K1 Taxes / Freelancing / Property overseas

[DJClaire 134]

Hi Everyone, 

 

We are May filers and still in that awful waiting period but we are hoping to hear something next month if we are lucky.  Whilst preparing all the other paperwork for the next steps of the K1 I got thinking about tax implications.

 

I am a British Citizen and a self-employed freelancer with a rental property in the UK.  At present, I file and pay my taxes in the UK. In the past, my tax liability has been zero as I have not cleared the personal allowance threshold in the UK of £11,500 after deducting expenditures.

 

My questions are: 

 

1) At what point do I need to pay all my taxes in America? Date of entry to the US? Date of marriage? Date my work permit is confirmed?

2) Do I file part of the 2018 / 2019 year in the UK and the remainder in the US as a single person or WITH my spouse?

3) I assume you MUST do joint returns if you are married in the US?

4) I assume all my income, including that from the rental of my UK property, will be declared on my US tax returns?

5) Can I get a bookkeeper to take care of the filing for me, as I do in the UK to make sure it is all correct?

 

Any advice or tips from people who have navigated this would be most welcome.

 

Thanks in advance. Claire

 

[geowrian 22,337]

1. US federal taxes are due to be filed and paid annually in the year following the tax year. I forget the exact date ("tax day"), but you can Google that fine. States and local taxes may be due a different day, but also follow the same process. Self employed individuals may need to file estimated taxes quarterly.
2. There are a few options here, but the gist of it is you very likely won't pay any US taxes for this tax year or on income earned before coming to the US. If you file taxes jointly (and elect to be treated as a resident alien as a result of that), you can claim the Foreign Earned Income Exclusion (FEIE) to exclude up to around $100k in income from US taxes. There's also the Foreign Tax Credit that you may be able to claim, to avoid double taxation (paying only the difference, if US taxes are higher).
3. No. You can file jointly (Married Filing Jointly / MFJ) or separately (Married Filing Separately / MFS) so long as you are married on the last day of the tax year. Which one you do depends on your tax situation...you are permitted to minimize tax liability. Usually MFJ is better tax-wise, but it does depend on the specifics.
   1. The decision to file MFJ or MFS has no impact on anything with immigration. This is purely a tax liability issue.
4. Worldwide income must be claimed. Welcome to the US...one of the few nations that look at worldwide income.
5. Yes, and I would encourage you to do so. Normally you would go to a CPA or other certified tax preparer that deals with international taxes.

[Wuozopo 4,293]

5 minutes ago, DJClaire said:

Hi Everyone, 

 

We are May filers and still in that awful waiting period but we are hoping to hear something next month if we are lucky.  Whilst preparing all the other paperwork for the next steps of the K1 I got thinking about tax implications.

 

I am a British Citizen and a self-employed freelancer with a rental property in the UK.  At present, I file and pay my taxes in the UK. In the past, my tax liability has been zero as I have not cleared the personal allowance threshold in the UK of £11,500 after deducting expenditures.

 

My questions are: 

 

1) At what point do I need to pay all my taxes in America? Date of entry to the US? Date of marriage? Date my work permit is confirmed?

2) Do I file part of the 2018 / 2019 year in the UK and the remainder in the US as a single person or WITH my spouse?

3) I assume you MUST do joint returns if you are married in the US?

4) I assume all my income, including that from the rental of my UK property, will be declared on my US tax returns?

5) Can I get a bookkeeper to take care of the filing for me, as I do in the UK to make sure it is all correct?

 

Any advice or tips from people who have navigated this would be most welcome.

 

Thanks in advance. Claire

 

 

It all gets a bit complicated because there are so many options when filing a US return. A good place to start learning is find Publication 519 on the IRS website and wade through it. Also on the UK side, look up form P-85.

 

1) Generally the date you move to the US. Tax designation is not the same as what immigration calls you. IRS has a definition of a "US person" who should file taxes.

 

2) You can be a dual status and split the first year. Or you can elect  to be treated as a resident alien for the entire year and file jointly because you are married to a US citizen. Or each of you can file Married Filing Separately. Your status of single/married is based on what were you the last day of the tax year. You will be married. (All covered in Pub. 519)

 

3) No. married people have two options Married Filing Joinly and Married Filing Separately.

 

4) Yes anything you earn after becoming a US person is IRS reportable, not HMRC. You will never be taxed by both countries on the same money. You can split the first year on your own separate return. Or you can file jointly which means all of the year's income is reported to the IRS, but there is a Foreign Earned Income Exclusion (IRS Form 2555) that can take off the money earned from the job prior to your moving to the US. That would not include rental income. Sorry, I have no clue how rental income works.  On your IRS return, you will be considered self-employed. That gives you some extra forms in your return--Schedule C and Schedule SE. 

 

5) Get a tax preparer, not a big box outfit like H&R Block at your local Walmart. Or learn to do it yourself with TurboTax. It gets easier after the year you enter.

 

 

 

 

 

 

[DJClaire 134]

On 10/14/2018 at 2:26 AM, Wuozopo said:

 

It all gets a bit complicated because there are so many options when filing a US return. A good place to start learning is find Publication 519 on the IRS website and wade through it. Also on the UK side, look up form P-85.

 

1) Generally the date you move to the US. Tax designation is not the same as what immigration calls you. IRS has a definition of a "US person" who should file taxes.

 

2) You can be a dual status and split the first year. Or you can elect  to be treated as a resident alien for the entire year and file jointly because you are married to a US citizen. Or each of you can file Married Filing Separately. Your status of single/married is based on what were you the last day of the tax year. You will be married. (All covered in Pub. 519)

 

3) No. married people have two options Married Filing Joinly and Married Filing Separately.

 

4) Yes anything you earn after becoming a US person is IRS reportable, not HMRC. You will never be taxed by both countries on the same money. You can split the first year on your own separate return. Or you can file jointly which means all of the year's income is reported to the IRS, but there is a Foreign Earned Income Exclusion (IRS Form 2555) that can take off the money earned from the job prior to your moving to the US. That would not include rental income. Sorry, I have no clue how rental income works.  On your IRS return, you will be considered self-employed. That gives you some extra forms in your return--Schedule C and Schedule SE. 

 

5) Get a tax preparer, not a big box outfit like H&R Block at your local Walmart. Or learn to do it yourself with TurboTax. It gets easier after the year you enter.

 

 

 

 

 

 

This is great. Thank you so much. Just to clarify one thing. . . So am I technically an US ‘person’ even if I have not finalised my AOS?

 

We are expecting to marry and file the AOS in February 2019. My U.K. tax advisor suggested making my 2018/2019 returns solely in the U.K. and then everything to the IRS from April 1st.

 

Any thoughts? 

 

Thabks again in advance.

 

Claire

[geowrian 22,337]

3 minutes ago, DJClaire said:

This is great. Thank you so much. Just to clarify one thing. . . So am I technically an US ‘person’ even if I have not finalised my AOS?

Possibly. You should be able to elect whether you want to be or not for tax purposes:

https://www.irs.gov/individuals/international-taxpayers/nonresident-alien-spouse

 

There's also the bona fide resident and physical presence tests to determine if you are a "US person" for tax purposes.

 

3 minutes ago, DJClaire said:

We are expecting to marry and file the AOS in February 2019. My U.K. tax advisor suggested making my 2018/2019 returns solely in the U.K. and then everything to the IRS from April 1st.

If you marry in 2019, then the link above about an NRA spouse residence election won't apply for 2018. You almost certainly won't meet the other 2 tests for 2018 as well since presumably you won't be in the US until Dec. 2018 or later (given that a K-1 visa only grants 90 days of legal status).

[Wuozopo 4,293]

6 hours ago, DJClaire said:

This is great. Thank you so much. Just to clarify one thing. . . So am I technically an US ‘person’ even if I have not finalised my AOS?

 

We are expecting to marry and file the AOS in February 2019. My U.K. tax advisor suggested making my 2018/2019 returns solely in the U.K. and then everything to the IRS from April 1st.

 

Any thoughts? 

 

Thabks again in advance.

 

Claire

Before I start, may I say the entire US tax program received a big overhaul for this year. I don't even know all the specifics so what I am explaining could have some variance. 

 

That previous explanation of most become a US person at POE is quite brief and general.  That is why I referred you to Pub 519 for some extreme details to see what qualifies you as a US person and the IRS viewpoint. I can assure you it has nothing to do with the date you file for an immigration benefit (finalise AOS). IRS and USCIS are very separate divisions of the government. Entering late in 2018 would not necessarily  qualify you to file anything for 2018 depending on how much you earn. The Green card test and physical presence test are to determine if you can file as a resident alien or must file non-resident alien (higher tax rate).  And if you don't marry in 2018, you lose the ability to opt in to being a resident alien filing a joint return with an American spouse for 2018 (which can be a tax savings).

 

Your situation is more unique than most because of the income continuing from the same source. Most end employment in the UK, move, then pick up with US employment at some point. It is a clear break. You will enter as a K1, reside in the US starting in 2018, and receive some income although not authorised to work in the US. Quite frankly, the IRS isn't interested in your work authorization, they just want you to pay your income tax according to their rules. So in a sense you can work out when you want to declare that break because they aren't going to actually check up on your details. That's not the legal answer, but the practical answer because who at the IRS is going to know when you moved to the US? They don't check POE records. They don't have the resources to investigate every detail of a small time earner like you. End of 2018 is a good "made up" break point for going forward with the IRS. Again, this is not tax advice; it is a layman looking at the easiest break point, knowing nobody is going to check up on you. Your intent is not to avoid taxes, but just find the point of making the switch from HMRC to IRS. Don't POE until Jan 1, 2019 if you want to get super legal and have an easy demarcation for which country claims your income. 

 

Moving on to 2019

You marry. You continue to freelance. You hopefully get a greencard in 2019. You definitely file  with IRS for all income earned starting Jan 1, 2019. And you are a resident alien based on physical presence even if you don't get the greencard. you probably want to file jointly with the spouse you married in 2019.

You can't claim the Foreign Earned Income Exclusion for Jan 1 to April (when your accountant said to make the "break") because you have to be physically living, eating, sleeping and brushing your teeth in the UK for that Jan-April period. There is no blurring of the lines because that form 2555 asks for specific dates. You don't put false information on a tax form. Thus your full earnings starting Jan 1 are taxable by the US and you are not eligible for Foreign Earned Income Exclusion in 2019 if you POE in 2018. If your bookkeeper wants you to continue paying HMRC until April to make his job easier, you will be paying double taxes on the same money. BUT when you file your 2019 US return, you can claim credit off your US tax bill in the amount you paid HMRC. It requires extra paperwork and knowing the exact amount you paid. That is called the Foreign Tax Credit. 

 

Your situation is more complicated than most. Read Pub 519. I don't have time to go read it again looking for your exact situation. 

 

One more thing you need to know as a self-employed person in the US. Nobody is going to be holding taxes, Medicare, and Social Security out of your pay checks. You are expected to figure out an estimate of what you will owe for 2019 and remit to the IRS in quarterly payments. There are specific dates when due: Apr 15, Jun 15, Sept 15, 2019 and Jan 15, 2020. It doesn't have to be exact, that's why it is called an estimate. The want you to pay something in all year and not at the end when you file. Get close. If you pay too much, it is refunded just like when people pay in too much through an employer. The IRS is not as scary as most think. They won't hunt you down and deport you (they aren't immigration). If you make a mistake their computer can find,  then you get a letter saying "you owe us more". You pay them and all is fine. 

[Wuozopo 4,293]

I apologize if I have confused you. There are two current threads about taxes, both from UK, both photos of women fiancés (K1).  I am the one possibly mixing the two in my head. The other has interviewed and has the option to enter the US in 2018. Your chances of POE in 2018 are slim so everything I said about 2018 doesn't likely apply. Sorry for the further confusion on a confusing topic. Take what you can from the info and apply it to your dates. 

Edited October 15, 2018 by Wuozopo

[DJClaire 134]

Thisnis super helpful! Thank you. 

 

I will read that publication you mention. I am hoping to POE and marry in February. 

 

So so it looks like Ikea I will just have to double file 2 months taxes. Feb and March. Then from April 1st 2019 everything will be IRS.

 

Thanks again!