The American citizens living in the United Kingdom are confused as a result of insufficient knowledge especially during the tax season. You can work and live in Britain and still you are required to file a tax return in the US. The policy extends to the US citizens and green card holders not living within the United States.
This becomes a hard process since there are two systems of taxation, which need to be dealt with. There are various regulations that make the complex forms that turn into the penalty traps in case individuals do not meet their submission deadlines. It is through appropriate assistance that makes the US expat tax returns manageable and give clear procedures to follow. The guide demonstrates to the people in the UK who require assistance with the US taxes preparation UK how professional assistance makes their tax filing easier.
The need of US Expats to file US tax returns.
The United States collects tax on its citizens according to their citizenship as opposed to their place of residence. This is due to the fact that Americans living abroad are expected to declare their earnings to the IRS annually. Even in the case where you are paying taxes in the UK, you must file a US tax return. Payment of taxes does not necessarily imply that you have to pay taxes by filing taxes. Most expatriates pay a little or no US taxes as they are subject to tax credits and exemptions. Income that has to be reported is of the following kinds:
● Salary or wages from a UK job
● Self-employment income
● Rental income
● Investment income
● Pension income
When your income is beyond certain income thresholds, you are supposed to file a tax return. The typical filing threshold of the US is equivalent to that of the majority of single filers. The act of non-filing of tax will punish and impose interest that will cause a problem in rejoining the US.
The main Tax Reliefs of Americans in the UK.
The tax system offers numerous ways through which the instances of taxation can be avoided. This set of rules allows expats to reduce or eradicate their taxes to the US through the taxation system.
Foreign Earned Income Exclusion (FEIE).
According to this rule, expats are allowed to avoid US tax on large proportions of their foreign income. The time and residency criteria allow you to exempt some of your international pay to taxation.
Foreign Tax Credit (FTC)
The UK taxpayers may claim a credit to their US tax returns by using their UK tax payments. The credit eliminates US tax on the income that has already been taxed.
Tax Treaties
The two nations, the US and UK have signed a tax treaty, as a result of which there is no possibility of dual taxation between the two nations. The treaty provides taxation conditions on certain kinds of income such as the distribution of pensions.
When applied appropriately, these benefits allow the taxpayers to reduce or completely eliminate the taxes.
US Expat common tax returns.
The US expats should present several documents as opposed to the US residents. The documents present foreign income and bank accounts details and any financial assets. The most prevalent ones are as follows.
Form 1040
This is the major form that Americans can file their income tax.
Form 2555
Through the form, the taxpayers can get the Foreign Earned Income Exclusion benefit.
Form 1116
The structure allows taxpayers to get the Foreign Tax Credit benefit.
FBAR (FinCEN Form 114)
The condition is necessary in case the overseas bank account balances remain above 10 thousand dollars during the year.
Form 8938
The form discloses the foreign financial assets exceeding the established threshold values.
In every form, there are certain requirements that should be adhered to. The errors that are used by the IRS also lead to processing delays and hence their mail notifications.
Deadlines for US Expats
The United States provides citizens, who live abroad, with more time to file their tax returns. The following are the key dates: The standard tax date of the United States is April 15. Expatriates have an automatic extension of deadline that starts on June 15. The deadline on requesting extra time will continue up until the 15 th of October. The government will determine interest rates in cases where the taxpayers fail to pay their tax contributions on time despite the prolonged period of payment schedule. Planning positively benefits individuals to avoid last minute stressful situations.
Mistakes that the US Expats make.
The United Kingdom boasts of a large number of American citizens that strive to file their tax returns without any help. The approach works well in simple cases but it does not work in situations involving international taxes.
Among taxpayers, the following are the most common mistakes:
There are expats who think that they are not required to file since they stay in a foreign place. This is among the major mistakes.
The documentation lacks foreign account reports.
There are high FBAR fines, which may be applied when there are no reports.
The taxpayer has chosen the wrong tax credit.
The Foreign Earned Income Exclusion, and the Foreign Tax Credit demand that the taxpayer do extensive planning until one decides on which one to take.
The amount of money that individuals get in pounds must be changed into the US dollars at the correct exchange rate to get the money correctly converted to currency.
Minor mistakes may lead to huge financial repercussions.
Final Thoughts
Residing in the UK does not take away the obligation to pay taxes in the US. The Americans overseas are expected to file their earnings every year and comply with the IRS regulations of foreign accounts.
However, the positive thing is that tax credits, treaty rules and tax exemptions usually avoid the occurrence of the instances of double taxation. It will be very easy with perfect planning and professional assistance.
When in Britain, as an American, you should file your us expat tax returns in the right manner, you are saving yourself the hassle of being fined as well as keeping your money in check. By seeking the assistance of the professionals specializing in US expat taxes, it can be a very easy task to do.