Confusing multi-country tax situation & self employment Q's.

[caphoto 10]

I'm hoping someone can help me, as I can't seem to find answers to my ridiculously confusing scenario... Here's some background info:

- I'm from the UK, but I lived in Canada from June 2013-April 2015, so I have a Canadian income from January 2015 - April 2015. I will be filing a Canadian Tax Return on this.

- I moved back to the UK for 4 months to finalize my K-1 visa, then moved to the USA in August 2015. During my time in the UK, I did not work, but I did receive income from interest and dividends from shares (I closed out the shares prior to moving to the USA)

- I only just received my EAD, so I did not work in the USA from August 2015-December 2015.

- My husband is in the military, and we feel it would be beneficial to file jointly as married.

- I am a self employed photographer, and I am about to start working here, now that I have received my EAD.

So my questions are:

Do I need to pay US taxes on the income I earned at the beginning of the year in Canada?

What about the dividends and interest earned from the UK?

Do I have to declare somewhere that I am self employed?

Where do I start?!

If anyone has any helpful information, or can point me to some websites that might help me figure it out, I'd be eternally grateful.

Thanks,

Caroline

[aaron2020 11,651]

I'm hoping someone can help me, as I can't seem to find answers to my ridiculously confusing scenario... Here's some background info:

- I'm from the UK, but I lived in Canada from June 2013-April 2015, so I have a Canadian income from January 2015 - April 2015. I will be filing a Canadian Tax Return on this.

- I moved back to the UK for 4 months to finalize my K-1 visa, then moved to the USA in August 2015. During my time in the UK, I did not work, but I did receive income from interest and dividends from shares (I closed out the shares prior to moving to the USA)

- I only just received my EAD, so I did not work in the USA from August 2015-December 2015.

- My husband is in the military, and we feel it would be beneficial to file jointly as married.

- I am a self employed photographer, and I am about to start working here, now that I have received my EAD.

So my questions are:

Do I need to pay US taxes on the income I earned at the beginning of the year in Canada? Probably not. You will need to report this income on your US tax return. Please be aware of the distinction between being required to report the income and actually owing taxes on it.

What about the dividends and interest earned from the UK? Same answer as above.

Do I have to declare somewhere that I am self employed? Nope.

Where do I start?! A good accountant versed in dealing with foreign income. This is not a DIY. Take it from a guy with an advanced tax degree.

If anyone has any helpful information, or can point me to some websites that might help me figure it out, I'd be eternally grateful.

Thanks,

Caroline

[MariaR323 199]

I'm hoping someone can help me, as I can't seem to find answers to my ridiculously confusing scenario... Here's some background info:

- I'm from the UK, but I lived in Canada from June 2013-April 2015, so I have a Canadian income from January 2015 - April 2015. I will be filing a Canadian Tax Return on this.

- I moved back to the UK for 4 months to finalize my K-1 visa, then moved to the USA in August 2015. During my time in the UK, I did not work, but I did receive income from interest and dividends from shares (I closed out the shares prior to moving to the USA)

- I only just received my EAD, so I did not work in the USA from August 2015-December 2015.

- My husband is in the military, and we feel it would be beneficial to file jointly as married.

- I am a self employed photographer, and I am about to start working here, now that I have received my EAD.

So my questions are:

Do I need to pay US taxes on the income I earned at the beginning of the year in Canada?

What about the dividends and interest earned from the UK?

Do I have to declare somewhere that I am self employed?

Where do I start?!

If anyone has any helpful information, or can point me to some websites that might help me figure it out, I'd be eternally grateful.

Thanks,

Caroline

Filing jointly would probably be most beneficial to you both (you would be making an election to be treated as a resident for the entire year 2015 with a statement attached to your tax return).

With that said, doesn't sound like you would pay U.S. taxes on your foreign income since you could exclude it with the foreign earned income exclusion available (unless you made over 100k?). You wouldn't declare self-employed anywhere on a 2015 tax return since you didn't work in the U.S. yet - that would be for current year 2016 when you file in 2017.

Unless you or your husband are familiar with tax forms, I would suggest having your taxes prepared by a tax preparer since it sounds like there could also be other credits/deductions available for your military husband.

[Russ&Caro 1,549]

As aaron2020 states above, you probably won't have to pay taxes on the foreign income in 2015 but you'll need to report it. One of the tax experts who participates here on Visa Journey stated that the exemption on taxes for foreign income is over $100,000. So if your income is over $100k then you probably for sure want a tax professional advising you. If it's under $100k and your husband's tax situation is fairly straight forward, then you might be able to do it yourself. But yes, you're on the right track on filing as Married Filing Jointly. Your husband and you should enjoy a little bit of a tax break as MFJ, maybe up to a few thousand dollars on your 2015 taxes.

[aaron2020 11,651]

As aaron2020 states above, you probably won't have to pay taxes on the foreign income in 2015 but you'll need to report it. One of the tax experts who participates here on Visa Journey stated that the exemption on taxes for foreign income is over $100,000. So if your income is over $100k then you probably for sure want a tax professional advising you. If it's under $100k and your husband's tax situation is fairly straight forward, then you might be able to do it yourself. But yes, you're on the right track on filing as Married Filing Jointly. Your husband and you should enjoy a little bit of a tax break as MFJ, maybe up to a few thousand dollars on your 2015 taxes.

Even if the foreign income is under $100k, this is not a DIY.

[caphoto 10]

Filing jointly would probably be most beneficial to you both (you would be making an election to be treated as a resident for the entire year 2015 with a statement attached to your tax return).

With that said, doesn't sound like you would pay U.S. taxes on your foreign income since you could exclude it with the foreign earned income exclusion available (unless you made over 100k?). You wouldn't declare self-employed anywhere on a 2015 tax return since you didn't work in the U.S. yet - that would be for current year 2016 when you file in 2017.

Unless you or your husband are familiar with tax forms, I would suggest having your taxes prepared by a tax preparer since it sounds like there could also be other credits/deductions available for your military husband.

Thanks, MariaR323. I guess maybe the military has tax advisers that we could speak to, I should ask my husband that. My husband probably knows about the deductions already, but maybe they change now that I'm classed as his dependent.

As aaron2020 states above, you probably won't have to pay taxes on the foreign income in 2015 but you'll need to report it. One of the tax experts who participates here on Visa Journey stated that the exemption on taxes for foreign income is over $100,000. So if your income is over $100k then you probably for sure want a tax professional advising you. If it's under $100k and your husband's tax situation is fairly straight forward, then you might be able to do it yourself. But yes, you're on the right track on filing as Married Filing Jointly. Your husband and you should enjoy a little bit of a tax break as MFJ, maybe up to a few thousand dollars on your 2015 taxes.

Ha! I wish my 4 month Canadian income was over $100k Thanks for the info, I wasn't aware the foreign income exemption was so high.

Even if the foreign income is under $100k, this is not a DIY.

I appreciate your input, Aaron2020. Sadly, with living in the Bay Area, tax advisers/accountants are incredibly expensive. So this may have to be a DIY due to our financial circumstances. I've emailed a few people for quotes and their basic quote starts at $1,500 which unfortunately we just can't afford right now. But it is possible that the military have someone we can speak to, so I'm definitely going to check that out!

[Ms Hogan 295]

Canada and the US have a reciprocal tax agreement so although you need to report in both places you won't have to pay taxes in both places on the same income.

[Russ&Caro 1,549]

I appreciate your input, Aaron2020. Sadly, with living in the Bay Area, tax advisers/accountants are incredibly expensive. So this may have to be a DIY due to our financial circumstances. I've emailed a few people for quotes and their basic quote starts at $1,500 which unfortunately we just can't afford right now. But it is possible that the military have someone we can speak to, so I'm definitely going to check that out!

If you can't afford an advisor, at least spend $30 on one of the tax preparation software packages. The software will walk you through the situation, step by step, and probably have all the forms you need.

[caphoto 10]

Canada and the US have a reciprocal tax agreement so although you need to report in both places you won't have to pay taxes in both places on the same income.

Thanks Ms Hogan! Wasn't aware of that.

If you can't afford an advisor, at least spend $30 on one of the tax preparation software packages. The software will walk you through the situation, step by step, and probably have all the forms you need.

Will do, thanks Russ&Caro.

[Nich-Nick 3,354]

If you file jointly, you must include worldwide income...Canada and UK and US. Both spouses.

You will be eligible to exclude the Canadian income you report using Form 2555 or 2555EZ. (More on that later) the exclusion is only for "earned" income...working. People tend to say you can excluded everything up to $100k. That is only true if you spent the entire year in Canada because that's the maximum exclusion. It is prorated by the percentage of the year you were in Canada. Jan to April is about 1/3 of a year so you would only be eligible to exclude 1/3 of the maximum or about $33k. The form has you count days there divided by 365 and figure your percent. If you earned less than that then all will be excluded. Just a fine point I wanted to clarify.

The UK interest and dividends are "unearned income" and are reportable and taxable just like if you were paid by a US Financial account. No exclusion. And possibly you pay taxes on the capital gain you earned when you sold your shares for a profit since you are filing as an American for all of 2015. Profits earned are considered income in the year you sold. Worldwide income again. Your total family income before any foreign exclusion figures into Schedule D.

Self employment is done on a Schedule C. I'm thinking If you file a US return as a joint filer, then you follow the US rules. Schedule C: You basically put you gross sales/income and deduct your eligible expenses like film(?), printing, batteries, advertising, office supplies...whatever running that business cost you. The IRS instructions are pretty detailed with what counts and what doesn't. So your income minus expenses is your net profit or loss for that business. That is your income and what is eligible for foreign income exclusion. But wait, there's more.....

In the US, employed people pay into Social Security and Medicare as a percentage of their earnings. When you have an employer, he pays half and you pay half. It's held out of each paycheck. When you are self-employed, you still have to pay your share of Medicare and Social Security and you pay the full amount employer/employee share (both). Your share is based on your profit figured on Schedule C. There is Schedule SE to fill out to calculate the amount. It is call Self-Employment Tax, but is basically your contribution to Medicare and Social Security. You do get a break later on the tax return where you get to subtract out part of it as a deduction on Line 27. You do not get to use your Foreign Income Exclusion to get out of Schedule SE or the tax on your net earnings. Straight from the IRS:

Who Must Pay Self-Employment Tax?

If you are a self-employed U.S. citizen or resident, the rules for paying self-employment tax are generally the same whether you are living in the United States or abroad.

The self-employment tax is a social security and Medicare tax on net earnings from self-

employment. You must pay self-employment tax if your net earnings from self-employment are at least $400.

Effect of Exclusion

You must take all of your self-employment income into account in figuring your net earnings from self-employment, even income that is exempt from income tax because of the foreign earned income exclusion.

Example.

You are in business abroad as a consultant and qualify for the foreign earned income exclusion. Your foreign earned income is $95,000, your business deductions total $27,000, and your net profit is $68,000. You must pay self-employment tax on all of your net profit, including the amount you can exclude from income.

If you don't want to bother with all that, your husband can file Married Filing Separately and you file nothing. By the time you pay somebody to do a complicated return like that, and the tax on your investments and self employment, the cost might be more than any benefit of filing jointly. By putting your name on the return as a joint filer, you follow all the requirements and report worldwide income and investment interest.

I'm just a Mom. I do not have an advanced accounting degree, but this is my understanding of how it works for your situation. Hopefully Maria will come along and give her opinion. She's good.

[caphoto 10]

If you don't want to bother with all that, your husband can file Married Filing Separately and you file nothing. By the time you pay somebody to do a complicated return like that, and the tax on your investments and self employment, the cost might be more than any benefit of filing jointly. By putting your name on the return as a joint filer, you follow all the requirements and report worldwide income and investment interest.

Wow that's a lot of information to take in! Thanks so much Nich-Nick. I'm going to read over all that thoroughly over the next day or two and try to wrap my head around it. I think you could be right in that it could be easier filing separately so that I don't need to file anything this year. Next year will be a whole lot easier with just US income for both of us! Am I right in understanding that if we file as MFS, I don't need to report any income from last year? Just my husbands income?

[Nich-Nick 3,354]

Wow that's a lot of information to take in! Thanks so much Nich-Nick. I'm going to read over all that thoroughly over the next day or two and try to wrap my head around it. I think you could be right in that it could be easier filing separately so that I don't need to file anything this year. Next year will be a whole lot easier with just US income for both of us! Am I right in understanding that if we file as MFS, I don't need to report any income from last year? Just my husbands income?

Correct. You earned nothing in the US, so you do not need to be on a tax return. He files by himself. Your actual money earned in Canada would be excluded from taxation, but the investment income, capital gains, self-employment tax would not be. The advantage your bring to the table is an extra $10,300 off his taxable income in exclusions and standard deduction for adding a spouse. The question is how much extra is added in taxation because of your other things plus somebody charging you hundreds to do your return. If your self employment income is minimal as well as your investment earnings, then maybe not so bad. And also if he files separately, he is going to pay a little more than when he was single. If his income is fairly low, then he is already in a lower tax bracket. You have to know specific amounts and situations before you can say for sure joint is always better. Usually it is. I just happen to be familiar with these situations because I do my own taxes. My husband had foreign income his first year here. He started a small self employment business. We have interest, dividends, and capital gains. It didn't all happen in one year and only a regular salary was foreign, so a learning curve that got spread out. And yes TurboTax can do it but you would have to read volumes of IRS Publications to ferret out the details to even know how to go through their guided process. "Did you have any blah, blah, or blah?" Yes/No? Sometimes you have to study IRS info for hours to even know what those blahs are and whether you had them.

Oh and if you live in a state with a state income tax, that's another thing to compound your learning curve. We don't so I am clueless how that works.

If you are going to continue self employment in the US, start learning now so you keep good records and documentation as you go. Expenses, inventory, invoicing your customers, supply receipts, mileage to each shoot.... Once you get through it the first time, it becomes more routine.

[Phil&Mich 36]

Wow that's a lot of information to take in! Thanks so much Nich-Nick. I'm going to read over all that thoroughly over the next day or two and try to wrap my head around it. I think you could be right in that it could be easier filing separately so that I don't need to file anything this year. Next year will be a whole lot easier with just US income for both of us! Am I right in understanding that if we file as MFS, I don't need to report any income from last year? Just my husbands income?

Additional question, if you're not going to file your taxes here in the U.S., do you still need to file it in Canada?

Same situation here, I worked from January to August of 2015in Canada and moved in the U.S. And just received my EAD January 2016.

I'm clueless to whether I must file my taxes in Canada or U.S or if it's ok not to file at all..

[MariaR323 199]

Nich-Nick's post gave you very good detailed information.

I understood the whole Self-Employment part to be in regards to this current tax year 2016, but yes, if you are reporting self-employed for tax year 2015 then it becomes a tad bit more complicated.

From the sounds of it... you probably are already on the lower end of the tax brackets. I almost want to say you probably would benefit from filing jointly. However, with those prices you mentioned it's absurd! I can't believe they charge so much up there in S.F.

My suggestion, look for deals, sometimes Staples and Office Depot have TurboTax on sale or even for free with a rebate. Try and at least go through the software with your figures and see if you can get a rough estimate both filing jointly and your husband filing separately. This would give you the best idea of what the benefit would be or not.

Look for a local tax preparer and don't go to the "big box" chains like H&R, Jackson Hewitt, etc. I myself don't have a store-front office, I do mobile/in-home visits, so I save on overhead costs and don't charge my clients absurd amounts like that. Maybe look for a tax preparer that isn't in a popular, high-fee area but maybe a little further out.