Do you go cross-eyed at the thought of sifting through your receipts and paystubs every January as one American tax year ends another begins? Alas, there’s (probably) no getting away from it: you need to get your financial house in order and file a return.
1. Don’t assume you’re exempt
Whether you have a green card or visa with a work permit, chances are you’ll have to pay tax like an ordinary American. You’re considered a U.S. resident, tax-wise at least, if you meet the Substantial Presence Test. Bottom line: you need to file a return if you’ve been in the U.S. a minimum of 31 days over the past tax year; and 183 days over the last three years.
2. NEVER file late
If you complete your U.K. tax return after the official deadline, the paltry £100 fine barely amounts to a slap on the wrist. The IRS isn’t quite so forgiving. File late here and you’re liable to incur a substantial penalty: up to 25 percent of the unpaid tax. Ouch. Even if you don’t have the funds to settle up with Uncle Sam, still file whatever documents you’re able. This will buy you a little leniency.
3. Get creative
Because the American tax system is only slightly less complicated than String Theory, every individual will have several different options as to how to file. Confused? Stay with me. Perhaps you’re able to file as a non-resident or eligible for “first year choice”. Maybe submitting your return as a married couple will slash your bill. Always run the numbers for each scenario and see which method will cost you the least. If this sounds like an unbearable headache, skip to point six.
4. Pay attention when filing your W4
Here, bizarrely, it’s workers who are responsible for telling their employers how much tax to deduct from their wages. You do this by filling out something called a W4 form. It’s not easy to get right. Have them deduct too little and you could be hit with an unexpectedly big tax bill at the year’s end, or even face a fine. Deduct too much and, while you’ll get a rebate, you’re effectively giving the U.S. government a tax-free loan for up to a year. (And they’re probably not spending your hard-earned green on unicorn sanctuaries and rainbow restoration.)
5. Be wary of tax software
Programs like TurboTax are fantastic and extremely user-friendly. But they’re built for individuals with a simple set of circumstances or an extensive knowledge of the tax code. As a British expat, your situation is probably quite complicated, so you might be better off hiring a professional. Yes, DIY software means avoiding a large bill from an accountant, but balance that against the following: a good accountant will be able to confidently pinpoint cunning loopholes that could save you a lot of cash. A good accountant will ensure you don’t make mistakes that could incur hefty fines. Finally, a good accountant will do the hard work for you, freeing up hours, or even days, of your valuable time.
6. Find a good accountant
Consult your expat friends. Does anyone have an accountant who’s familiar with the intricacies of tax treaties between the U.S. and other nations? This is phenomenally important. If you’re still filing returns in the U.K. (perhaps you own a rental property in the U.K. or still receive an income back home), you want to make sure you don’t double pay tax. Because, news flash: the IRS is after your worldwide earnings, not just the cash you made on U.S. soil. Tax treaties exist to protect individuals from paying twice, but you need to know how to work the system and take advantage of every potential saving. A good accountant will be able to do this on your behalf. Worth. Every. Penny.
The IRS Tax filing deadline is on Wednesday, April 15, 2015.
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