Emergency tax advice: US citizen worked ½ the year in the US, ½ in the UK. Please Help!

April 14, 2010 12:15 PM

I’ve been living in London for the past 6 months, and somehow the US tax deadline escaped my radar until now. Help!

Hi there,

I’ve been living in London for the past 6 months, and somehow the US tax deadline escaped my radar until now. Help!

I worked Jan – Sept (2009) in California, and Sept – now in London. Does anyone have advice on the best way to handle my taxes & avoid being taxed by both countries on my UK income? I’m afraid that my knowledge here is minimal, so if you could spell it out in as much detail as possible for me, I would very much appreciate it. Here are a few questions I have:

1. Are US and UK taxes filed separately?

2. Are there different rules for US Fed and State (California) taxes?

3. Is there anyway to report rent paid here in the UK?

4. I’ve heard things about being able to exclude a certain amount of your UK income from a US tax return, foreign housing deduction (not sure if this would apply to me since I pay rent vs a mortgage), and a foreign tax credit which would deduct the amount of taxes I paid to the UK from what I own in the US.

5. Should I file a 4868 for an extension? Or have a friend submit my US taxes on my behalf? Only caveat with the latter is that I have my W2 but not my bank info for my 2 US savings accounts (one of which was closed the week I moved, and the other opened the week I moved).

If anyone could help shed some light & suggest a plan of action, I would be very grateful.

Many thanks,
Danah

posted by Danah_78 to law & government (13 answers total)

I would file an extension and then contact a qualified accountant/tax preparer. My husband works in one state and lives in another and that's complicated enough without adding in an ocean.
posted by cooker girl at 12:18 PM on April 14, 2010

You should look into the Foreign Earned Income Exclusion. Unless you earned more than USD 70-80K overseas, it is likely that none of your foreign earned income is taxable in the US. You will have to pay UK taxes on it.

The year in which you earn substantial money in both the US AND another country is a pain in the ass. You will want an accountant versed in expat American tax issues in the UK. Hopefully he/she will be able to help you file both US and UK taxes.
posted by rocketpup at 12:29 PM on April 14, 2010

I don't know anything about the tax implications of the fact that you lived in 2 different countries during 2009, but you do realize it's possible to pay taxes (US federal and state) entirely online through TurboTax, right? It doesn't seem obviously too late to do this. TurboTax is really good at walking you through the variety of situations that could have tax implications that you might not be aware of; they definitely ask which different places you've lived. I would assume they have an option to indicate that you lived outside of the country for part of the US. It's not like you're talking about such an obscure situation that the TurboTax programmers would have overlooked the possibility that an American tax filer might spend 3 months out of a year living in the UK.

If this doesn't work for some reason, of course you can disregard my answer. But to be clear, the deadline isn't till tomorrow (considering that you're several hours ahead of the US), and you can file your taxes entirely online.
posted by Jaltcoh at 12:29 PM on April 14, 2010

lived outside of the country for part of the US.

Uh, for part of the year.
posted by Jaltcoh at 12:31 PM on April 14, 2010

1)File for an extension online (its easy takes five minutes). You DO NOT need TurboTax to do this the IRS offers it as a free service. freefilefillableforms.com or something like that.

2) Get a tax accountant - generally I think they are a waste of time - but this is one circumstance where I think it really matters. UK tax law is a bit complicated wrt you status (non-dom? resident, non-resident) and a good tax accountant can really make hay for you if you have income in 2 countries.
3) You still have US income + tax liabilities - but because of foreign earned income exclusion you were probably overwitheld (because witholding is calculated for FY income - not because you can offset US income with the FEIE)
4)UK tax year runs on a totally different schedule then the US does - you have not missed any deadlines.
posted by JPD at 12:46 PM on April 14, 2010

Long time (14 years plus) American ex-pat, living in London here. First off - don't panic. Americans living and working abroad get an automatic two month extension. Another pushing your filing deadline out until December is available, but at that point you'll have to pay any taxes owed (in advance of filing) or be penalised later.

To your questions and then a few, general tips / pointers.

1. Are US and UK taxes filed separately?

Yes. And to add to the fun, the tax years run differently (i.e., January 1st to December 31st, same year, for the US, while in the UK the tax year runs from April 6th to April 5th the following year. Delicate question - are you working here legally? Do you have an NI number? If so, the good news is its all done online in the UK and is trivial to complete.

2. Are there different rules for US Fed and State (California) taxes?

I'll have to defer to someone who files California taxes but, in general, Federal and State tax laws / requirements do indeed differ.

3. Is there anyway to report rent paid here in the UK?

Who pays your rent? If its part of your employment contract then most certainly, but this does markedly change your tax profile. If you pay your own rent then its not currently possible in any way that I'm aware of but, then again, I've never rented here - I currently own my own flat and before that resided in a flat provided by my employer; rent free, but I had to pay taxes on this benefit in kind.


4. I’ve heard things about being able to exclude a certain amount of your UK income from a US tax return, foreign housing deduction (not sure if this would apply to me since I pay rent vs a mortgage), and a foreign tax credit which would deduct the amount of taxes I paid to the UK from what I own in the US.

The first $82,400 (or so) equivalent of US income from the UK side free of US taxes - but you've already been taxed on it by the UK.

The foreign tax credit will help ("tax loss carryforwards").


5. Should I file a 4868 for an extension? Or have a friend submit my US taxes on my behalf? Only caveat with the latter is that I have my W2 but not my bank info for my 2 US savings accounts (one of which was closed the week I moved, and the other opened the week I moved).

You've got another two months; certainly you can compete your US taxes before then? You've only got three months of UK income - which must be reported - and, unless you're a high flier, will almost certainly be under the income exclusion noted above.

You'll want a form 1116 - Foreign Tax Credit, and form 2555 - Foreign Earned Income, in addition to your 1040. All are downloadable (via instructions) from The IRS.

Hope this helps!
posted by Mutant at 12:47 PM on April 14, 2010 [1 favorite]

as I'm sure Mutant will pop up here to bitch about - the US is one of the only countries in the world that taxes foreign income (assuming it is greater than the FEIE)
posted by JPD at 12:49 PM on April 14, 2010

Crap! Forgot my obligatory complaint about being double taxed!!
posted by Mutant at 12:50 PM on April 14, 2010

well I did it for you!!!

just think of the military you get for that though - totally worth it.
posted by JPD at 12:50 PM on April 14, 2010

IANATL, but the Foreign Earned Income Exception is prorated based on the number of days in the year you have earned money/resided outside the States. If it's half the year, the FEIE should cover you for roughly $40,000 US. Also, overseas citizens get until June 15th to file.

If you're anything like me, with no real assets in the States, and not going over the exception (someday, he dreams), taxes take about ten minutes to fill out. It's kind of liberating in a way, finishing in ten minutes forms that generate so much anguish, and so many questions.
posted by Ghidorah at 2:47 PM on April 14, 2010

You can't claim the exclusion unless you meet one of the various tests for foreign residency, which you haven't yet. So! You need to file an extension so that you can meet the physical presence test. You need to be in the UK for at least 330 days (and vacations/business trips to the US don't count towards those 330 days) in a year.

If you aren't going to meet that even by October 15 (the latest you'll likely be able to submit, even with an extension), you'll have to pay double taxes on the UK income, most likely.

Otherwise if you don't have any other weirdnesses like I do (IRA conversions and various other sundry confusing-to-me-things), if your US part of the tax return is something you could do by yourself, adding the foreign part didn't seem particularly tricky.
posted by that girl at 6:01 PM on April 14, 2010

The interaction between the 1116 and the 2555 is tricky. Get the extra good version of Turbo Tax and hope you do it right.

My understanding is that there is an automatic extension for expats to file their US taxes because of the many problems encountered in the host countries. (Brasil, for example can take a very long time to issue their equivalents of W-2s.) I would think your best bet would be to find someone local who does both British and US taxes.

If you are in the UK I can't think of many filing differences between Cal and the Feds. California has a hideous way of taxing "Non-Resident" or partial year resident returns (they glom all your income together as if it was all California source, tax it, then tax the actual California source income and subtract that from the first amount, thus insuring you are paying taxes at the highest possible rate. The feds have also caught onto this trick, so be prepared.
posted by mrhappy at 6:01 PM on April 14, 2010 [1 favorite]

California has a hideous way of taxing "Non-Resident" or partial year resident returns (they glom all your income together as if it was all California source, tax it, then tax the actual California source income and subtract that from the first amount, thus insuring you are paying taxes at the highest possible rate.

Most states do this. Think of the dodges you could pull if it didn't work that way? I mean you would be totally ignoring the concept of progressive income taxation.
posted by JPD at 4:56 AM on April 15, 2010