Answers to your most common questions on US Tax

In the following blog and video, Graham Cook provides the answers to key questions such as…

• If I am a US citizen living abroad do I have to file a US Tax Return?
• What are Accidental Americans?
• Am I likely to pay twice if I file in the US?
• What’s the process of reporting in the US? 
• What is FBAR?
• Once I have filed my US Tax return, what is the next thing I need to look at?

If you don’t have time to read this blog, why not watch or listen to Graham’s interview below.

If I am a US citizen living abroad do I have to file a US Tax return?

The first thing to understand is that the US tax system is unique and operates a citizenship-based filing system. This means that unlike the UK, regardless of where a US citizen lives, they are normally required to file a US tax return. Therefore, if you have an American who’s in the UK as an expat, as well as recording their taxes in the UK, (even if they’re PAYE), they are still required to file a tax return in the US. 

There are only two countries, interestingly enough, in the whole world that operate this system. The second one being that well-known economic powerhouse of Eritrea.

What are the different types of clients that you advise?

Jarem advise all US citizens as well as those who are classed as “ Accidental Americans.”

Accidental Americans tend to be people who were born in the US and came over to the UK when they were 2, 3, or 4 and have lived the majority of their lives in the UK. As they are born in the US they are US citizens and normally have done nothing about rescinding their US Citizenship so they are legally and technically liable to file a US. Tax return. 

These things normally come to light after people have seen some press coverage or they may want to do some high-level financial investment somewhere and then it becomes apparent that they’re actually US Citizens and need to get their US Taxes up-to-date.

We also get clients who are US Expats living and working over here maybe for a fixed contract, 6, 7, 8, 10 years who were up-to-date with their filing before they came to the UK and now they are looking for someone to assist them with their US filing.

Can you support people across the UK and globally if required?

With the increasing use of Zoom and other video conferencing platforms we can support US citizens in any part of the world as regardless of where they are currently residing they have the same requirements to file their taxes.

Am I likely to pay twice if I file in the US?

This is a common concern amongst many Americans who perhaps haven’t filed. 

In the past our Accidental Americans have been quite happily paying their taxes over here, normally through PAYE. Once they realise they need to file in the US they are concerned that they will be taxed twice. They need to declare their worldwide income to the IRS which would mean that this would be subject to tax. Fortunately, there are ways to avoid double taxation — one of which is the US-UK tax treaty. For more information on this contact us on hello@jarem.co.uk

What is the process of reporting in the US? 

The system is the same for all US Citizens, whether they are resident in the U.S. or elsewhere in the world, they are still required to file a form known as the 1040. 

We can complete Form 1040 on behalf of our US clients. However, the biggest problem for the US Citizens outside the US is that tax return preparers, people like ourselves, are not allowed by the IRS to file those returns digitally, we have to file them manually. We produce a paper return, our clients sign it, having agreed it with us and we then will courier over to the IRS. This is very straightforward process despite it being hard copy.

I’ve heard that US citizens have to report their foreign assets to the IRS. Can you shed any light on that? 

It’s also a requirement for all US citizens, whether they’re resident in the US or resident as expats elsewhere in the world, to file a report of Foreign Bank and Financial Accounts Record, otherwise known as an FBAR.

Essentially, it’s just a report back to the IRS advising or reporting what accounts, bank accounts, savings accounts,  life insurance accounts and possibly pension funds are held offshore from the US. This has to be reported if the value of any one of their accounts at any point in time during the calendar year goes over ten thousand dollars.

FBAR is part of the Foreign Accounting Tax Compliance Act brought into the US many years ago, where the banks and other financial institutions have a responsibility to advise the IRS of any other accounts and investments that a US Citizen may have abroad.

Once I have filed my US Tax return, what is the next thing I need to look at?

One of the things about the US and UK system is timing. The UK has its fiscal year running April 6th to April 5th the following year but the US fiscal year runs like a calendar year, from January 1st to December 31st. This creates an issue with which tax year income appears in each of the different jurisdictions. However this can create some opportunities to increase your tax efficiency.

For example if an individual is in receipt of dividends we can delay the tax in one jurisdiction depending on the timing of when those dividends are declared and by understanding the different levels of tax on dividends in each jurisdiction we can help you work out the best dividend salary mix.

In conclusion

The key is to get advice sooner rather than later, make sure you are making the most of tax planning opportunities in both jurisdictions and give yourself time to plan by starting your tax planning for the following year as soon as possible

Get ahead of your taxes, get ahead of your filing and the deadlines so that it is all part of your tax planning strategy each year.

If you are looking for advice as a US Expat or Accidental American’s get in touch with Graham on hello@jarem.co.uk or call us on +44 (0) 1525 852769