high-rate taxpayers £754 annually.

Many of my U.S. expatriate clients have come over to the UK for work, the 2% decrease is likely to affect a large portion of Americans in the U.K. The reduction in NI contributions will provide significant relief to US-UK taxpayers, with varying savings depending on income.

Class 2 National Insurance Scrapped for Self-Employed: Savings for U.S. Expats

Self-employed professionals will also have an extra £192 in their back pocket as a result of the decision to abolish Class 2 National Insurance. This applies only to those earning above £12,570.

Alongside the scrapping of the Class 2 NI, is the lowering of Class 4 National Insurance by 1%, saving self-employed professionals around £350 per year.

The recent changes in the UK's National Insurance system, including the abolition of Class 2 National Insurance contributions for self-employed professionals earning over £12,570 and a 1% reduction in Class 4 National Insurance rates, have significant benefits for US expats in the UK. These changes mean more money in their pockets, increased financial flexibility, and potentially improved competitiveness in the marketplace. Self-employed Americans can find self-employment more attractive, enjoy simplified tax obligations, and contribute to local economic growth. To maximize these advantages, it's crucial for US expats to stay informed about tax laws, consult tax professionals, and optimize their financial strategies.

Why 'Lifetime Pensions' Don't Work for U.S. Expats in the UK

The chancellor has initiated a consultation on ‘lifetime pensions’, allowing individuals to have a single pension throughout their work life, regardless of their employers.

What are the benefits of a lifetime pension?

The concept of 'lifetime pensions' refers to a pension system where individuals can maintain a single pension account throughout their entire working life, regardless of changes in employers or job positions. The benefits of 'lifetime pensions' include:

Portability - Individuals can carry their pension account with them as they change jobs or employers, ensuring consistent pension savings.

Simplified Retirement Planning - Managing a single pension account simplifies retirement planning, providing a clear overview of pension holdings.

Reduced Administrative Hassles - Avoiding multiple pension schemes reduces paperwork and administrative complexities.

Financial Security - Predictable retirement income and informed financial decisions enhance financial security during retirement.

Continuity in Contributions - Consistent contributions, even with job changes, lead to uninterrupted pension savings growth.

Enhanced Retirement Flexibility - A single account allows flexibility in retirement choices and tailored planning.

Potential Tax Benefits - Streamlined pension savings may offer tax planning opportunities for greater efficiency.

However, for U.S. expats living in England, it should be noted that you cannot move a 401(k) directly to the UK. Therefore, those with savings in a 401(k) and UK pension, will still hold multiple pensions and thus lifetime pensions a void system for U.S. expatriates in the UK. This being said it may well simplify your documents for when you claim tax relief on your UK pension contributions in the UK.

No More Limits on Pension Savings after April 2024: What It Means for US Expats

The Life Time Allowance limit set on pension contributions will be removed from 6th April 2024. This means, much like the U.S. system there will not be a cap on how much you can contribute to your pension across your lifetime. This being said, again much like the Federal system, there are caps on the yearly contributions you can make.

It is worth noting that the U.K. and U.K. have different maximum yearly pension contributions and different criteria between threshold groups.

Enhanced Pension Services: Benefits for US Expats in the UK

The government is considering a requirement for pension trustees to deliver top-quality and cost-effective services and products when individuals tap into their pension savings. They're also exploring the expanded use of Collective DC schemes to enhance long-term pension saving in the UK.

For instance, one service that pension trustees could offer is managing investments. They oversee how pension funds are invested to ensure they grow over time. This involves making decisions on where to invest the funds, diversifying the investments to manage risk, and monitoring performance to help pension savers reach their retirement financial goals.

This proposal can be advantageous for US expats in the UK, potentially leading to reduced fees and more transparent retirement planning options. It could also provide access to competitive pension products, bolstering financial security in retirement and potentially impacting US expats with investments in the UK by offering more efficient investment choices for their pension savings.

Investing Pensions in Tech and Science: Opportunities for US Expats

£250 million is set aside to help pension schemes invest in science and technology companies. This is great news for our U.S. expats working in the tech and science fields. It could lead to more jobs and opportunities for growth in these sectors, benefiting everyone involved.

FAQ - Questions we are getting from US expats about the changes outlined in the Autumn Statement 2023

Navigating Your UK Pension as a US Expat

The Autumn Statement 2023 has introduced important changes to UK pensions, and understanding their impact as a US expat can be challenging. We're here to provide clarity and guidance. From State Pension increases to National Insurance changes and 'lifetime pensions,' our expertise can help you navigate these developments effectively. Feel free to reach out with your questions, and let us assist you in optimizing your pension and retirement plans. Your financial security is our priority.

Book a call to discuss your UK pension tax matters

 
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Understanding U.S. Crypto Staking Taxes in 2023: A Comprehensive Guide
 

Staking crypto is becoming increasingly popular due to its potential to earn passive income, but with this comes the complexity of understanding the associated tax implications. Here’s a concise breakdown of how staking taxes work for crypto, especially in the U.S.

For a general overview on the state of cryptocurrency taxation in the U.S. see this article. Staking?

This involves participating in a Proof of Stake (PoS) blockchain’s governance by locking up a certain amount of cryptocurrency as collateral. The participants, in return, get additional crypto for validating transactions. This method is both eco-friendly and a way to earn passive income while supporting the blockchain.

DeFi Staking:

Refers to committing cryptocurrency to a DeFi (Decentralized Finance) protocol. Some protocols reward you for adding liquidity, often through transaction fees from other platform users.

Tax Implications for Staking

As of 2023, the IRS clarified that staking rewards are viewed as income upon their receipt. The income is calculated based on the fair market value of the cryptocurrency at the time it's received.

Capital Gains Tax:

If you later sell the crypto earned from staking, any gain or loss relative to the price at which you acquired the staking rewards would be subject to capital gains tax. However, you won't be taxed twice on the same amount; you'd only pay capital gains tax on any appreciation beyond your initial income recognition.

DeFi Staking:

Generally, DeFi staking is taxable as income. Some protocols might involve crypto-to-crypto swaps for staking/unstaking, which might be subject to capital gains tax, similar to other crypto-to-crypto trades.

Recognizing Income:

There's a principle called ‘dominion and control’ that plays a pivotal role. Tax experts surmise that staking rewards are deemed ‘received’ when investors can freely trade or sell them. This means that even if they're in a third-party’s custody but you can access them, they’re likely taxable. If rewards can’t be withdrawn, there might be no taxable event until such control is established.

Staking Pools:

They let investors combine their staked crypto to have a larger stake collectively, potentially earning more staking rewards. Taxes on rewards from staking pools work similarly to individual staking. The key is whether you have 'dominion and control' over the rewards, not necessarily if you've withdrawn them.

Determining Fair Market Value:

  • Check Cryptocurrency Exchanges:

    • Refer to the current trading price on major U.S.-based exchanges like Coinbase, Kraken, or Binance US. If there's variance, consider an average of these prices.

  • Historical Price Data:

  • IRS Guidance:

    • The IRS suggests that if the cryptocurrency is listed on an exchange and the exchange rate is established by market supply and demand, the FMV can be determined through the exchange itself.

  • Consider Time and Date:

    • The exact time of a transaction can influence the FMV due to crypto's volatile nature. Ensure you're referencing the value at the specific time of your transaction.

When determining the FMV for tax purposes, always ensure that your method aligns with IRS guidelines and is consistently applied across all your transactions.

Deductions:

If you've acquired staking equipment for business purposes, the costs might be deductible. For individuals, such deductions are not available.

Reporting on Tax Returns:

Individual taxpayers can include staking rewards as 'Other Income' on Form 1040 Schedule 1. Businesses engaged in staking can report on Schedule C and might be able to deduct related expenses.

Tax Implications Globally:

Australia: Staking rewards are taxed similarly to the U.S. - as income upon receipt and capital gains upon disposal.

Canada: The CRA (Canadian Revenue Agency) hasn't provided specific guidance, but likely, staking rewards are taxed as business income.

UK: The HRMC views staking rewards as income upon receipt. Disposing of these rewards can lead to capital gains or losses. You can read more about the tax implications of staking rewards in the U.K. in this article

To ensure you're compliant with the tax laws, always consult with a tax professional or CPA, especially when dealing with complex transactions like crypto staking.

Need More Help?

If you find that you are in need of more help regarding your cryptocurrency income do not hesitate to contact us. Our team of chartered accountants are always at hand to help you.

 
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Are Visa and Immigration Fees claimable on my US Federal Tax Returns?
 

Are Visa and Immigration Fees claimable on my US Federal Tax Returns?

Advice from a US expat tax accountant

Tax laws can be tricky. One question often asked is: can you claim visa and immigration fees on your federal tax returns? This can impact both individuals and businesses due to the high costs of immigration processes.

Personal Taxes: Can I Claim?

Typically, the IRS views legal and immigration fees as personal expenses. According to IRS rules, you usually can't deduct these from individual tax returns.

But there's an exception: work-related expenses. If your job requires you to travel abroad, you may claim the cost of obtaining or renewing a work visa. This mostly applies to self-employed individuals or independent contractors. Even so, it's best to get advice from a tax professional.

LLCs and LLPs: Can They Claim?

Businesses have different tax treatments for visa and immigration fees. If a business hires foreign professionals and has to cover immigration costs, these can usually be deducted as business expenses.

Whether your business is an LLC or an LLP, the same rule applies. But remember: tax situations can get complicated. Always check with an experienced tax professional.

Why Choose Us as Your Accountant?

Taxes can be complex. We get that. Our team at Bambridge Accountants is here to help.

We keep up with tax laws and offer advice to suit your personal or business needs. We make sure your tax obligations are handled correctly.

With us, taxes become less confusing. Get in touch, and let's tackle your tax challenges together.



 
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Navigating Passive Foreign Investment Companies: A Clear Guide to a PFIC / Form 8612 Tax Filing
 

Navigating Passive Foreign Investment Companies: A Clear Guide to a PFIC / Form 8612 Tax Filing

Taxes can be complex, particularly when they involve foreign investments. A key part of this process is understanding Passive Foreign Investment Companies (PFICs) and their impact on your tax situation.

We are expert U.S. tax accountants for foreign investments worldwide. For tailored foreign investment tax advice contact us.

This article should be used for informational purposes only. Please always seek advice from a certified U.S. Foreign Tax Advisor.

Below is a brief look at the need-to-know facts about the PFIC

1. What is a PFIC?

A Passive Foreign Investment Company (PFIC) is a foreign corporation that earns mostly passive income or has assets that produce such income. Foreign mutual funds, pension funds, and real estate investments are common examples of PFICs.

2. Who Needs to File a PFIC?

If you are a U.S. person - a citizen, resident, company, partnership, trust, or estate - and you own shares in a PFIC, you may need to file a PFIC with the IRS. Even investments that aren't standard corporations, like a trust, could count as a PFIC.

3. Why is Filing a PFIC Important?

Not reporting your PFIC can lead to high tax rates and penalties from the IRS. You can manage these by treating the PFIC as a Qualified Electing Fund (QEF) or choosing the Mark-to-Market (MTM) option. Both these choices require specific steps and documentation, which a foreign investment accountant can help with.

4. Identifying a PFIC

Below is a bit more information about what is classed as a PFIC. This is not a fully comprehensive list- please contact us for more information.

  • A PFIC is a Passive Foreign Investment Company, which is a foreign corporation.

  • A corporation is regarded as a PFIC if it meets either the Income Test or the Asset Test.

  • Under the Income Test, if 75% or more of a corporation's gross income is passive (from investments rather than regular business operations), it is a PFIC.

  • Under the Asset Test, a corporation is a PFIC if 50% or more of its assets produce or are intended to produce passive income.

  • Passive income usually comes from investments such as stocks, bonds, real estate, or other types of investment assets.

  • Common examples of PFICs include foreign mutual funds, foreign pension funds, and foreign real estate investments.

5. What Documents Do You Need to File a PFIC?

To file a PFIC, you will need to fill out IRS Form 8621. For this, gather the following:

  • Information about your investment: When you bought it, how much it cost, and how many shares you have.

  • Statements from the PFIC: These should show earnings, profits, any distributions, and any gains or losses.

  • Financial statements: If you're choosing QEF or MTM, you'll need more financial information.

6. Getting Help with PFIC Filing

Filing a PFIC can be difficult, and errors can lead to penalties. It can be useful to work with a foreign investment accountant who understands the process and can offer advice.

7. How Our Foreign Investment Accountant Services Can Help with PFIC Filing

Our tax firm specializes in U.S. tax accounting, with a focus on PFICs and foreign investments. We can help you understand tax laws, manage your foreign investments, and navigate the PFIC process.

If you're unsure about your foreign investment or think you might have a PFIC, reach out to us. As foreign investment accountants, we can explain the process, talk through your options, and help you meet all IRS requirements. With our help, dealing with PFICs can be less daunting and more straightforward.

Need to file a U.S. tax return and a PFIC- get your tailored quote within seconds using our U.S. tax fee quoter


 
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A Simple Guide to Understanding Form 8938 and Your Financial Assets Abroad
 

A Simple Guide to Understanding Form 8938 and Your Financial Assets Abroad

Who Needs to File Form 8938?

We know taxes can be complicated, especially when dealing with assets held in foreign countries. The U.S. tax system requires certain taxpayers to report their foreign assets with a specific form known as Form 8938, Statement of Specified Foreign Financial Assets. But who needs to file this form and when? And what exactly constitutes a "specified foreign financial asset"?

If you fall under one of the following categories, you might need to file Form 8938:

  1. You're a U.S. citizen.

  2. You're a resident alien.

  3. You're a nonresident alien, but choose to be treated as a resident alien to file a joint income tax return.

  4. You're a nonresident alien who permanently resides in American Samoa or Puerto Rico.

Understanding the Reporting Thresholds

Filing Form 8938 depends on certain financial thresholds. These thresholds vary according to your filing status (whether you're single, married, or filing separately) and your location (whether you live in the United States or abroad).

If you reside in the United States and are single or filing separately, you'll need to file Form 8938 if you have over $50,000 in specified foreign financial assets at the year's end or if you had over $75,000 at any time throughout the year. If you're married and filing jointly, the thresholds increase to $100,000 at the end of the year or $150,000 at any point during the year.

For taxpayers living outside the U.S., the thresholds are higher. Single individuals or those filing separately must submit Form 8938 if they have more than $200,000 in foreign assets at year's end or if they had over $300,000 at any time during the year. For those married and filing jointly, these values rise to $400,000 and $600,000, respectively.

What Are "Specified Foreign Financial Assets"?

"Specified foreign financial assets" is a key term in this context. These are foreign financial accounts and non-account assets held for investment purposes. Examples include foreign stocks and securities, financial contracts with non-U.S. parties, and interests in foreign entities. Assets held for use in a business or trade aren't included.

Changes to Thresholds and Need for Professional Guidance

It's essential to remember that these thresholds could change, and these figures are based on the data available up until September 2021. Tax obligations can be complex and dynamic, which is why we recommend consulting with a tax professional or referring to the IRS's latest instructions for Form 8938.

Get Professional Help with Your Tax Obligations

Navigating the complexities of the U.S. tax system can be daunting, but you don't have to do it alone. Our team of skilled accountants is here to guide you through each step of the process, ensuring that you meet your obligations and minimize potential liabilities. Whether you have foreign assets or other tax complexities, consider partnering with us for your accounting needs.


 
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Claimable Expenses Against Investment Income
 

Maximizing Your Savings: Claimable Expenses Against Investment Income

When it comes to investing, expenses are a part of the game. But here's the good part - some of these costs can lower your taxable income. Let's break down this world of savings.

What Are Investment Expenses?

These are costs related to managing your investments, such as:

  • The interest on money borrowed to buy investments.

  • Fees for investment advice.

While not all expenses can reduce your tax bill, some can. Let's explore the ones that do.

Tax-Deductible Investment Expenses

Here are the common tax-deductible investment expenses:

  • Investment Interest Expense: This is interest paid on money borrowed for investments. If you itemize your tax deductions, you can potentially deduct this expense from your taxable income.

  • Capital Losses: If your investments lose value, these losses can offset your profits from selling investments. If your losses are more than your gains, a portion of those losses can reduce your ordinary income.

  • Qualified Dividends: These are dividends that meet certain criteria, and therefore, are taxed at a lower rate. In certain situations, treating them as ordinary income can help you save more.

Importance of Cost Basis

The original purchase price of your investment, plus related expenses like commission, is known as the cost basis. When selling an investment, this cost basis helps calculate your gain or loss, affecting the tax you owe.

Professional Help: We're Here for You

Tax laws can be complex and change regularly. That's where our team comes in. We guide you on the best financial path, helping you navigate the tax landscape.

Remember, the IRS's resources are also there to help. These include: Publication 550, Publication 529, and instructions for various forms like Form 1040, Schedule A, Schedule D, and Form 4952.

Your State Matters Too

Your state may have its own rules for taxing investment income. We can help you understand how these laws impact your expenses and deductions.

Wrapping Up

Investing costs money, but with the right guidance, these costs can reduce your tax bill. We're here to make your tax journey smooth and beneficial. With us by your side, you're empowered to make informed decisions and maximize returns.



 
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Breaking Down Tax Certificates: What They Are and How to Use Them
 
 
 

A tax certificate typically refers to a document issued by tax authorities to an individual or a business, showing the amount of tax that they have paid, or in some cases, validating their tax status. The specifics can vary greatly based on jurisdiction and context, as the term can be used in different ways in different places.

Here are a few examples:

  1. Property Tax Certificate: This is a document that provides the amount of current property taxes as well as any arrears, penalties or interest that are outstanding on a property. This is often used in real estate transactions to confirm that all taxes have been paid up to date.

  2. Sales Tax Exemption Certificate: This is a document that a business can use to purchase goods tax-free, if they intend to resell them.

  3. Income Tax Certificate: This document provides proof of the income tax paid by an individual or a corporation during a specific period. It is often used when applying for loans or other forms of credit to demonstrate fiscal responsibility.

  4. Tax Residency Certificate: Issued by tax authorities to confirm the tax residency status of an individual or a company.

Remember, these are just general examples. The specifics of a "tax certificate" can vary greatly from one jurisdiction to another, and depending on the specific tax issue at hand. It's always a good idea to consult with a tax professional if you have questions about your specific situation.

How a US and UK tax certificate differ

Tax certificates in the US and UK may serve different purposes and have distinct features because of the unique tax systems of each country. Here are some key differences:

US UK
Issuance and Purpose In the United States, a tax certificate could refer to different things. One example is a "Tax Certificate of Residency" that the Internal Revenue Service (IRS) issues to prove a taxpayer's U.S. resident status for income tax purposes. Another example is a tax lien certificate, which is a document proving that a tax lien has been paid. This is sold by the government to investors as a method of recouping delinquent taxes. In the UK, a tax certificate typically refers to a document like the P60 or P45. The P60 is given to an employee at the end of the tax year and provides a summary of your pay and the tax deducted. A P45 is given when an employee leaves a job and it shows the employee's earnings and the tax that's been paid so far in the tax year.
Use Cases Tax certificates, especially tax residency certificates, are often used to claim benefits under income tax treaties. US tax lien certificates are bought by investors hoping to earn interest or acquire property at a low cost. The P60 and P45 tax certificates are used when applying for tax credits or loan applications, and when starting a new job, respectively. They act as a record of your taxable income and tax paid
Record Keeping A tax lien certificate provides a record of payment for a tax lien, which can be kept until the taxpayer pays the owed tax plus interest. The tax certificate of residency does not require renewing unless there are changes to the taxpayer's residency status. P60 and P45 certificates should be kept for at least 22 months from the end of the tax year they relate to. They act as proof of income and tax paid during specific employment periods.
Issuing Authority Tax certificates are typically issued by the IRS or local government tax collection agencies. The P60 and P45 certificates are typically issued by the employer.

Please note that tax systems are complex and the specific procedures, requirements, and documents can vary. Always consult with a tax professional or the tax authorities in your country to get accurate and personalized advice.

For more information on the US Tax Certificate of Residency go to this article

For more information on the US Tax Lien Certificate go to this article

Contact us with all your questions


 
Understanding Form 6166
 

Understanding Form 6166

Gaining Clarity on The U.S. Tax Certificate Residency

In the ever-shifting landscape of tax laws and regulations, one term that frequently comes up is the U.S. Tax Certificate of Residency. But what does it mean, and why should you care? In simple terms, the U.S. Tax Certificate of Residency, known as Form 6166, is a document issued by the IRS that can play a crucial role for U.S. residents working, living, or doing business overseas. At Bambridge Accountants, we've been guiding clients through the complexities of this process for years, ensuring they reap the maximum benefits from their tax situations.

Understanding the U.S. Tax Certificate of Residency

Form 6166 is your proof of U.S. residency status for tax purposes. It certifies that, according to the IRS's records, you're a resident of the United States under income tax laws. This certificate can help you claim income tax treaty benefits and certain other tax advantages in foreign countries where you might have financial dealings.

Applying for a U.S. Tax Certificate of Residency

To apply for Form 6166, you'll need to fill out and submit Form 8802, Application for United States Residency Certification. The form requests key identification details, such as your name and Taxpayer Identification Number (TIN). The process also involves a user fee that can be paid online. Remember, the IRS typically processes these forms in the order they're received, and it can take about six weeks.

Common Mistakes and How to Avoid Them

Navigating tax regulations can be complex and challenging. Common mistakes such as incomplete or inaccurate form submissions can lead to delays or denials. Timely and accurate filing is crucial, as mistakes can incur penalties. That's where professional help can be invaluable.

How Can We Help

At Bambridge Accountants, we have a wealth of experience assisting clients with their U.S. Tax Certificate of Residency. We understand the nuances of IRS regulations and remain updated with any changes. Our team of seasoned professionals can guide you smoothly through the process, helping you avoid common pitfalls. Here's what some of our satisfied clients say:

Conclusion

The process of obtaining a U.S. Tax Certificate of Residency may seem daunting, but with expert assistance, it doesn't have to be. At Bambridge, we're committed to providing you with the guidance and support you need to navigate this process with ease. If you're in need of assistance with the U.S. Tax Certificate of Residency or have any tax-related queries, don't hesitate to get in touch.

Contact Us

To learn more about how we can support you in your tax journey, reach out to us. We also offer consultations to discuss all your US tax advisory questions

Take the guesswork out of your tax obligations. With Bambridge Accountants by your side, you can rest easy knowing your tax matters are in capable and experienced hands.


 
A Guide to US Tax Lien Certificates
 

A guide to US Tax Lien Certificates,

what they are and why they are important

Have you ever wondered what a US Tax Lien Certificate is and how it impacts your financial stability? Understanding this fundamental aspect of the US tax system is vital for property owners, investors, and taxpayers alike. It empowers you to protect your assets effectively and mitigate potential financial hurdles.

What is a US Tax Lien Certificate?

A tax lien is a legal claim made by the government on a person's property due to unpaid tax debt. When a taxpayer fails to pay their taxes, the government can issue a lien against their property to secure the debt. This lien essentially states that if the property is sold, the government has the first right to the proceeds until the tax debt is paid off.

A US Tax Lien Certificate is a document that provides evidence of this lien. It states the amount owed, the type of tax for which the debt has been incurred, and the period for which the unpaid tax is due. The laws governing tax liens are complex, but they serve an essential purpose: to ensure tax debts are paid.

How does a Tax Lien affect a Taxpayer?

A tax lien can significantly affect a taxpayer's financial landscape. First, it hampers your property rights. For instance, if you wish to sell your property, you'll need to pay off the tax debt before any sale can take place. This process ensures the IRS gets its due payment from the sale proceeds.

Second, a tax lien can negatively impact your credit score. This situation can hinder your ability to secure a loan, mortgage, or credit card, making it a serious concern for financial freedom.

How to Avoid Tax Liens

The best way to avoid a tax lien is to pay your taxes on time and in full. However, we understand that this might not always be possible due to various life circumstances. The IRS offers several alternatives such as negotiating installment agreements or applying for an Offer in Compromise. These options can assist you in managing your tax payments and potentially prevent the imposition of a tax lien.

What to Do If You Have a Tax Lien

If you find yourself with a tax lien, remember, there are options available. Paying your tax debt in full is the most straightforward method to have the lien released. However, if this isn't feasible, consulting a tax professional can help you explore other avenues.

A tax professional can assist in submitting an application for a lien withdrawal, offer a compromise, or establish an installment agreement. It's crucial to take prompt action to prevent further financial complications.

The Role of a Tax Professional in Handling Tax Liens

Facing a tax lien can feel overwhelming, but you don't have to navigate it alone. A tax professional's expertise and experience can be a game-changer in managing such situations.

Tax professionals understand the intricacies of the US tax system. They can negotiate with the IRS on your behalf, ensuring your rights are protected. Additionally, they can guide you through the process of applying for lien withdrawals or other options, making sure that you leverage every available opportunity to rectify your tax situation.

Conclusion

Understanding and managing tax liens can be a daunting task. But remember, you have allies in this journey. Our dedicated team of tax professionals is ready to assist you, providing you the guidance and support you need to successfully navigate the complexities of the US tax system.

Take Action Today

If you're dealing with a tax lien or just want to understand more about your tax situation, don't hesitate to reach out to us for a free consultation. We're here to ensure you are informed, supported, and confident in your financial future. Together, we can face any tax challenge that comes your way. Contact us today.


 
How to Withdraw Money From A 401k and Minimize Tax?
 

It is important to take a considered and strategic approach when withdrawing money from your 401k, in order to avoid paying too much tax. 

Our team of chartered US tax advisers and enrolled agents have shared our answers to all of the most common questions we receive regarding withdrawing money from a 401k and minimizing tax. If you have any further questions contact us.

Minimizing tax on your 401(k) accounts

Depending on your situation and current needs there are many ways to minimize tax liabilities when withdrawing money from 401(k) accounts. Some great places to start include:

Exploring 401(k) penalty exceptions

 Watching your tax bracket

Rolling over 401(k) accounts

Using multiple types of retirement plans

There are many other methods to minimize the tax you pay on your 401K- we will delve into several in this article. 

We offer US 401(k) and other pension tax planning consultations to identify the best method for you.

Book a consultation to discuss your US pension tax matters with us.

Exploring 401(K) Penalty Exceptions

In the case that you need to withdraw money early from your 401(K), always check to see if you qualify for an exception. You will still need to pay the income tax on the withdrawal, but it could be possible to avoid the 10% early withdrawal penalty fee. 

The main exceptions for withdrawing early from your 401(k) include:

  • Major life changing events like death or disability

  • Child or spousal support

  • Hardship withdrawals for situations including disaster relief or major medical expenses. See IRS Hardship Distribute FAQs for more information.

  • Up to one year of college tuition

  • Up to $10,000 dollars for first time homebuyers

Go to the IRS “Exceptions to Tax on Early distributions for more information”

IRS Rule 72(t)

If you are retiring early and do not qualify for the above exemptions starting at 54 years old, you can use IRS Rule 72(t) and withdraw early without the 10% penalty fee. 

Rule 72(t) also known as the Substantially Equal Periodic Payment (SEPP) Exception, allows individuals to take equal distributions based on life expectancy for at minimum five years or until they turn fifty-nine ½ years old whichever comes later. For example, if you start the SEPP plan at age 58 you would need to continue at least until you are sixty-three. There are three conditions to consider before selecting for this path.

1. Any retirement accounts from your present job are not eligible for the SEPP exemption.

2. You must schedule your deductions, at least annually if not more often. If you miss even one of those annual deductions, then all of the earlier withdrawals are subject to the penalty fee.

3. All funds withdrawn are subject to taxation. Avoid using this exception with Roth IRA accounts, as even these funds are subject to being taxed again.

This exception can really help those who are in need of funds urgently or are planing on investing or saving the funds distributed and it allows them to spread out their future tax obligations. If these funds are used for investments, individuals are highly encouraged to hold those investments for at least a year so that the gains can be taxed as long-term capital gains instead of at the ordinary income tax rate. Depending on your tax bracket that could be a significant decrease in taxes, as the lowest bracket for long-term capital gains tax is 0%, and the lowest bracket for ordinary income tax is 12%.

The Still Working Exception

Alternatively, if you are still working when you are 72 years old and are planning to continue you could qualify for the “Still Working” exception. The federal government has yet to clearly define “Still Working” so it is safest to assume that to qualify you must have worked the entire calendar year. This exemption allows individuals to postpone their required minimum distributions (RMD’s) which begin at age 72. 

This can benefit them in the short-term since it is deferring the taxes to later when they finally begin receiving their required minimum deductions. This exemption only applies to your 401(k) account with your current employer, any other retirement accounts will still distribute their minimum required payments. However, you will not qualify for this if you or an immediate family member are the owner of 5% or more of the company who is supplying your 401(k) plan.      

Watching your tax bracket

Watching your tax bracket is also a keyway to minimize your tax liabilities when withdrawing from your 401(k) account. 

Maintaining a desired tax bracket takes careful and detailed financial planning and can be done in several different ways. However, to be most effective it would be better to use a combination of these methods. 

Limit your deductions 

The first method is to limit your deductions to the limit of the desired tax bracket, this will keep taxable income to a minimum and therefore sustain a lower tax bracket. 

If retirees aren’t careful with their deductions, it can be easy to jump to a new bracket and incur more taxes than predicted. 

Furthermore, keeping your income within a lower tax bracket can also keep them within the 0% Capital Gains tax bracket. This will help in the case that you are keeping taxable investment accounts to supplement your income. 

With detailed financial planning you can take advantage of diversifying your investment accounts while still preserving your lower tax bracket status to minimize your tax liabilities. 

Below are the ordinary and capital gains tax brackets for individual and married tax filers for 2022, they are updated annually so it should be taken under consideration when planning for the following year.

Additionally, it would be best to time your deductions, and try to keep them to a minimum when you can. 

When your required minimum deductions begin, you must take the first one by April 1st the year after you turn 72 years old, and then another and all following deductions by December 31st. If you do not plan the first two deductions properly, they can artificially inflate your income for the first year. 

For example, if you turn 72 in July, you have until the following April 1st to take your first RMD, and then would need to take another by December 31st that same year. Delaying your first RMD can temporarily boost you into another tax bracket, so it would be advisable to not delay taking your first deduction. Taking the first deduction before December 31st the year you turn seventy-two will reduce your taxes the following year and provide a strong start to sustaining your desired tax bracket.

Delaying your Social Security Retirements Benefits

Traditionally you can begin receiving Social Security retirement benefits at age 62 at a reduced amount, and you will only receive the full benefits unless you wait until your full retirement age. However, you are able to delay taking them until you turn seventy. 

Delaying these benefits can increase the benefit payments for the years between your full retirement age and when you turn seventy. Depending on your age you could receive between a 6-8% credit each year on your primary account balance. 

For example, if you were born in 1962 your full retirement age would be sixty-seven. If you collected early benefits starting at sixty-two you would only receive 70% of your total benefits, but if you delayed the benefits, you would receive an 8% credit for each year. 

So, if you did postpone your benefits then when you turn seventy in 2032, you would be able to collect 124% of your primary insurance amount. Social Security benefits aren’t usually taxable but if your joint income from benefits and 401(k) deductions exceeds the annual limit you could wind up paying taxes on them. Depending on your filing situation the tax could be on 50-85% of your total social security benefits collected that year. Deferring your benefits is extremely beneficial to those who are planning to make larger withdrawals from their 401(k) in the early years.

Maintaining Different Retirement Account Types

As with all choices made when investing - it is best to not rely on just one asset class. Diversifying your account types will allow you to make the most of your money. Common combinations of retirement accounts include Traditional and Roth IRA, personal savings, and taxable investing accounts. Maintaining multiple retirement accounts will allow you to move and manage your funds to best suit your needs while avoiding taxation every time you withdraw from your 401(k). Please note that whilst we offer investment advice, you must consult an experienced financial advisor when managing your investments to ensure you understand the risks involved.

Rolling over your 401K

Whenever you withdraw from your 401(k) there will be a mandatory 20% holding fee which is used for federal taxes. The only way to get the remaining after-tax percentage is to claim it on your tax return at the end of the year. While this holding fee could be considered in your final taxation calculations, this is often too complex for most individuals. Instead many opt to roll over the withdrawal amount to your IRA. This is because there is no holding fee for IRA accounts. Please bare in mind that you would still be required to pay the taxes on the transferred funds.

Partial Rollovers to Roth IRA

You could also choose to roll over just a part of your 401(k) to a Roth IRA, this is one of the easiest ways to reduce tax liability at a later date. You would still be required to pay the taxes upon the creation of (or when adding to) the Roth IRA, but all appreciation in the account will be safe from future taxation. If this course of action is chosen it is recommended that a minimum of 5 years elapses before you gain access to this investment. This is because Roth IRA accounts must be open for a minimum of five tax years (January 1st – December 31st) before you are allowed to withdraw without penalty.

Rolling over your old 401(k) account to your current job’s account is also an effective way to reduce your tax liability. You can defer your required minimum deductions while working at your current job. When rolling over the old 401(k) accounts it is important to ensure that any withdrawn funds are redeposited within 60 days. If they are not, the action will be recorded as a deduction rather than a transfer. This will leave you liable to taxation and potential early withdrawal penalties.

Alternative Options

There are various alternative methods that can help minimize your tax liability when withdrawing from your 401K. Below is a summary of the most commonly used options.

Taking a loan from your 401K

If you are considering investing to create a passive income for yourself during retirement you may be eligible to take a loan from your 401(k). This option has many benefits to the retiree, the first being that as long as it is repaid by the loan maturity date, the funds will not be taxed. Of course, with any investment, there will still be risks so please consult a tax professional to ensure you have a full understanding of said risks.

The last options are Tax Loss Harvesting and Net Unrealized Appreciation. These options are complex and require careful consideration. It is highly recommended that you consult with a qualified tax professional before opting to use these methods.

Net Unrealized Appreciation to reduce tax on 401k

Net Unrealized Appreciation is only practical if you own company stock that you have been employed at. Net Unrealized Appreciation is the process of claiming the difference between the original cost of a stock and the current market value of the shares. This difference will be taxed as a capital gain which can drastically lower your tax liability. However, the original cost of the shares will be taxed at your ordinary tax rate and must be paid at once instead of when the shares are sold in the future. This makes it best to only distribute the lowest cost basis shares, allowing you to still take advantage of the capital gain tax but minimize the ordinary tax liability. There are a couple of requirements to consider if you wish to follow this plan.

  1.  You must be or have been an employee at the company whose stock is being claimed

  2.  The stock has to be in a tax-deferred account. (Traditional 401(k), 403(b), or IRA)

  3. The owner of the stock must have either left the company, met the minimum retirement age, or suffered an injury resulting in total disability.

  4. You must be planning to distribute the remaining balance held in that employer’s plan, as well as all of the assets attached within one year. 

You should not pursue Net Unrealized Appreciation without consulting with a tax professional due to the complexity surrounding the method. Any mistakes can lead to financial and potentially legal ramifications.

Tax loss harvesting to reduce tax on 401k

Tax loss harvesting is the process of selling poorly performing securities in your taxable investing accounts at a loss, this loss can then be claimed on your taxes. You can claim up to $3000 on your taxes. If the loss is greater than $3000 the remainder can be rolled over into the following year. However, those that employ this method should be careful not to violate the Wash Sale Rule. Wash Sales occur when a security is traded and sold at a loss, then the seller proceeds to repurchase the same or a “substantially similar” stock or security within thirty days before or after the sale. A wash sale can also be made when a spouse or the company the individual controls buys a similar stock, or when the individual repurchases the security with their 401(k).


See our calculator below for tax loss harvesting

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Tax Loss Harvesting

Work out how much you could earn from tax loss harvesting

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The tax rate you would fall under if you sold your investment now?

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Important! This is only a reference point. Your total capital gain owed variable depending on the actual price of your investments upon final sale. Seek guidance from a tax professional if you are still unsure about how to utilize tax loss harvesting to maximize on your investments.

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For more information on the wash sale rule, Forbes have a very detailed article on the subject - “ Understand The Wash Sale Rule And Keep Your Trading Clean”

Need More Help

Reducing your tax liability when withdrawing from a 401K is a complex topic. Please remember that any mistake on your behalf can lead to financial and legal repercussions. If you want to know more about withdrawing from a 401K, or any other area of U.S. taxation do not hesitate to contact us. 

 
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Tax Credits and Deductions for Landlords and Renters to help cope with Inflation and Interest Rates.
 

At Bambridge Accountants, we are committed to providing you the latest updates regarding all areas of U.S. tax. We have expert tax advisors who specialize in taxation for Landlords and renters. If there is anything else that you would like us to cover on this topic, do not hesitate to contact us.

To skip to sections relevant to you please use the list below:

Need More Help?

For more information regarding the taxation of Landlords and Renters, or anything else do not hesitate to contact us

 
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Filing US tax Return for the first time
 
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An overview of what you need to know as an American filing from abroad

As a first-time US tax filer, it can be overwhelming working out all of the details you need to know for a successful US tax return submission. 

This article is aimed to help Americans filing their first US tax return from abroad. We have summarized some of the most common questions we get asked. Feel free to get in touch with your own personal questions and one of our US Expatriate Accountants will be happy to help.

Skip to the questions you need answered

Do I Need to File a US Tax Return?

Whether or no you need to file taxes as an American citizen living abroad depends on many variables. We have gone into more details in the State and Federal tax section of this article.

Generally, whether you need to file or not is dependent on a few key areas, these may be (but are not limited too:  

  • Income

  • Tax Filing Status

  • Age

In some cases, even if you are not obligated to file federal or state taxes, it can be advantageous reasons to file due to potential tax refunds/ reimbursements:

Some indicators that it may be beneficial to file include: 

  • You had income tax withheld from your paychecks.

  • You made estimated tax payments or had last year’s refund applied to this year’s estimated tax.

  • You qualify for certain tax credits.

What U.S Tax Filing Procedure Do I Use?

One of the very first things to consider when you first begin your US tax return filing is “Do I have any overdue US tax returns?”/ “Do I need to file past US tax returns”

The answer to this question will determine what US tax filing process you should be filing under. 

  • If you do not have any overdue US tax returns you can file through the regular filing process

  • If you have overdue taxes you will either have to file through the Streamlined Filing Procedure or file the years you are behind

Read our article  “how to work out if you have to file past US taxes” if you are unsure if you have any overdue US taxes.

What is the difference between state and federal Income tax?

It is important to understand the difference between State and Federal tax filing and how your filing obligations may differ with each.

Federal Income Tax

  • What is it?

  • How is it calculated?

  • How is it paid? How to claim a refund?

  • What does federal income tax pay for? 

Federal income tax is tax collected by the IRS from every person who is obligated to file a US tax Return. 

One of the main purposes of filing a US federal tax return is to calculate is any federal income tax is owed to or from the IRS. 

Federal income tax is calculated through a number of variables which include:

  • Your annual income 

  • Your tax deductible expenses and tax reliefs (US expatriates are entitled to a number of specialist reliefs such as FEIE- Form 2555 and FTC -Form 1116)

  • The industry you work in (i.e. there are special deductions for military )

  • What country do you reside in? (US Expatriates that live in a country in the dual taxation treaty are protected against the risk of being taxed twice on income). 

How do you pay federal tax?

Go to this link to find out how to pay the IRS

How do you claim a federal tax refund?

You can claim a tax refund from the IRS by filing your annual U.S. tax return. This will include a justification and calculation of your personal U.S. tax refund.

What does federal income tax go towards?

What federal income tax goes towards depends on the current elected government and their policies. Generally, federal taxes go towards Health programs, Social Security, Defense and Security, Education and Technological Development 

State Income Tax

  • What is it?

  • How is it calculated?

  • How is it paid? How to claim a refund?

  • What does state income tax pay for? 

Whereas all US citizens can become eligible for Federal Income tax, State Income Tax is applied to those who are a citizen of a particular state.

Whether or not you need to file state taxes while living abroad depends on the state you last lived (or were considered a resident of), if you're still considered a resident of that state, and if you make income in that state 

Some factors that can influence whether your State Tax Department regards you as a state resident include:

  • Where your car is registered

  • If you have a driver's license or state ID

  • Where you are registered to vote

  • If you own any property or have mortgage/lease payments on any property in the state

  • If you pay any utility bills in the state

  • Where your family lives

  • The permanence of your overseas assignment

  • Your financial assets and accounts within the state

It should be noted that some states still require Americans living abroad to file their state taxes even when they are not regarded as a state resident

How is state income tax calculated?

Generally states use on of the twp approaches below for taxing residents 

  • No tax

  • Flat rate tax. That means they tax all income, or dividends and interest only in some cases, at the same rate.

  • Progressive rate tax. That means people with higher taxable incomes pay higher state income tax rates.

State income tax is calculated through a number of variables which include:

Your annual income 

Your tax deductible expenses and tax reliefs (US expatriates are entitled to a number of specialist reliefs such as FEIE- Form 2555 and FTC -Form 1116)

The industry you work in (i.e. there are special deductions for military )

What country do you reside in? (US Expatriates that live in a country in the dual taxation treaty are protected against the risk of being taxed twice on income). 

    How to pay state tax?

    Each state has their own payment systems that are expressed on their website 

What do state taxes go towards

Similarly to Federal taxes, What State income tax goes towards depends on the current elected government and their policies. Examples of how state taxes are spent:

  • Education

  • Transport

  • Corrections Facilities 

  • Low Income assistance

  • Environmental programs

U.S. state income tax can be particularly complex as the rules vary from state to state.

For a guide to filing in your specific state please enter your email below:

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What Income Needs to Be Declared on your U.S. Expatriate Federal And State Tax Returns?

For U.S. expatriates there are a lot of factors that need to be considered when identifying what income needs to be declared on your U.S. federal and state tax return. 

The IRS Publication 525 (2021), Taxable and Nontaxable Income may be a useful resource- however, we advise to speak to a U.S. Expatriate tax adviser as rules for Americans abroad can often vary

Our U.S. Expatriate Accountants are always free for a video or phone call. Feel free to book in a time on our U.S. tax consultation booker.

Will I Owe the IRS Tax as an American living Abroad?

Whether or not you will owe tax as an American living abroad will depend on a number of factors. Which includes:

Your annual income 

Your tax deductible expenses and tax reliefs (US expatriates are entitled to a number of specialist reliefs such as FEIE- Form 2555 and FTC -Form 1116)

The industry you work in (i.e. there are special deductions for military )

What country do you reside in? (US Expatriates that live in a country in the dual taxation treaty are protected against the risk of being taxed twice on income). 

What income you have already paid tax on in other countries

Will I have penalties from the IRS?

If you owe tax to the IRS and have failed to file there can be a Failure-to-File penalty that is usually five percent of the tax owed for each month, or part of a month that your return is late, up to a maximum of 25%. If your return is over 60 days late, there's also a minimum penalty for late filing; it's the lesser of $435 or 100% of what you owe.

Appealing penalties 

There are amnesty programmes such as the Streamlined Filing Procedure that can allow individuals to submit overdue U.S. tax returns and avoid penalties. 

Penalties can also be appealed in several circumstances for instance if you had not realized you had to file a U.S. tax return or if there were issues that prevented you from filing/paying on time

A Break Down of the Different Tax Forms

The Documents you will need to complete your U.S. Tax Return

When it comes time to file your federal tax return, you will need access to various documents relating to personal information and your earned income in the given tax year. Below is a short list of some of what you may need to have.

  • Social Security numbers, for yourself, as well as for your spouse and dependents, if any 

  • W-2 form (Check the form list above for more information)

  • 1099 Forms 

  • Retirement contributions 

  • Property taxes and mortgage interest 

  • Charitable Donations 

  • State and local taxes you paid 

  • Educational expenses

  • Un-reimbursed medical bills 

  • Last Year’s federal and state tax returns

You may need more information than this depending on your circumstance. Again if you are unsure we highly recommend seeking a tax professional. 

Can I file a US tax return myself? 

Absolutely, some of our clients after one year of filing with us feel empowered to take the information we have provided them and file themselves in following years.

It really does depend on how complex your tax matters are and your confidence in dealing with tax systems and figures.

The U.S. tax system is a much more complex one than most with high potential for steep penalties, so of course we always advise you to speak to a tax professional to advise you on your filing 

We hope this helped!

 As chartered accountants and tax advisers for American citizens living worldwide we make it our business to share our knowledge whether you are a client of ours or a researching U.S. expatriate. 

The U.S. tax system can be an extremely daunting one to navigate and if you do find yourself considering support, feel free to arrange a no-pressure, no-commitment call with us to go over what filing your U.S. expat taxes with us may look like. 

Book a no-pressure, no-commitment U.S. tax call

 
How to Pay your IRS Bill
 

How to pay the IRS

We have compiled a list of payment methods that the IRS accepts and where you may find them. If you are confused about paying your bill do not hesitate to contact a tax professional.

Electronically

Pay using your bank account when you e-file your return

Direct Pay

Pay directly from a checking or savings account for free

Credit/Debit card

You can do this online, by phone, or any sort of device

Cash

At a participating retail partner, visit IRS.gov/paywithcash

Installment Agreement

If all required tax returns have already been filed, you may be able to start making monthly payments. You can do this by applying for an installment agreement through the Online Payment Agreement tool online.

Penalties

Taxpayers who don’t meet their tax obligations may owe a penalty.

The IRS charges a penalty for various reasons, including if you don’t:

• File your tax return on time

• Pay any tax you owe on time and in the right way

• Prepare an accurate return

• Provide accurate information returns

Foreign electronic payments

International taxpayers who do not have a U.S. bank account may follow the instructions below to transfer funds from their foreign bank account directly to the Internal Revenue Service for payment of their individual or business tax liabilities. (Find codes on the IRS website)

 
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How to Get Your Social Security Number
 

If you wish to undertake work while studying in the United States, you are required to have a Social Security Number(SSN). This can pose a problem to international students. However, we aim to demystify the process of application for those studying abroad. Below are the steps you can take.

Steps to getting an SSN:

  1. Talk to your Designated School Office (DSO) about working in the States

  2. Your DSO will inform you about everything regarding the regulations and requirements for F and M students and confirm whether you are eligible to apply for an SSN.

  3. Verify that you are active in the student and exchange visitor info system (SEVIS)

  4. Your SEVIS record must be in Active status for at least two days before applying for an SSN. If you have a record in any other status, you will not be successful in applying for an SSN

  5. Wait 10 days after arriving in the states before applying for an SSN

  6. Social Security Administration (SSA) uses the Systematic Alien Verification for Entitlements (SAVE) program to verify your non-immigrant student status and determine if you are eligible for an SSN.

  7. You can use the SAVE Case Check to see the progress of your SAVE verification check online

  8. Visit your local SSA office

  9. You can file your application for an SSN card in person at any SSA office. You must be prepared to provide your original documents to prove your age, identity, and authorized immigration status. All evidence of immigration status and work authorization must be unexpired.

For further advice do not hesitate to contact us. Our team of chartered accountants are experts in US expatriate tax law.

 
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