# US Tax Filing



## celticweb

Hello
I found this forum while searching for information.

I have lived and worked my entire adult life in UK and I am a British citizen but have just found out I need to have been filing a US tax return just because I was born in the USA along with some bank FBAR. I never worked in the US and have no assets there.

I have paid all my taxes here in the UK. Finding out about the US tax rules is giving me a lot of anxiety and I have spoke to some tax accounts. The fees for back filling seem extortionate with some tax accountants.

However some have said to enter the streamlined program and some said to just file. What is better really? For sure it is non willful on my part however I still feel nervous about filing with a program like the streamlined which seems like it could be a program for people with something to hide to come clean. I don't like this term come clean. I have nothing to come clean about except an unawareness of this filing law. 

Is anyone else in a similar situation to me and did they file use streamlined? Is it the right way to go?
thank you.


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## Bevdeforges

Have you ever made any use of your US citizenship? (i.e. do you have a US passport? do you travel to the US now and then? do you have an US social security number?) If the answer to all these questions is "no" you could just continue in blissful ignorance until you win a huge lottery or get elected mayor of London and then sell your zillion dollar mansion.

If you want to square yourself with the US IRS, first of all you need to have (or find) your US social security number. Can't file without one. If you have to get an SSN in the first place, you should probably contact the US Consulate in London. They should be able to point you to the office and process to apply for a SSN from the UK.

You're right in that the fees most tax preparers are charging for a "Streamlined filing" are extortionate. Very often, you can learn all you need to know about filing your own taxes using a combination of IRS publications and a tax preparation software program like TurboTax, TaxAct, TaxSlayer or any of a number of other programs.
Cheers,
Bev


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## celticweb

Hi Bev 

Thank you for replying. I did have a US passport when I was a child and I would imagine also a social security number. My family moved back to the UK when I was 13 and since then I have not made use of my USA passport. I haven't even been on a trip back to the US.

This has come as a complete shock to me. I pay all my taxes here and do self assessment so can't understand why I would owe more tax to a country where the income is not earned. But the tax advisor said I probably won't owe much tax if any. So why do they make us file? It seems crazy. I would not have to file my UK return if I was living in the USA.

It's all very worrying to say the least. Then I worry about what the streamlined program really means, because some people said just start filing with no program.

I will check out the tax software. the cheapest quote I got for the streamlined was around £2500 and most were much more.

thank you again.


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## Bevdeforges

It rarely pays to ask "why" in matters regarding taxation - especially US taxation.

As they have said, it's unlikely you owe much (if any) taxes to the US. And frankly your best option may just be to lay low and wait until a bank or other financial institution questions your US birthplace. There is very little likelihood that anyone is going to "come after" the zillions of "accidental Americans" with no US contacts and no US assets or sources or revenue whose only sin involves failing to file forms that simply prove they owe nothing.
Cheers,
Bev


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## BBCWatcher

celticweb said:


> I pay all my taxes here and do self assessment so can't understand why I would owe more tax to a country where the income is not earned.


You most probably don't owe more tax.

In the abstract, it should not be surprising that there might be at least a few obligations and responsibilities associated with the citizenship(s) you hold. For example, if the United States has a national emergency and must raise an army, you, a U.S. citizen, would be eligible to be drafted according to whatever age, gender, and physical fitness requirements the U.S. government has in that event. If you're male, you remembered to register with U.S. Selective Service when you reached your 18th birthday, right?

OK, if you didn't, and if you're now 26 or older, it's too late. (If you're under age 26, go register now.) In that event, I'm sorry to have to break the news to you that you might not be eligible for U.S. government employment, U.S. voters might be less inclined to support your candidacy to the U.S. Congress, and you might have some problems getting U.S. federal student aid. For most people those setbacks are not the end of the world, but there they are.



> So why do they make us file?


Well, why do about 40 countries, _today_ (but not the United States), require their young male (and sometimes female) citizens to serve in their militaries -- without choice, at below market wages, usually for a couple years?

The simple answer: every citizenship comes with rights, privileges, obligations, and responsibilities. You're a U.S. citizen, so you've got the U.S. set. You get to hike the Grand Canyon for the rest of your life if you want, or star in your own Broadway show, or just sip iced tea on a park bench in Mississippi -- and who wouldn't want to do those things? -- but you also have some annual paperwork to take care of (usually).



> I would not have to file my UK return if I was living in the USA.


Actually you might if you have U.K. source income. But the U.S. "obliges" its citizens and permanent residents to file....

....OK, now that you're past the shock, let me give you the details. Here we go:

1. If the total value of your non-U.S. financial accounts was US$10,000 or more at any time in any calendar year, including joint accounts and accounts (such as a company's or club's) where you have "signature authority," then you are required to file FinCEN Form 114 in the year(s) when that happens(ed). There is no tax owed with this form, but there is a published, theoretical financial penalty if you fail to file it and if the U.S. Treasury contacts you asking where your missing report is. (Treasury has up to 6 years after the filing deadline to do that. Past 6 years, it's too late for them.) So, to clean up that oversight (if you meet the threshold), just fill out that annual form starting (as I write this) with 2009, i.e. the past 6 years plus, when due, 2015. (The 2015 report is due June 30, 2016.) It's an online form, and it's pretty easy to do. Once you get the hang of it it takes all of a few minutes. There's even a drop-down box to explain why you're filing late. We haven't heard of anybody getting hit with any penalties if they voluntarily come forward and have a reasonable explanation why they're late. "I didn't know" is quite reasonable if it happens to be the truth -- and quite popular.

2. You do not have to file a U.S. tax return unless you meet the income filing threshold for your filing status. Millions of Americans don't, and maybe you don't (or didn't).

3. Even if you are/were obliged to file, the IRS has said that they won't levy late filing penalties on U.S. persons (such as you) (a) who live overseas; (b) who genuinely owe zero U.S. tax (most probably you); and (c) who are non-willful in their late filing (you again). So that's all good!

Let's turn now to (b). First, if you've paid U.K. National Insurance contributions on all your applicable income (as U.K. residents are obliged to do), you owe zero U.S. Social Security and Medicare contributions. So far, so good -- although you won't get U.S. Social Security benefits unless and until you're making contributions. (You do get some nice benefits for those contributions, if you're required to make them.) Second, if you received about US$100,000 or less in earned income (income from a job), you can't possibly owe U.S. income tax on that income. (And I'm being a bit conservative there. There's something called the Foreign Earned Income Exclusion that just completely wipes out the first ~$100K of earned income, "no questions asked," from U.S. tax consideration if you work in another country, such as the U.K., for anybody except the U.S. government.) Third, if you paid an equal or higher U.K. income tax rate on the rest of your income than the hypothetical U.S. rate, you can't owe U.S. income tax on _that_ income -- and that's rather likely since U.K. tax rates are comparatively higher than U.S. rates. In fact, you might do better than zero, meaning you could end up with some free money or at least bankable tax credits on the U.S. side of your ledger.

So "not bad"! But you'll have to run the numbers to find out just how zero that zero tax owed is. And if you delay for, say, 38 years (or even for 38 months) then item (c) above doesn't look so non-willful.

The IRS has a wonderful program for you (and others like you) called the Streamlined Program, the offshore version of it. This program allows you to get fully caught up, bygones be bygones, by filing your FinCEN Form 114s for the past 6 years (2009-2014 plus the current year -- 2015 as I write this -- when due) and the past 3 years of tax returns (plus the current year when due), tax returns that in all probability will show "zero" or even negative numbers at the end, the latter meaning the IRS sends you free money for your troubles. Under the Streamlined Program you don't have to go back to your childhood and file 20 years of tax returns, or anything like that. In the very unlikely event you do owe some U.S. income tax the Streamlined Program waives penalties (usually), so you'll only owe the back tax plus interest, which is currently a whopping 3% per annum. So if you owed $10 in 2012 then you might have to pay a little less than $11 today. Still not bad.

There is a "sticky" thread at the top that lists forum members' experiences with tax preparation software, which I strongly recommend. Some of it is free for tax year 2015 at least. H&R Block has a free edition, for example. Other products are very low cost, e.g. about $15/year for TaxAct.com, including past tax years. You can give at least the free stuff a try and see how it goes, coming back here if you have questions. But start with your FinCEN Form 114s first.

Welcome back to the club.


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## celticweb

Hello

Thank you for the very concise information. I got more information from you here than I did talking to about 6 tax advisors.

I am a middle aged female so the draft and student stuff doesn't apply to me. Most of my education was here in the UK and I went to a art school for university so never really learned about the US tax system. I just assumed it was the same here to be honest. 

It's good to know that there are others out there like me and that it is possible to sort this out without having a nervous breakdown. 

I would have to do the bank stuff and I would meet the filing threshold too I think. I have good tax records so that's one good thing. and yes i have paid national insurance contributions my whole life.

One question though, should I not be doing the back filling and the bank stuff all together at once under the streamlined program? That is what the accountant said. One said just file using quiet disclosure. not sure there is anything quiet about this though.

If I am going to have to be doing all this tax stuff every year, I am going to have to make notes of all these filing dates. 

Thank you again. You have eased my anxiety a bit over this.


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## Bevdeforges

If you want to do it all "by the book" - then you follow the instructions for the Streamlined Overseas program. Simplest thing to do would be to first do the FBARs (you have to do them online) back 6 years, along with the current one (i.e. 2015). Chances are the list of your bank accounts won't change much from year to year - and if you don't have all the records available to determine the "high balance" for each year, make a good faith estimate (and then add a few thousand for good measure). They aren't checking here for accuracy and declaring a bit more won't affect anything you have to pay.

Then, file the current year's tax return (using a tax preparation software - preferably one of the free ones, if you're eligible). That should give you a good "working model" for preparing the back filings (only 3 years of back filings for the income tax returns). The back filings you have to send in by postal mail anyhow - and if you want to use the software, you'll have to pay a bit for the proper years' software. (Though these should be available for as little as $15 a year if you shop around.)

The timing isn't quite as critical on the back filings anyhow. If it takes you a few months to work your way through them, that's OK.

There is, also, the option of "quiet disclosure", which would be be just start filing this year and keep on filing going forward. It is highly unlikely you'd run into any problems with that approach, though it doesn't have the official absolution of the prior years and your "failure to file" that the streamlined program is supposed to invoke.

You do what lets you sleep at night.
Cheers,
Bev


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## celticweb

Hi Bev

One of my banks has all the information online going back 6 years. The other bank I was told I can go into the branch and they will print them out so getting fairly accurate information on this isn't a problem but aren't they going to want the information in dollars? Am i meant to exchange the amount to dollars or leave it as UK pounds when I file them?

I think I will sleep better once I have done something.


Thanks so much again!


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## Bevdeforges

Everything you report to the US IRS has to be in US dollars. However, the IRS publishes average rates for the last several years: https://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-Rates

On the FBARS, it is completely permissible to use the highest month-end balance reported to you on your regular statements. (And, as I mentioned above, adding a few thousand $$ to the balance you choose won't hurt matters.)
Cheers,
Bev


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## Nononymous

Honestly, turn back the clock and pretend that you didn't know about this. Ignore it. If your only bureaucratic connection to the US is a childhood passport, they know not of your existence. If one day the bank raises questions about your US birthplace and threatens to report you under FATCA, you can then decide whether or not to become compliant.


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## maz57

celticweb said:


> However some have said to enter the streamlined program and some said to just file. What is better really? For sure it is non willful on my part however I still feel nervous about filing with a program like the streamlined which seems like it could be a program for people with something to hide to come clean. I don't like this term come clean. I have nothing to come clean about except an unawareness of this filing law.
> 
> Is anyone else in a similar situation to me and did they file use streamlined? Is it the right way to go?
> thank you.


I don't like the term "come clean" either. The only thing you are guilty of is not being aware of the peculiar extra-territorial tax laws of a country that you have no connection with other than the fact you were born there a very long time ago. (Something that I'm sure was completely beyond your control at the time!) Just ask Boris Johnson about this crazy state of affairs!

Others here have already done a pretty good job of explaining the what and the how of "catching up" on your US tax filings if that's what you want to do. I think, however, it might be wise for you to first decide whether you want to keep that US citizenship and continue filing US tax returns for the rest of your life or shed that citizenship and exit the US tax system for good. If being a US citizen is not an integral part of your life plan, my advice would be to take steps to renounce that citizenship ASAP. The trend is not good for being a US expat; it has gotten worse the last few years and is not likely to improve anytime soon.

The problem for US citizens who do not live in the US is that the US tax code is designed to punish everything foreign, i.e. every asset you own in the UK. This limits and impairs your financial planning options assuming you truthfully and accurately report everything to the IRS (always a good idea if you file at all). Just the requirement to report every year to the "Financial Crimes Enforcement Network" means you are, in effect, considered by the US government to be a sort of parolee who needs to be monitored by checking in annually. The simple "crime" of owning a few UK mutual funds results in a level of complicated reporting which is difficult for a "do-it-yourselfer" to do do correctly and expensive if you pay someone else to do it. You can assume that all the tax-deferred savings vehicles the UK government allows for retirement planning will be taxed yearly by the IRS rendering them useless for their intended purpose. Also when you consider that all US reporting must first be converted to US dollars even though your functional currency is the UK pound, there are situations where even a loss can show as a taxable gain on your US return.

A few years ago I found myself in exactly the same situation you are now facing. I left the US permanently over 40 years ago and only discovered this US tax fiasco by accident. For me, personally, the only logical solution was to get rid of that unwanted, unused US citizenship as soon as possible. It took a few years, but the feeling of relief was well worth the effort. Now I can live my totally Canadian life without interference by what is to me a foreign government. You may well decide that the present exorbitant US$2350 renunciation fee is the wisest investment you will ever make.


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## iota2014

celticweb said:


> Is anyone else in a similar situation to me and did they file use streamlined? Is it the right way to go?


Hi celticweb - I learned about CBT last summer (after living and working in the UK for fifty years). It was a big shock. I decided to renounce, and am very glad I did. It's worth the $2350. I really don't like the US Embassy in London, with all the guns and grimness, so I decided to renounce in Amsterdam. It was most enjoyable - I can recommend it as a venue for renunciation. 

I didn't use the Streamlined Procedures because (I eventually figured out) I was below the filing threshold and owed no tax. If I had owed tax, I would have used the Streamlined Procedures. If I had been required to file returns, but owed no tax, I would have just filed the returns - what some call quiet disclosure.

I did file five or six years of FBARs. I was nowhere near as well organized as you, and my records were in a quite disgraceful state of neglect, so I mostly just guessed at the numbers - being careful to overestimate rather than underestimate.

Good luck with your decision. You're in a big boat with a lot of company.


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## celticweb

Thank you for replying and giving me another option. I am so glad I posted here, so many knowledgeable and helpful posters.

Unfortunately it is too late for me to ignore this. The reason I found out is that one of my banks is questioning my US birthplace. When I first got the letter, I thought it was HMRC that was investigating me for tax. When I called my bank demanding an explanation they explained the reason. Actually they were quite understanding and not pressuring me, I have been a customer there since the 1980s. I opened the account when I started my first job. The bank actually sent me two letters, the first one I ignored because I thought it was junk mail and never read it. Don't even remember ever seeing it. The second one, I read and my life of blissful unawareness was over after contacting my bank. They told me anyone born in the USA is an automatic citizen. 

So probably best maybe to file, see what's involved and if it becomes a headache then renounce. Having said that, i always wanted to have a house on the West Coast USA so might be worth keeping citizenship for that. 

A friend told me that there is a long waiting list for people wanting to become US citizens. Are they aware of what they are letting themselves in for?

Good that you can live peacefully in Canada. 

Thank you.


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## celticweb

Also can someone remind me again about what is below the filing threshold? Is it $100,000. because i definitely earn less than that. 

But one tax advisor really scared me with the quiet disclosure. He said they could make you go back indefinitely and could try to get you to file for every year you should have filed a tax return and didn't. Do things like that really happen to ordinary citizens like myself? I am not wealthy, hiding assets and don't have dubious activity with my finances. Everything is in the open.

thank you.


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## BBCWatcher

If your worldwide earned income is less than US$100,000 (actually a bit more than that in 2015), and your other, worldwide passive income is fairly modest (say, $10,000 or less), it's at least extremely unlikely you would owe any U.S. tax even if you were living in, say, Dubai (zero personal income tax) much less the United Kingdom.

Not that it matters, but for the record the United States government would have paid for your neonatal intensive care if you needed it (and if your parents were underinsured and couldn't afford it, or if they abandoned you) and did pay for a variety of services, benefits, and protections you enjoyed from the date you were born at least until age 13 when you left. (I assume you didn't pay any U.S. income taxes before you left.) And you still won't owe any U.S. tax on non-U.S. source income for the rest of your life, except if you _both_ have a relatively high or higher income and don't contribute to your residential society's tax system at least to the moderate U.S. tax level. That's how it works, take it or -- for $2350 plus any Expatriation Tax, never applicable if your global net worth is under $2 million -- leave it.


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## iota2014

celticweb said:


> Also can someone remind me again about what is below the filing threshold? Is it $100,000. because i definitely earn less than that.


To determine whether or not you're required to file, see the Form 1040 instructions (https://www.irs.gov/pub/irs-pdf/i1040gi.pdf). Note that you must file to claim the Foreign Earned Income Exclusion, or to claim Foreign Tax Credits. In practice, that means most people earning a salary will be required to file.



> But one tax advisor really scared me with the quiet disclosure. He said they could make you go back indefinitely and could try to get you to file for every year you should have filed a tax return and didn't. Do things like that really happen to ordinary citizens like myself? I am not wealthy, hiding assets and don't have dubious activity with my finances. Everything is in the open.
> 
> thank you.


The IRS is a mystery to me, and they certainly do plenty of threatening, but there don't seem to be any reports of actual attempts to require decades of backfiling. It sounds like a tax advisor trying to scare you.

If it worries you, file streamlined. Have a good look at what's required, and if you feel more comfortable filing streamlined, go for it.


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## BBCWatcher

Streamlined (overseas flavor) is definitely the way to go, but it's step two. Step one is to get the 114s filed. Then you can decide whether you want to file 3 overdue tax returns (Streamlined) or about 20+ (ordinary late filing for a "middle aged" person). There's a reason it's called "Streamlined." 

If your filing status is Married Filing Separately then the filing threshold for 2015 is $4000 (total global income), unless you had self-employment income not subject to U.K. NI, in which case it's lower. That's the filing threshold, not an indication whether you will owe any tax or collect a refund. Yes, refund -- some Americans in particular circumstances get a "refund," really free money from the IRS. $1000 per year for college is pretty typical, for example.


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## celticweb

Hi BBCWater
Thank you for more useful information. I live with a partner UK citizen so I will be filing separately as a single. 

My employment is under $100000 for sure but I have some passive income that might be just around the $10,000 mark some of those years. Everything has been taxed though.

It's good you brought up this self employment thing because I was thinking of leaving my job this year and going self employed. there have been so many changes at my work place and I have been there a long time and just feel I need a change. However I suppose I have to consider this new status I find myself in before making this decision. My income would be much lower when i first started out as self employed for sure. and I wanted to take the summer off first.

I am going to try to make a go of this fbar stuff tomorrow. I have a call with one other tax advisor next week and I am not going to let them scare me. 

Hopefully this will get easier after the first time. and i never paid tax in the USA (or not yet). but would be nice to get a refund.

Thanks


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## Bevdeforges

> My employment is under $100000 for sure but I have some passive income that might be just around the $10,000 mark some of those years. Everything has been taxed though.


I think you're confusing two (or even 3) separate "thresholds" here.

The threshold for filing an income tax return is based on your filing status and worldwide income (i.e. salary plus bank interest plus investment income, etc.). For a single person under age 65, the filing threshold is $10,300 for the 2015 tax year. You are supposed to file, even if you owe no taxes.

Then there is the FBAR filing (FinCEN 114 in its current electronic version), which is simply a report of your "overseas" accounts and their maximum balance during the year. The threshold for this report is $10,000. If the combined total of all your overseas (i.e. non-US) accounts exceeded $10,000 at any point during the year, then you have to report all your accounts along with their max balances.

And then there are a bunch of additional forms you may be required to file with your income tax return that relate to FATCA, the anti-tax fraud legislation in the US. The threshold for having to file these forms is $200,000 in overseas assets (financial accounts and certain investments) for a single taxpayer. It is these forms that get complicated and take significant time to prepare and that get a tax accountant or tax preparer salivating. And there is considerable debate over precisely which types of investments have to be included here.
Cheers,
Bev


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## iota2014

celticweb said:


> ... I have some passive income that might be just around the $10,000 mark some of those years. Everything has been taxed though.


If it has _all_ been fully taxed (no ISAs or other tax-free accounts) you should be able to claim credits for the UK tax paid, to avoid being double-taxed. But bear in mind that starting this April, the UK won't be taking the first £1,000 of savings interest, which means you won't be able to claim tax credits for that part of your income, so it will be taxed by the US instead.



> I am going to try to make a go of this fbar stuff tomorrow.


I'd strongly advise you to spend some time familiarising yourself with the forms, the instructions, and the tax treaty, before you do anything. The best way to make the anxiety go away is not to jump straight into filing but to understand what's necessary and what's not. Once you file your first FBAR you'll have committed yourself to a particular strategy (e.g. filing Streamlined), so you need to know enough to be confident it's the right choice.

If you download free or cheap tax software, and try running your figures through it, and see what the software produces, you'll have a much better idea of how the 1040 works and how you can minimize tax owed. It's bewildering, but it helps you get a grasp of how to complete the 1040, and which other forms you may need.


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## celticweb

hi Everyone

thank you and don't worry, i am not going to jump and start filing. when i said make a start, i meant make a start with familiarizing myself with the process.

I was thinking of using a tax account to prepare for the first time but will see about the software.

I meet the threshold for filing and the bank but not the $200,000 unless we have to include the value of our house which is actually owned jointly by me and my UK partner.

I am trying not to get more anxious about this, all this paperwork make is sound like we are criminals working abroad!

thank you.


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