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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3837
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi,I am a German, married to a US citizen, now living and

Resolved Question:

Hi,

I am a German, married to a US citizen, now living and working in the UK, since Sept 2012. I already did my first self assessment here (and a US joint tax return with my wife for 2012). We payed quite a bit of taxes in the US, and almost no in the UK for 2012 (I will have to pay like 20 Dollars in January 2014.

Before that, we used to live in Boston MA. We got married in 2011, I got my temp green card in May 2012 and we do not intend to go back to America (maybe in 5 years, once my wife has her EU passport, who knows, but for now, we are here, I am going to surrender my green card before the year ends!)

My question is now, how would our tax payments look like next year? What is the best strategy? Are we going to file for extension for the US tax declaration, and then do both our UK tax declarations, hoping, that we pay more UK taxes, so we eventually don't owe any US taxes!? Or would we do our US taxes, get the tax return, and then do our UK taxes, and pay the UK tax due minus the US tax payed?

How is the usual approach here? I just wonder, most of all, if I need to put money aside for April to pay the IRS...

many thanks
Submitted: 12 months ago.
Category: Tax
Expert:  Rachel-Mod replied 12 months ago.
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Customer: replied 12 months ago.

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Expert:  Lane replied 11 months ago.


Hi,

This may not be a COMPLETE answer, as I am not a UK Tax expert, but on the US side, the following will be an important - if not pivotal- piece of the analysis:

On the US return, because of the US tax treaty, there are - procedurally - two different ways to offset the taxes paid in the UK for the same year on your US return; (1) the foreign tax credit and (2) the deduction for taxes paid to another country.

Typically, the tax CREDIT will work best, XXXXX XXXXX is a dollar for dollar reduction in the amount of tax owed. The tax DEDUCTION is a deduction FROM INCOME for purposes of figuring your tax.

However, in SOME scenarios, one may work better than the other. And remember, choose to take either a credit or a deduction for all qualified foreign (non-US) taxes.

What I would do is use turbotax or one of the other packages and run it both ways. It would be almost impossible to run all of the combinations and permutations in this venue, but hopefully this gives come context and a process...

Here's the IRS guidance on the issue (but again, remember that turbo-tax, H&R Block - and your tax preparer for that matter - will generate the forms and schedules mentioned here for you ), if you just provide ALL the numbers.

http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Tax-Credit---Choosing-To-Take-Credit-or-Deduction



Hope this helps

Lane


If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3837
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 5 other Tax Specialists are ready to help you
Expert:  Lane replied 11 months ago.

Thanks much for the Rating!

Again, typically the CREDIT is the way to go.

Lane

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