THE IMPENDING TAX SEASON IN US
A large number of expatriates crossing the Atlantic each year the they need to be aware of the
tax systems of United Kingdom and the United States .The US tax year is in line with most other country tax systems, i.e. the calendar year. However unlike most other tax systems it believes that its citizens, including "Green card" holders should file a resident tax return each and every year irrespective of where they are living(residing). Thus a child born in the UK from US parents obtaining US citizenship will start filing US tax returns once the child starts earning even though the child may never even set foot in the US.
It is said that The US taxation system has international relevance for all of its citizens and "green card" holders.
Not only do most citizens have to file an annual self-assessment style Federal tax return within 3 and a half months of the end of the tax year, i.e. April 15, most also have to file a separate State tax return and some, like New Yorkers, even file City returns. If returns are late there are stiff interest and filing penalties. It is possible to delay filing, normally to August 15, although any tax due must still be paid by April 15 in order to avoid any interest and penalty charges for late payment. Indeed the IRS has just issued a press release advising of the impending deadline . Don't forget you can always submit your US tax return to the US Embassy in London if you are near the deadline or request a further extension on Form 2688.
For married couples filing joint returns is the most tax-efficient method of filing and paying taxes.There are also beneficial tax rates for single parents called "head of household" filing. After that there is single filing and the worst rates are "married filing separate".Even though all Americans and Green card holders must file a tax return each year, it does not always mean any US tax is due.
For those working outside the US for at least 12 months, they receive a foreign earned income exclusion of up to$80,000 or their non-US earnings, whichever is the smaller.
In addition those spending more than approximately $12,000 on foreign housing may receive the difference as an additional exclusion called a foreign housing exclusion. Although one
Bill currently being debated in the House of Representatives would restrict this and the above exclusion to a ceiling of $80,000 figure mentioned above.
For those individuals earning in excess of the exclusion foreign tax credits are used to reduce the US taxes due on foreign earnings still further. However if an individual is subject to Alternative Minimum Tax foreign tax credits cannot exceed 90% of this amount. This "double taxation" is due to be repealed from the beginning of 2005 if currentlegislation is enacted unchanged.
For overseas individuals going to work in the US the years of arrival and departure can be particularly penal unless careful planning is used. Normally in these years an individual files a "dual status" return, i.e. part of the year they are considered as a non-resident alien
and part of the year as a resident of the US. Married individuals have to file separate returns.
In addition the unwary can also trigger US residency earlier than planned. A pre- arrival business trip of 2 weeks in January can mean a taxpayer is considered a resident of the
US from January even if the assignment does not commence until October.
As all area of taxation is a minefield of different rules professional help is essential.
NOTE THAT-Federal income tax rates are slated to rise next year and already many clients are concerned. Impending Tax Hikes Make Clients Seek New Strategies as all the tax talk coming out of Washington this testy election year will certainly keep the topic in the public eye.
So advisors should expect continued questioning about the changes scheduled for 2013, even if another extension of the Bush tax cuts, sweeping tax reform or something in between could be enacted before then -- or after, depending on the outcome of the elections.
Obama administration's budget proposal for 2012-13 seeks to curtail the tax benefits of municipals for high-bracket investors, while enactment of the so-called "Buffett Rule" could make muni income taxable for clients making over $1 million.
A large number of expatriates crossing the Atlantic each year the they need to be aware of the
tax systems of United Kingdom and the United States .The US tax year is in line with most other country tax systems, i.e. the calendar year. However unlike most other tax systems it believes that its citizens, including "Green card" holders should file a resident tax return each and every year irrespective of where they are living(residing). Thus a child born in the UK from US parents obtaining US citizenship will start filing US tax returns once the child starts earning even though the child may never even set foot in the US.
It is said that The US taxation system has international relevance for all of its citizens and "green card" holders.
Not only do most citizens have to file an annual self-assessment style Federal tax return within 3 and a half months of the end of the tax year, i.e. April 15, most also have to file a separate State tax return and some, like New Yorkers, even file City returns. If returns are late there are stiff interest and filing penalties. It is possible to delay filing, normally to August 15, although any tax due must still be paid by April 15 in order to avoid any interest and penalty charges for late payment. Indeed the IRS has just issued a press release advising of the impending deadline . Don't forget you can always submit your US tax return to the US Embassy in London if you are near the deadline or request a further extension on Form 2688.
For married couples filing joint returns is the most tax-efficient method of filing and paying taxes.There are also beneficial tax rates for single parents called "head of household" filing. After that there is single filing and the worst rates are "married filing separate".Even though all Americans and Green card holders must file a tax return each year, it does not always mean any US tax is due.
For those working outside the US for at least 12 months, they receive a foreign earned income exclusion of up to$80,000 or their non-US earnings, whichever is the smaller.
In addition those spending more than approximately $12,000 on foreign housing may receive the difference as an additional exclusion called a foreign housing exclusion. Although one
Bill currently being debated in the House of Representatives would restrict this and the above exclusion to a ceiling of $80,000 figure mentioned above.
For those individuals earning in excess of the exclusion foreign tax credits are used to reduce the US taxes due on foreign earnings still further. However if an individual is subject to Alternative Minimum Tax foreign tax credits cannot exceed 90% of this amount. This "double taxation" is due to be repealed from the beginning of 2005 if currentlegislation is enacted unchanged.
For overseas individuals going to work in the US the years of arrival and departure can be particularly penal unless careful planning is used. Normally in these years an individual files a "dual status" return, i.e. part of the year they are considered as a non-resident alien
and part of the year as a resident of the US. Married individuals have to file separate returns.
In addition the unwary can also trigger US residency earlier than planned. A pre- arrival business trip of 2 weeks in January can mean a taxpayer is considered a resident of the
US from January even if the assignment does not commence until October.
As all area of taxation is a minefield of different rules professional help is essential.
NOTE THAT-Federal income tax rates are slated to rise next year and already many clients are concerned. Impending Tax Hikes Make Clients Seek New Strategies as all the tax talk coming out of Washington this testy election year will certainly keep the topic in the public eye.
So advisors should expect continued questioning about the changes scheduled for 2013, even if another extension of the Bush tax cuts, sweeping tax reform or something in between could be enacted before then -- or after, depending on the outcome of the elections.
Obama administration's budget proposal for 2012-13 seeks to curtail the tax benefits of municipals for high-bracket investors, while enactment of the so-called "Buffett Rule" could make muni income taxable for clients making over $1 million.
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