Many Americans are moving to offshore locations like the UK to take advantage of economical living and better professional prospects. Regardless of where you’re residing and working, make sure to understand how taxation laws work for US expats and to file your returns each year.
US citizens and Green Card holders must comply with IRS rules or risk incurring penalties and fines. As United Kingdom residents, you’ll also keep up with your tax obligations to Her Majesty’s Revenue & Customs (HMRC), the UK equivalent to the IRS.
Hiring an Expert Tax Consultant is a Smart Move
Balancing returns and calculating dues can be a complex process that is hard to understand for a layperson. It is advisable to hire expert consultants who can advise you on how to take advantage of the exclusions made available by the IRS and reduce your overall tax payment.
You’ll also get assistance with completing all of the necessary information and converting foreign income into US dollars for accurate return filing. Some of the allowances they’ll introduce you to include the Foreign Earned Income Exclusion, Foreign Housing Exclusion, and Foreign Tax Credit.
Clarifying Your Residency Status for Taxation Purposes
Tax rates can be different for US expats depending on whether you’re an official resident or if you have non-resident status in the UK. US expats who have a permanent home and spend at least 183 days out of the 365-day fiscal year in another country are considered residents. Remember that the IRS expects you to continue to file returns as before unless you formally relinquish your residency or citizenship.
The HMRC also considers the taxpayer’s “domicile,” which is distinct from citizenship, residency, or nationality. You must clarify your designation at the time of filing returns. As a US Green Cardholder, you’ll maintain the status even if the certificate has expired.
You Can File Joint Returns with a Foreign Spouse
As you do in your home country, you do have the option of filing joint returns with a spouse. The governments of both the US and the UK allow additional tax exclusions if you are financially responsible for children.
These factors can save you money, but with that perk comes paperwork. If you’ve married a UK citizen and intend to file joint returns with the IRS, you must provide adequate identity proof for your spouse. This document can be a driver’s license and a passport or birth certificate. Acquire copies before you need them and make sure that they’re considered official. You may need to look into getting them authenticated by a remote notary before attaching them to the return.
You’ll File Returns Even if You Don’t Owe Taxes
Like your expert tax consultant will advise, it is mandatory to file returns even if your income is below the taxable limit for US citizens residing in other countries. That’s because you might have certain accounts and business dealings that require you to declare income in a US return. Paying Social Security and Medicare out of your income is also mandatory, though you’ll reimburse this amount only once, either to the US IRS or HMRC.
Completing the numerous mandatory forms and filing tax returns can be a complicated process, but don’t let it make you feel overwhelmed. As long as you’re keeping good financial records, there are experienced people who can help with any questions that arise.
