# New to USA - simple tax questions



## UKcitizenUSAresident (Feb 16, 2015)

Hi all,

First post! 

I am a UK citizen and have married my lovely US wife.

I am in the process of applying for Adjustment of Status (AOS) to be become a legal permanent resident of the US.

I simply can't understand the tax implications for moving the money I received from my first marriage's divorce settlement now that I will be filing tax returns in the US.

My money is still in the UK. Do I have to move it to the US? If so, will I be taxed on it?

Thanks for any help!


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## BBCWatcher (Dec 28, 2012)

UKcitizenUSAresident said:


> My money is still in the UK. Do I have to move it to the US?


Of course not.

You mentioned you are applying for an Adjustment of Status (AoS). That implies you are already a U.S. person, subject to U.S. tax filing and financial reporting requirements.

Let's start with your U.S. financial reporting requirements. Funds held outside the United States are potentially subject to one or more of these requirements:

1. FinCEN Form 114 ("FBAR")
2. IRS Form 8938 ("FATCA")
3. IRS Form 3520 or 3520-A ("Foreign Trust")

Except for #2, these requirements are independent of your U.S. tax filings. They are separate requirements, if they apply. There are no inherent tax consequences associated with any of these financial reports -- they are just reports.

Let's turn to the tax side. If you receive income from any source, the income may be subject to tax. Passive income includes interest, dividends, capital gains, rents, etc. Moving money generally means you have a capital gain (difference between what you paid for an investment and what you get when you sell it, less allowable costs, if any).

The U.S. and the U.K. have a tax treaty, so you'd always check to see if the tax treaty says anything about a particular type of income. If it doesn't, then generally you'd pay the U.K. first on U.K. source income, then take a Foreign Tax Credit (IRS Form 1116), then pay any remaining U.S. tax owed on that income. Since U.K. tax rates are generally comparatively high you don't often owe U.S. tax on the same U.K. source income, though there are a few exceptions. One notable exception is if you have a substantial capital gain on the sale of a home, as Boris Johnson experienced.

The U.S. sometimes views particular non-U.S. financial assets as Passive Foreign Investment Companies (PFICs). Generally you would "mark to market" those assets each year through something called QEF elections and pay U.S. tax (if any) on the _unrealized_ gains, resetting your cost basis along the way. It's easier to describe what clearly isn't a PFIC with these examples: _direct_ holding of bonds (gilts), ordinary bank accounts, and direct holding of shares (including shares held electronically in a brokerage account) in companies that are clearly banks and insurance companies, for example if you own some shares in HSBC traded on the London Stock Exchange. Beyond that "it depends."


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## Bevdeforges (Nov 16, 2007)

To cut to the chase a bit...


> My money is still in the UK. Do I have to move it to the US? If so, will I be taxed on it?


No to both questions.

The money you got from your divorce settlement is (presumably) your share of the capital of your marital assets. That's money that has already been taxed in the UK - generally while it was earned back in your prior life with the first spouse.

If you leave it where it is, you will have to declare the interest earned going forward on your US tax returns (possibly offset by any UK taxes paid on the interest) and you will have to disclose the existence of an "overseas" account on the FBAR reports each year, along with the high balance for the year.

If you want to transfer it over to the US, there should be no taxes on the transfer. (Fees, yes, taxes, no.) The banks involved in the transfer will have to report the fact of the transfer to the government, along with the source of the funds (which is the bank account you had or have in the UK) but as long as the funds have been there for a while, that's basically all that has to be reported. If asked (and only if asked) you may want to tell them it's your divorce settlement from whatever year you received it.
Cheers,
Bev


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## UKcitizenUSAresident (Feb 16, 2015)

Thank you both for your replies. I am feeling really overwhelmed by all this. I have so many further questions to now ask, so I will try and be brief and ask a few at a time.

My US citizen wife now has to file her 2014 taxes. We married in December 2014. She couldn't file her taxes without a Social Security Number (SSN) for me or an ITTN. I now have my SSN so she can proceed to filing. 

Now we have the option of her filing married jointly or married individual. At the IRS they determined that I was a non-resident alien for 2014. They said I can file or not file, it was up to me.

Should I file or not? I have no idea what the pros and cons are. 

I have 8 UK savings accounts and with my divorce settlement it amounts to about 88k GBP in total, all of which was paid to me in 2014. 

I had a job in the UK Jan-April and got a tax refund on my low income. I earned about 500 GBP in interest on my accounts. I had no tax deducted on my interest. 15k GBP is in a UK ISA. I don't think I have any other assets.

I am struggling to understand in my situation, should my wife file married individually or married jointly? If jointly, will I then automatically be expected to file a tax return for 2014? (even though the IRS said I had a choice?).


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## Bevdeforges (Nov 16, 2007)

I'm a big one for doing the "quick and dirty" - at least in the first year while you're still getting your bearings.

If you have no filing obligation for 2014, your wife should file as "married, filing separately." (Your married/single status is determined as of the last day of the year: 31 December.) She would report only her income in her own name and your situation or earnings won't affect anything. (If you choose to file jointly, you would have to include all of your UK income as well.)

Frankly, in her situation, I would enter NRA in the space that asks for your SSN. As of the end of the year you didn't have a social security number, and with her filing separately, they need to know that you are NOT subject to US filing for 2014 so they don't get hung up on trying to tie her return to yours. 

Starting next year (2015) you can decide how you want to file - probably jointly - but you have all year to start to get a better feel for how all this US tax stuff works.

It sounds like for 2014, you have no obligation to file anything regarding your UK savings accounts since you're not (yet) a US taxpayer. Again, by the end of 2015, you'll have a much better sense of how all this works.
Cheers,
Bev


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## UKcitizenUSAresident (Feb 16, 2015)

Thank you for the reply.

I feel the same way - I just want to simplify things and the US is not simple at all. In fact it is really putting me off being here. I'm used to the UK where we have policies by law to simplify things! In the US it seems quite the opposite and it is driving me insane with worry!

I think the IRS may need a valid SSN or ITTN and would not accept the NRA because the man at the IRS said they would return the tax return until I had a valid number to put on it if she filed by paper, but as my wife is doing it online via TurboTax, I will get her to try it and see if it will accept it or not, as it is a brilliant idea!

Do you know if I need to report my bank accounts for 2014 as a NRA?


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## Bevdeforges (Nov 16, 2007)

Not as an NRA you don't have to report your bank accounts. Save that for next year. 

The IRS accepts the NRA designation for my husband - as he has no US tax obligation and no ITIN nor SSN. However, last time I used TurboTax (the free version), the program would not accept the NRA designation. Filing with TaxAct, there was no problem listing my husband as NRA, however the e-filing failed. Luckily, I could print off the TaxAct forms to sign and just mail in.

But do whatever your wife is most comfortable with under the circumstances. It's her return (at least for 2014) and you have no filing obligation. (And perhaps they will notice that your SSN was not issued until after the end of 2014, which kind of proves the point.)

The first IRS filing is usually the worst. After that, you just kind of put the current year's numbers in the same places you put them in the previous year. (Unless your circumstances somehow drastically change.)
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

If you're using tax preparation software you can _simulate_ what a joint filing for tax year 2014 would look like. If the financial outcome is better, you should consider it with your spouse.

I disagree with Bev on putting "NRA" in the SSN/ITIN space. The instructions are quite clear. Now that you have a SSN that's what goes in that space, not NRA. Read the instructions, but I'm rather sure I'm correct and Bev is not on this occasion.


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## UKcitizenUSAresident (Feb 16, 2015)

Thank you both so much for helping me understand all of this. I am still a little unsure and worried and confused about a few things.

I think I read somewhere that because I entered the USA under a K1 visa in Dec 2014, that from Dec 2014 I am classed as a resident (for tax purposes - or what, I do not know). Yet at the IRS office, I answered all the questions for the substantial presence and green card tests and I did not qualify as a resident for tax purposes, leaving me free to choose.

Everywhere I read online is that immigration status is not related to tax status, yet when it comes to my scenario, it seems to. For example, if I don't file taxes for 2014, do I file for FBAR or Form 8938 for my scenario? It is of course linked to whether I am classed by the US as resident in December or not.

When I look at Comparison of Form 8938 and FBAR Requirements to try to help determine what I need to do - if anything - FBAR seems to be saying it is only for residents (and remember, I do not know if technically I am or not because of my K1 visa) but Form 8938 seems to be saying it is only for certain qualifying persons (possibly me), but you have to file it only if you are required to file a tax return (possibly not me).

Another worrying thing for me is looking at the third item on your list of 3 forms, BBCWatcher, does a Child Trust Fund (that was issued to me by the UK government for my daughter) mean I have to file Form 3520 or 3520-A ("Foreign Trust")? It is after all just a savings account labelled as a "Trust Fund" and it only has the amount the government gave in it - about 30 quid, but does bear interest.

Lots more questions to ask, but I am trying to keep it simple in each post!


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## BBCWatcher (Dec 28, 2012)

I don't think entry on a K-1 "starts the clock," as it were. The next event in sequence, marriage, might. Certainly the Adjustment of Status (AoS) would.

If the IRS doesn't think you were a resident then hang onto that determination in your personal files, and that's that. It certainly makes 2014 more convenient. Off the top of my head one reason why you might choose to be treated as a resident in 2014 (since you have the choice) is if you have some self-employment income in 2014 that you want to pay self-employment tax on in order to put 2014 into the record books as your first U.S. Social Security/Medicare year. Another reason would be if there's some refundable tax credit you could claim.

FinCEN Form 114 applies to U.S. persons, not just U.S. residents. (I'm a U.S. citizen living in Singapore, so I'm required to file that report if I meet the filing threshold, and I do.) The IRS doesn't think you became a U.S. person in 2014 -- or at least they leave it up to you to decide. Whatever you decide, it has to be consistent. If for example you decide you became a U.S. person in 2014 for tax filing, then that also applies to FinCEN Form 114. So it's both or neither.

From your description that child account is not a 3520-reportable trust, nor is it a PFIC. You'd report the account in FinCEN Form 114 and IRS Form 8938 (as applicable), and you'd report the interest income on your U.S. tax return. Whether that interest income is taxable or not is another question. Check both the U.S.-U.K. tax treaty and the IRS's instructions. This'll start from tax year 2014 or 2015, as you decide. It sounds roughly like a government-granted "UGMA" account (to put it in U.S. terms), but that's just a guess.


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## Bevdeforges (Nov 16, 2007)

I think the reason the IRS has told you not to bother with 2014 is that there is a sort of "ease-in" process for newly arrived foreigners. Technically speaking, if you arrived in December, then you are a "dual status" alien for 2014. More on that here: Taxation of Dual-Status Aliens

It's kind of doubtful that you would have earned enough in just one month in the US to have to file a US tax return, and I suspect that's the basis for the IRS folks telling you simply not to bother. You do have the option to file jointly with your spouse for the year, but then you'd have to declare (and potentially pay taxes on) your worldwide income for the year, which doesn't seem to be a great idea in your case.

Frankly, I'd just take advantage of the IRS counsel and forget about filing for 2014. Your spouse should file as "married, filing separately" and it's up to her what she wants to put in the space that asks for your SSN. Now, you have all sorts of time to bone up on US tax procedure - take a look at IRS Publication 17, which is the "everything you ever wanted to know about US income tax" guide. There will be a few changes by the end of 2015, but it's easier to learn and understand this stuff if you're not in a rush.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Better yet, why not run the tax calculation both ways if you have the time, using your favorite tax preparation software? If there's a financial advantage to a joint filing in tax year 2014, then you can consider it with your spouse. It's nice to have the choice.


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## UKcitizenUSAresident (Feb 16, 2015)

Thank you for the help! I have read so much since I last posted and it is getting more complicated by the minute it seems!

I reviewed what they gave me at the IRS and I attach a part of it which sums up what they told me - which isn't legally binding for tax purposes, so it doesn't count as official tax advice. It was just a help wizard summary thingy.

Here is what I am sure and unsure about now after all my reading (including the links you have given and many others!):

- I know for sure that I can choose to be a resident for tax purposes.

- I do not know if I can just pretend I have the choice and claim NRA status for 2014, because of my K1 status and marriage in December 2014. 

- If I don't file as resident or NRA, I am not sure if I still need to file anything else at all - or even write in to say that I have chosen not to file because I have determined that I do not need to.

- I do not understand whether in the US you have to file ONLY if you earn over a certain amount or if you ALWAYS have to file taxes, regardless of what you do or don't earn.

Unfortunately I don't think it is possible to simulate the 2 scenarios in free software as it is so complicated to work out (I paid UK tax and then got a tax refund due to low earnings in the UK, received savings interest (about 500 USD's worth in the UK) and then had a part-time low paid UK job towards the end of the year that I started in the UK (which wasn't paid enough to be taxed on), and of course my divorce payout and consequent high bank balances, plus transferring a few thousand dollars to my wife for our USCIS fees, etc). 

It is so stressful to consider what the hell I might need to fill out in any event for 2014 that it is literally all I can think about at the moment


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## Bevdeforges (Nov 16, 2007)

Basically, you only have to file in the US if your income meets or exceeds the filing threshold for your filing status. Publication 554 (2014), Tax Guide for Seniors And I draw your attention to the following line:



> Do not file a federal income tax return if you do not meet the filing requirements and are not due a refund.


You do not need to notify the IRS if you aren't going to file. 
Cheers,
Bev


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## UKcitizenUSAresident (Feb 16, 2015)

OK thank you Bev - I feel like suddenly the veil of despair is starting to lift! Thank you so much for your help (and you BBCWatcher!).

I think I need to understand one last thing though (for now!) before I can start to relax!

I took the "Do I Need To File A Tax Return?" wizard on the IRS site (didn't know they had one!) and ran two scenarios - as in a potential dual status scenario - one for being resident for December 2014 and the other for NRA for the rest of the year.

For the resident scenario, it said, as you have been saying all along, I do not need to file a tax return (because my income was below $3,950).

For the non-resident scenario, because I had earned over $3,950 over 2014 (in the UK), I have to file. 

However, if I don't meet the substantial presence test and I don't meet the green card test and I don't have to file a resident tax return, do I need to file a non-resident tax return for the part of the bulk of the year I was not in the US? 

I think I read somewhere that you only need to report the income gained from US sources on a non-resident status tax return, in which case I would be below threshold. 

Have I understood that bit right? - that as long as I didn't earn over $3,950 from US sources in 2014 as a NRA, then I do not have to file a tax return as a NRA either?


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## BBCWatcher (Dec 28, 2012)

OK, I am (or was) a little confused here, so let's see if I can summarize.

Looking at IRS Publication 519, it (now) seems pretty clear you were a "dual status alien" in 2014 and that (surprise!) you have to date your start of U.S. residency from the date of entry into the U.S. on your K-1. (They provide an example in that publication that seems to make that point clear.) So you seem to be asking now whether you should elect to be treated as a _full year_ resident in 2014 for U.S. tax purposes since that would be your only other choice. (You would have to file a joint return with your spouse for 2014 if you make that choice, and of course your spouse would have to agree.)

Hopefully I have all that correct now.

I think really the only answer is to whip out your favorite tax preparation software and run the calculations both ways. "Case 1" you'd be a dual status alien (with a 1040NR for most of the year and a 1040 for the last part of the year, and your wife would file separately), and "Case 2" you and your wife would file a single joint tax return for the entire year. Now that I think about it, "Case 2" could make a lot of sense. That's how you'd presumably be filing next year (tax year 2015) anyway, it's probably financially attractive (on a household basis), and you can still use the Foreign Tax Credit or Foreign Earned Income Exclusion.

As for complexity, I think "Case 1" is probably more complex, if that matters. (Tax preparation software makes it matter less.)

So I'll go back to my recommendation and advise you to take a spin through TaxAct.com (as an example -- that one's free) and see what you get. Best guess, though, is "Case 2" will make a lot of sense in terms of the household financial outcome.


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## UKcitizenUSAresident (Feb 16, 2015)

Hi BBCWatcher,

If I understand you right, then you are suggesting I could do one of 3 things:

1. Not file anything
2. Case 1
3. Case 2

If I do Case 1 - as I replied to Bev's post in my last post above - it all hinges on whether I ONLY need to report US income to be required to file at all under the 1040NR form, as otherwise my US income for both resident and non-resident is 0 and I should not file.

If I do Case 2, this is far more complex for us as it involves filing the other forms you mentioned to begin with FBAR, etc, which I take it I don't need to if I do not file at all?


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## BBCWatcher (Dec 28, 2012)

No, if you were a U.S. resident for any period of time in 2014 you've got a FBAR (FinCEN Form 114) filing requirement. I'm now convinced after reading IRS Publication 519 that you became a U.S. (tax) resident when you entered the U.S. on your K-1 visa, on that date of entry. (Read that publication yourself, but that's how I read it.)

So you've got the FinCEN Form 114 filing requirement. And that's not complicated -- not at all.

I see you're renumbering the cases.  OK then, "Case 0" is only available if you don't meet the filing threshold(s) for 2014. "I don't know," but that's a possibility.

You always file a full year tax return, and "Case 1" is that, too. That's the dual status alien case, which is what you were in 2014. You file 1040NR for the period before your date of entry into the U.S. on your K-1, then 1040 for the period after. And you follow the "Dual Status Alien" filing instructions for what you report. I can't find a simple explanation anywhere for what the filing threshold is for a dual status alien (1040NR/1040 combo), so let's just assume you have to file. Probably a safe assumption.

"Case 2" is an ordinary joint filing with your spouse. That's an option available to you and your spouse. My "best guess" is that'll be the most financially attractive (on a household basis) option of all. Your income (from the U.K. I presume) is going to be well shielded from U.S. tax anyway (via the Foreign Tax Credit and/or Foreign Earned Income Exclusion, both of which are still available as I understand it), and your spouse (in particular) will enjoy the newfound benefits of Married Filing Jointly status for tax year 2014. It's a single, combined trip through tax preparation for both of you, so it's not actually going to be that complicated. It's only one return (1040) instead of 3 (1040NR and 1040 for you, and 1040 for her). Simple, clean, and good practice because you'll likely be filing that way anyway in tax year 2015. And did I mention it's likely to be the most financially attractive?

Since IRS Publication 519 gives you that choice, that's the one I'd be leaning toward in your circumstances. But run the numbers both/all ways if you can.


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