# US Taxes on UK Limited Company for a US Citizen



## liquiduty

I'm a dual US/UK citizen considering opening my own UK Ltd company for the purposes of reducing my UK tax burden. At present I'm a contractor working through an umbrella company where my take-home is about 55% of what I earn. I chose an umbrella company because I was told opening a UK Ltd company might reduce my UK tax burden but require me to file a US tax return as the majority owner of a foreign corporation. Also, UK dividends from the Ltd company would not be eligible for the foreign earned income exclusion.

I have since discovered IRS form 8832 which, if I'm reading it correctly, would see my single owner UK Ltd company not be seen as a corporation and all earnings (whether salary or dividends) would be seen as earned income by the IRS.

Is it as straightforward as filing form 8832 immediately after creation of the UK Ltd company and then filing form 8858 with every subsequent tax return? Or have I missed something?


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## nyclon

I am moving this to the tax forum.


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## Bevdeforges

Oh, there's much more subtlety to the IRS than you are giving them credit for! <g>

You may not have to file a US corporate return for your company if your ownership interest in the company is a "working" interest and not merely an investment. If you actually work for the company and your pay/remuneration represents a reasonable wage for the work you do (and not just raking off the profits) it may be possible to characterize your income as "salary" and apply the FEIE.

Take a look at IRS Publication 54 for starters and go from there to the various forms and other publications referenced there.
Cheers,
Bev


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## liquiduty

Thanks for the reply; I would definitely be the working owner and the sole owner. Will have another read of Pub 54.


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## BBCWatcher

As a "general rule" be cautious of characterizing the same entity differently to different tax agencies unless you're on firm ground with each agency's rules. In this case there's also a tax treaty that might bear on this question.

Note that if your plan is to move back to the U.S. and earn income there then the U.S. will "pay you back" via operation of the Foreign Tax Credit. (Not with interest, but it's still not bad.) Essentially you can "bank" excess FTCs and use them up to 10 years into the future to offset future U.S. income tax, by income category. If you also face state and local income tax in the U.S. then often you'll get a reduction there, too, since most of those systems conform to most federal income tax norms. (That is potentially an interest-like benefit.) Anyway, you don't necessarily need to overengineer this if that's your plan.


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## liquiduty

I have no plans to return to the U.S. - all earnings will take place while living and working in the UK.


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## BBCWatcher

OK, so that FTC approach won't apply in your case. My "general rule" advice remains. It's not unprecedented that one tax authority takes a different view than another about a particular entity -- tax-advantaged retirement savings accounts are excellent examples -- but you need to be on firm legal/regulatory/instructional/treaty footing in both countries when you're trying to do that. If U.K. tax authorities think it's a business then the IRS is going to agree with them unless you've got clear evidence on the U.S. side they won't.

Courts typically operate much the same way, by the way. They tend to defer to the judgments (and jurisdictions) of their foreign peers absent compelling reason otherwise.

But if you've found something that works on both sides of the ocean, great.

There's also the cost of complexity itself to bear in mind. Here in Singapore there's a particular type of account called an SRS that offers local tax advantages. I investigated and discovered that an SRS offers _marginal_ tax savings to a U.S. citizen -- "a buck or two," in essence. Is that minor amount of tax savings worth the added complexity? I'd vote no.


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## StewartPatton

liquiduty said:


> Is it as straightforward as filing form 8832 immediately after creation of the UK Ltd company and then filing form 8858 with every subsequent tax return? Or have I missed something?


Yep, you got it. Note that you have to use IRS Form SS-4 to first obtain an EIN for the UK Ltd Co before filing the 8832, but the procedure you outlined is absolutely correct.



Beveforges said:


> You may not have to file a US corporate return for your company if your ownership interest in the company is a "working" interest and not merely an investment. If you actually work for the company and your pay/remuneration represents a reasonable wage for the work you do (and not just raking off the profits) it may be possible to characterize your income as "salary" and apply the FEIE.


This isn't quite right. A person who owns a foreign corporation and works for it can indeed claim the FEIE for their salary, but they still must file an IRS Form 5471. in the OP's case, all amounts earned qualify for the FEIE and he must file an IRS Form 8858.



BBCWatcher said:


> Note that if your plan is to move back to the U.S. and earn income there then the U.S. will "pay you back" via operation of the Foreign Tax Credit. (Not with interest, but it's still not bad.) Essentially you can "bank" excess FTCs and use them up to 10 years into the future to offset future U.S. income tax, by income category.


A person can use excess FTCs only if they have foreign income in the same category in the future. It can be difficult to have foreign general category income after moving back to the U.S., so excess FTCs often just go unused.


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## BBCWatcher

StewartPatton said:


> This isn't quite right. A person who owns a foreign corporation and works for it can indeed claim the FEIE for their salary, but they still must file an IRS Form 5471. in the OP's case, all amounts earned qualify for the FEIE and he must file an IRS Form 8858.


Now that's more like it -- that all fits. This approach would mean the IRS and U.K. tax authorities both see the same entity as the same thing. I like that.

Stewart, anticipating another possible question here, what sort of options would liquiduty have for adding a U.S. tax-advantaged retirement savings account to the mix if desired? Would a Solo 401(k) be possible, for example? Do you know offhand which of these accounts would be treaty respected in the United Kingdom? Would he (she?) need earnings above his/her exclusions (FEIE/FHE) in order to be able to make qualified contributions? (Speaking of which, is it necessarily a given that liquiduty should take the FEIE/FHE? Unless this U.K. limited company is really quite wonderful from a U.K. tax point of view, then maybe so.)


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## liquiduty

I'm not too bothered about 401k plans etc. My goal is to reduce my UK tax burden without adversely affecting my US tax situation. As contractor working through an umbrella company I pay UK income tax and both employer's and employee's UK National Insurance. Thus my take-home is in the vicinity of 55% of what I earn. If I can operate as a UK Ltd company it is possible to retain 80% of what I earn. So you can imagine the attraction. But I don't want to do this and get taken to the cleaners by the IRS. That's where Form 8832 comes in apparently allowing my one owner UK Ltd company to be treated as a foreign disregarded entity by the IRS and then all salary and dividends earned from the LTD company are treated as if they're my own earned income.

As an aside I have been in the UK for over 10 years so no longer pay US social security taxes but rather UK National Insurance.


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## BBCWatcher

A U.S. 401(k) (or other tax-advantaged retirement account -- I'm not sure it's that one) could help you _further_ reduce your income tax if treaty respected. Hey, I'm always greedy to the extent permitted by law.  If you're going to jump through all these hoops to save on your taxes, you might as well jump through the easy ones to save even more.

By the way, it's very likely that you will qualify for some amount of U.S. Social Security retirement benefits (based on what you just mentioned) and an associated spousal benefit if you're married. If you contributed non-trivial amounts within any two calendar years then you should be able to claim some U.S. benefit when the time comes.


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## R2HALz

thxxxxxxxxxxxxxxxxxx


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## liquiduty

BBCWatcher said:


> A U.S. 401(k) (or other tax-advantaged retirement account -- I'm not sure it's that one) could help you _further_ reduce your income tax if treaty respected. Hey, I'm always greedy to the extent permitted by law.  If you're going to jump through all these hoops to save on your taxes, you might as well jump through the easy ones to save even more.
> 
> By the way, it's very likely that you will qualify for some amount of U.S. Social Security retirement benefits (based on what you just mentioned) and an associated spousal benefit if you're married. If you contributed non-trivial amounts within any two calendar years then you should be able to claim some U.S. benefit when the time comes.


Thanks for the above. Do you have any experience or knowledge of 8832 and/or 8858 that you can contribute? Tax deferral via a 401k is good but not paying tax at all is better.


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## BBCWatcher

A qualified Roth 401(k) (as an example) is _completely_ tax free if treaty respected.

OK, we're both greedy.


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## liquiduty

liquiduty said:


> Do you have any experience or knowledge of 8832 and/or 8858 that you can contribute?





BBCWatcher said:


> A qualified Roth 401(k) (as an example) is _completely_ tax free if treaty respected.
> 
> OK, we're both greedy.


So I guess that's a no then?


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## rpsharman

*Explain like I'm an idiot...*

Hello all,

I have read this thread with interest, and have tried to understand it.

I moved to the UK last year. I am a dual US/UK citizen. I live permanently in the UK, and don't have any plans to return to the US, although anything can happen.

I am "self employed" as a sound mixer on TV and movies. In the UK I am not payed under PAYE scheme and taxed at the source. I invoice for my work and am paid without tax being taken out (1099 income, as it would be considered in the US). In addition, I rent the equipment I use on the job to the companies who hire me. Tools of the trade, so to speak. It represents half my income. I basically own the gear outright at this point, and incur few business expenses, so my rental income is basically pure profit.

Other people in my line of work recommended I set up a Limited Company in the UK to lessen the tax burden, which I did, but what they didn't know was the massive headache this might seem to cause me with the IRS. So much so that I might disband the Limited Company. Even so, I am "self employed", which has implications for US self-employment tax. I also decided to "employ" my wife, which I can easily stop before it starts, which has now given me employees as opposed to just being myself as a corporation.

Let's go with married filing jointly with combined income of £100,000 (all of it mine). £55k for my labour and £45k as rental income. 

What should I do to simplify this? I don't make a lot of money and don't have a lot of experience with tax forms. By the time I pay my accountant here an extra £600 per year dealing with my corporation, and some other expat accounting service an extra £300 or so for all the extra forms, and paid self employment tax to the US (or can I get a "certificate of coverage" from HMRC to avoid double tax) - will I have eroded away any benefit of "self employment" or being a Limited Company?

Yikes! Long post, but you all seem so smart and a good place to start my nightmare.

Thanks,

Robert


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## Bevdeforges

If you're paying your social insurances in the UK, you shouldn't have to pay US social security anyhow. You can go ahead and get a certificate of coverage to have handy should anyone question this - but don't wait until you have it to claim the benefit. https://www.ssa.gov/international/Agreement_Pamphlets/uk.html for more info.

Now, is your wife a US citizen and thus subject to US taxation? If not, you may want to consider filing as "married, filing separately." That way, her salary is not reportable (and is a business expense for your business). In fact, depending on how the limited company is set up, you may simply want to declare yourself an "employee" of the company and declare only your actual "salary" without filing the whole megilla of revenues and expenses (i.e. Schedule C). 

The whole point in establishing a limited company is so that the business becomes its own entity and you can treat it separately from your personal income taxes. Now, you'll get varying interpretations of whether or not the limited company is a "US entity" needing to file with the IRS - but I think you'll find that it's not an issue that is terribly high on the IRS list of "things to watch for."
Cheers,
Bev


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## liquiduty

I'll preface this reply with a statement that I'm no tax expert...

How have you been paying yourself from your limited company? Salary, dividends or a combination thereof? When did you create the UK company?

I don't think you can cherry pick how each country's tax authority views you. For example, you can't be a limited company in the eyes of HMRC but self employed in the eyes of the IRS.

As owner of a UK limited company I believe the IRS will now see you as the majority shareholder of a foreign corporation and as such you should be filing appropriate corporate tax returns in the US. The cost and complexity of these filings may make you wish you had never set yourself up as a UK limited company.

You can apply to the IRS to have your UK limited company be treated as a foreign disregarded entity - if they accept your filing the earnings of the UK limited company are treated as though they were your own personal earning and you don't need to file a corporate tax return in the US. This allows you to retain the foreign earned income exclusion on the salary and dividends from your UK company - note that normally dividends are excluded from the FEIE.

I think you're supposed to apply for foreign disregarded entity status within 75 days of starting the UK limited company. Posts 1 and 8 in this thread pretty much sum up what the process is.


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## BBCWatcher

liquiduty said:


> I don't think you can cherry pick how each country's tax authority views you. For example, you can't be a limited company in the eyes of HMRC but self employed in the eyes of the IRS.


For what it's worth, I agree with the first sentence (with the emphasis on the first instance of the word "you"). The second sentence doesn't logically follow, though. If the IRS views a particular situation differently than HMRC, then that's how it goes.

I think Stewart offered some good, additional insight. In particular, the IRS has a definition of "disregarded entity" that is worth reviewing carefully -- I agree with you there.


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## liquiduty

I see where what I wrote in my previous post could be unclear. Perhaps I should have written it as "For example, you can't personally chose to be a limited company in the eyes of HMRC and then chose to be self employed in the eyes of the IRS just because those choices are easiest or most tax advantageous for you."


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## rpsharman

Sadly the ship has sailed on notifying the IRS within 75 days. The company was set up in July. I suppose I can see if I can "file late" or something. I am inclined, however, to interpret the form 8832 to mean that a company in the UK must be a "Public Limited Company" to be considered an "entity". Therefore I shouldn't need to have the entity ignored if it isn't an entity to begin with.

I won't exceed the FEIE total this year, so I'll likely just declare all income that came in. I haven't paid myself a salary or dividend from my limited company at all this year. It was set up in July, so income before that was as a sole trader. And some labour after July was paid to me, not my company.

My confusion still lies as to whether I am "self employed" in the eyes of the IRS and if I will need to pay self employment tax to the tune of 15%, give or take. If i list the people who paid me as "employers" and put down everything I earned, it will still fall under the FEIE threshold. I still need to pay NI contributions on this income, so I shouldn't need to pay SS too, correct?

If I list myself as my employer, then doesn't it bring attention to the issue to the IRS?

In no way am I looking to "cheat" or play both sides. I am a compliant tax payer, and have always been. I just want to not be double taxed, and I don't want to pay thousands to accountants to sort out dozens of forms.

I can't imagine the IRS bothers too much with people under the threshold declaring all their income and paying taxes in the country where they're earning. Am I wrong?

So in its simplest terms... What's the worst that could happen? I file 1040 to declare $160,000 in wages. I file 2555 FEIE to not owe US tax on that income. Done. If I am audited, I show them everything, let them sort it out, and pay what they tell me. I have had friends who have been audited, and have not had to pay any penalties or interest if the mistake seems reasonable and genuine.

The sticky bit, again, is that half of this income is from equipment rental. In the US, my accountant filed Schedule E for that income. Should I continue to do that?


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## liquiduty

I do think you're sailing a bit close to the wind with your forward plan. It sounds like you're planning to unilaterally make the decision to be treated as a foreign disregarded entity and then file a personal income tax return accordingly. I don't think that's a decision you're entitled to make.

So long as you're not audited I'm guessing you'll be fine. But should you be audited IMHO there's a very real risk the IRS will demand back corporate tax returns from you for the limited company; they won't simply tell you what you might owe.

You could apply late for foreign disregarded entity status and see what happens. But it think it's a bit of a Pandora's box - you need to apply for an EIN for the ltd company first (I think you can do that over the phone?) and then file 8832 and in doing so you will raise a little flag inside the IRS. If your request is denied because it's considered late they'll still know the entity exists and may come calling eventually when they see no tax returns or other filings for the entity.

All that said perhaps not all hope is lost - have a read of Tax Form 8832 Part II. Late Election Relief and in general read some of the links when you search on "reasonable cause late filing 8832" using your favourite search engine.


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## BBCWatcher

Regarding the U.S. Self-Employment Tax, there's a social security treaty between the U.S. and U.K. That treaty determines whether you need to contribute to the U.S. or U.K. system. Check that, but chances are you're perfectly fine skipping the U.S. contributions as long as you're contributing fully to the U.K. system.


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## Bevdeforges

It is entirely possible to be "self-employed" by the UK's definition and not self-employed for purposes of your US tax returns. But the key is that, with a Social Security treaty between the US and UK, if you are paying your social insurances in the UK, you are NOT "self-employed" for the purposes of US self-employment tax. 

I concur with your interpretation on the form 8832. Your business is not considered a "corporation" under US tax rules, so you can avoid all the various reporting as the owner of more than a 10% interest in a "foreign corporation." IF (and it's a big if) you should get audited at some point down the line and the issue arises, you simply explain the same thing you did here: you're not a public limited company, thus you don't believe the forms apply to you. (I.e. you are not among the "certain foreign corporations" they do apply to). 

As long as you are disclosing all your income (and excluding it according to the rules) they most likely will have no reason to come back on any of this. 

I would not bother with Schedule E if your rental income is part of your company business and your net still falls within the FEIE limits. The reason for setting up a company is to separate the dealings of the company from your personal financial interests. And in this instance, your company is a UK legal entity, not a US one.
Cheers,
Bev


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## rpsharman

Thanks again, Bev.

The problem is... What do I put on lines 19 and/or 23 on form 2555?

Do I just list everything I earned on line 19, regardless of whether it was for labour or rental of equipment? Or do I list rental income on line 23? Part VII of 2555 has $100k filled in already. Do my spouse (also American) and I need to fill out our own forms? I thought we could combine the exclusion if filing jointly.

If UK isn't going to tax me equally on different parts of my income, and may not charge National Insurance (Social Security) on all of the income equally, how does that reconcile with the IRS?


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## liquiduty

Bevdeforges said:


> I concur with your interpretation on the form 8832. Your business is not considered a "corporation" under US tax rules, so you can avoid all the various reporting as the owner of more than a 10% interest in a "foreign corporation." IF (and it's a big if) you should get audited at some point down the line and the issue arises, you simply explain the same thing you did here: you're not a public limited company, thus you don't believe the forms apply to you. (I.e. you are not among the "certain foreign corporations" they do apply to).


I'm afraid I don't agree with this statement but am more than happy to have a flaw in my logic corrected.

According to the instructions on page 4 for Form 8832 a foreign entity will be defined as follows according to the foreign default rule:

1. A partnership if it has two or more members and at least one member does not have limited liability.
2. An association taxable as a corporation if all members have limited liability.
3. Disregarded as an entity separate from its owner if it has a single owner that does not have limited liability.

Wouldn't the OP's UK limited company fall under #2? It's neither 1 nor 3?

Thus unless 8832 is filed the default classification stands?


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## rpsharman

Actually, based on what you wrote... for my purposes, as I am not the OP but a thread hijacker, I would default to 3. I am an individual (not 1). I don't have limited liability (not 2). Therefore I am disregarded as an entity separate from its owner... (yes 3).

So if I am already disregarded, and my limited company is not defined as a corporation for tax purposes as per Page 7, I shouldn't need to file 8832.


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## liquiduty

When I said OP I actually meant you as the thread resurrector - the original starter of this thread was me!

You are a private individual and need to file a tax return; that's one of the rights and privileges and joys of being a US citizen. I believe your question is how the taxation of your limited company is handled. I.e. is it handled separately from your personal taxes or can it be treated as though it's part of you.

The purpose of the list on page 7 is to state what foreign corporations *must* be treated as corporations by the IRS. Just because a certain corporation type (such as a UK limited company) is not on that list doesn't mean that it's not treated as a corporation by the IRS. That's where form 8832 comes in. 

I stand by my statement that unless your filing of form 8832 is accepted by the IRS your UK limited company will be treated as a foreign corporation by the IRS. But as I have said before I'm happy to have a logic flaw shown.


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## Bevdeforges

If the rental income is part of your business's income, then the whole amount goes on line 19. The idea here is that your business is a separate entity from you and thus you are reporting only your "salary" (or rather, earnings) from the business, not necessarily the entire income from the business.

If your wife is a US person, then each of you can claim the FEIE against your own earned income. However, if you make more than $100,000 and she makes less, you can't offset your excess with what she doesn't use of her FEIE. (Take a look at IRS publication 54 for all the details on this.)

As to the question posed by liquiduty, aren't there two types of "limited liability company" in the UK? There is the "public" limited liability company and the "private" limited liability company. You may be a single owner, however, if you are established in the UK as a "private limited liability" entity, then # 3 would seem not to apply because you do, indeed, have limited liability. (In the US, there is the "sole proprietor" business, which does not have limited liability - the income and assets of the business entity are considered to be part of the owner's personal finances.)

I'm not up to speed on the UK business entities, but here in France, we have a couple forms of single person types of business entity - which can be "limited liability" entities if set up to be separate entities in their own right. I'm assuming that's the sort of thing that you get by using a private limited liability company.
Cheers,
Bev


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## liquiduty

Bevdeforges said:


> As to the question posed by liquiduty, aren't there two types of "limited liability company" in the UK? There is the "public" limited liability company and the "private" limited liability company.


Yes, that's exactly right.

My third paragraph should have read "The purpose of the list on page 7 is to state what foreign corporations *must* be treated as corporations by the IRS. Just because a certain corporation type (such as a UK private limited company) is not on that list doesn't mean that it's not treated as a corporation by the IRS. That's where form 8832 comes in. 
"


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## BBCWatcher

Bevdeforges said:


> If the rental income is part of your business's income, then the whole amount goes on line 19. The idea here is that your business is a separate entity from you....


Let's be careful here. Let's take a look at the instructions to IRS Form 2555: "Foreign earned income for this purpose means wages, salaries, professional fees, and other compensation received for *personal services* you performed in a foreign country during the period for which you meet the tax home test and either the bona fide residence test or the physical presence test. It also includes noncash income (such as a home or car) and allowances or reimbursements." (Emphasis mine.)

If the entity is disregarded as a separate entity (which is what we've been discussing in this thread, I think), rental income is not earned income, at least not for purposes of the FEIE. It would not go on either line 19 or 23.

If the entity is a separate entity, then there's business-related reporting on the IRS side along with a drawn salary.


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## rpsharman

So here's where it seems I am...

I need to obtain an EIN for my Limited Company with an SS-4. I need to file 8832 to have my limited company be ignored as a separate entity. It'll be late, but it seems the IRS allows for that under certain conditions which I believe I have met. My self-employed salary income up to $100k is US income tax exempt using form 2555. Who do list as my "employer", myself or the companies who hired me? There were three different companies this year. If I list myself, am I subject to Medicare tax and not SS, as I will be contributing to the NI fund in the UK? Am I subject to medicare tax either way?

I can also count 30% of my rental charges as earned income, as the equipment I rent is used in the performance of a service. This will probably take me up to around the $100k threshold. This is where it was tricky in the US. My accountant and IRS agreed that I was not in the "business" of renting sound equipment. I earned rental income from my equipment while performing duties as a sound mixer. The same employer would pay me a salary and rent my equipment. It's why my rental income went on a Schedule E and not a Schedule C.

Earned income above $100k is subject to US federal income tax, as is non-earned income like dividends or 70% of rental income. How do I keep from being double-taxed on this amount, as it will be subject to UK and US tax. Is this where the foreign tax exemption comes in? What form is that?

I think I have really messed up by setting up this company, and wonder if it could simply be disbanded. But I would still need to reconcile my rental income somewhere. What a nightmare.

I fear I am going to get killed with accounting fees this year just to sort it out.


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## rpsharman

Or... Do I simply ignore my Limited Company as far as the US is concerned, based on the Page 7 definition discussed in much of this thread, and declare my labour income and 30% of rental income on 1040 as foreign earned income, and use Schedule E for remainder of rental? Then use 2555 for FEIE relating to my labour and 30% of rental.

Again, the issue is the definition of being "self employed". Will it just fly red flags all over the place?


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## BBCWatcher

Let's start with social insurance contributions. As I mentioned upthread, the U.S. and the U.K. have a social security treaty. Just go to the table in the "Summary of Agreement Rules" and allocate your income. As you can see, whether you work in the U.K. for a U.K. employer or are self-employed, you must make U.K. national pension contributions on that income. If, however, you go work in the U.S. for two weeks (assuming self-employed -- if not it'll depend on the employer's "flag" and the employer will withhold) then you must make U.S. contributions (U.S. Self-Employment Tax) and, per the treaty, do not have to make U.K. contributions on that particular two weeks of income. If you work in a third country then it's easy if that country also has a social security treaty with the U.S. -- just check that other table. If you're self-employed and work in a non-treaty country then you'd make U.S. SE Tax contributions. So this whole part should be quite straightforward, and chances are (from your earlier description) you're purely U.K. here no matter what the IRS thinks about your business entity.

OK, let's assume the business is a disregarded entity for IRS purposes -- let's assume that's what happens and that's allowed since I think your questions are focused on that particular scenario. Importantly, a disregarded entity does not mean that income distinctions are disregarded. It just means the entity (your U.K. business registration) is, and that all the income associated with that entity is treated as personal income.

In that disregarded entity scenario, you'd still file IRS Form 1040 Schedule C as I understand it. (Publication 54 has a number of such examples.) Yes, IRS Publication 54 says that up to 30% of rental income can be treated as earned income "...if you perform personal services in connection with the production of rent...." Foreign earned income, including the rental income Publication 54 allows, can be excluded using the Foreign Earned Income Exclusion (IRS Form 2555) if you otherwise qualify. Unexcluded income, such as unexcluded rental income, is still eligible for the Foreign Tax Credit (IRS Form 1116) to reflect foreign income tax (only) paid on/attributable to that income.


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## Bevdeforges

Also, if your business is NOT considered a separate entity, you would NOT apply for an EIN. If it is not a separate entity, then you just use your US SSN to cover the business activity.
Cheers,
Bev


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## liquiduty

Bevdeforges said:


> Also, if your business is NOT considered a separate entity, you would NOT apply for an EIN. If it is not a separate entity, then you just use your US SSN to cover the business activity.
> Cheers,
> Bev


If you use a Form 8832 filing to get to foreign disregarded entity status you do need an EIN in order to be able to file 8832.


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## Bevdeforges

liquiduty said:


> If you use a Form 8832 filing to get to foreign disregarded entity status you do need an EIN in order to be able to file 8832.


In most cases, you would use your US SSN for the EIN - that's certainly how it works on just about any payroll form and on such things as the FBARs and other tax documents. Check the specific instructions (yes, "read the fine manual") but that's normally what they tell you to do.
Cheers,
Bev


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## rpsharman

How do I determine the UK tax paid on specifically on 70% of my rental income, or just the income above $100k FEIE? Seems arbitrary. 

If I use Schedule C (which I've specifically avoided over the last few years), how to I exclude 30% of rental income. Do I just leave it out?

In the UK, National Insurance contribution is taxed on labour, so will I be paying 30% self employment tax in the US on my Schedule C income, or is it as basic as... I am making social security contributions in UK, do I don't need to many ANY in the US? And I know I read somewhere that I should still be paying Medicare tax on everything. Did I misinterpret that?


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## BBCWatcher

rpsharman said:


> How do I determine the UK tax paid on specifically on 70% of my rental income, or just the income above $100k FEIE?


Via IRS Form 1116 and its instructions, and preferably with the aid of your favorite tax preparation software.



> If I use Schedule C (which I've specifically avoided over the last few years), how to I exclude 30% of rental income. Do I just leave it out?


No, you don't leave it out. It's income. As a general rule, all income gets reported somewhere, and this income is not one of the few exceptions. Note that Schedule C gets carried onto IRS Form 1040 line 12 (2014 edition at least), and the Foreign Earned Income Exclusion gets carried onto IRS Form 1040 line 21 as a negative number that partially or fully offsets the numbers above it. (Partially in your case since you at least have some amount of rental income that cannot be excluded via the Foreign Earned Income Exclusion.)

Again, tax preparation software (even the free stuff) makes this all a lot easier than filling out the forms manually.



> In the UK, National Insurance contribution is taxed on labour, so will I be paying 30% self employment tax in the US on my Schedule C income, or is it as basic as... I am making social security contributions in UK, do I don't need to many ANY in the US? And I know I read somewhere that I should still be paying Medicare tax on everything. Did I misinterpret that?


Just go to the treaty summary I referenced. I think you're overthinking that one. According to the social security treaty, if you were self employed, worked exclusively in the United Kingdom, and fully paid U.K. NI legally owed there, you have zero U.S. Self-Employment Tax. I think that's your situation. (That's not to say that if your situation is different you would owe U.S. SE Tax. Maybe not.)

There is a U.S. Net Investment Income Tax, otherwise known as the "Medicare surtax," that might apply if you both have investment income and your total income is sufficiently high. That might be what you've heard about with respect to Medicare taxes. Tax preparation software figures that for you, too.


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## JustLurking

BBCWatcher said:


> There is a U.S. Net Investment Income Tax, otherwise known as the "Medicare surtax," that might apply if you both have investment income and your total income is sufficiently high. That might be what you've heard about with respect to Medicare taxes. Tax preparation software figures that for you, too.


And just FYI, the US does not allow any foreign tax credit for the _Net Investment Income Tax_. This may result in you being double-taxed on a portion of income.


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## rpsharman

I spoke with a tax consultant this morning.

With regards to the 8832. He states that Page 7 definitions only states what entities CANNOT be considered separate entities and can only be seen as corporations. It does not mean no other entities are seen as corporations. Upon a re-read, I tend to agree.

He agreed that if I indeed have no limited liability in terms of my limited company, in that I am the sole owner and are therefore solely responsible, then my limited company would "default" as previously discussed to being ignored as a separate entity. He feels this definition is risky, and suggests simply using SS-4 for an EIN and filing 8832 to have limited company be ignored separate entity. He says late filing is no problem under the provisions listed in instructions.... BUT, he said, I may not want the company to be a separate entity. It may benefit me to keep it that way and have the business income be "flow through" income similar to S-corp or income on schedule E, or even on line 21 of 1040 form.

He is going to run scenarios through his software based on numbers I gave him to see what makes more sense tax wise. Schedule C would incur SE tax, which I know I don't need to do. He agrees I am not a "business" in that sense.

I'll let you know how this goes, although my circumstances are so unusual that they might not be relevant to anyone else!!


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## liquiduty

rpsharman said:


> He agreed that if I indeed have no limited liability in terms of my limited company


I think you're contradicting yourself - by virtue of having a limited company the company's liability is indeed limited. I.e. if your limited got into a scenario where your financial liabilities were greater than its assets and you personally had not done anything wrong and your limited liability company filed for bankruptcy you would not personally be held responsible for the debts of the limited company.


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## rpsharman

liquiduty said:


> I think you're contradicting yourself - by virtue of having a limited company the company's liability is indeed limited. I.e. if your limited got into a scenario where your financial liabilities were greater than its assets and you personally had not done anything wrong and your limited liability company filed for bankruptcy you would not personally be held responsible for the debts of the limited company.


Yes. I see what you mean. And I think I'll discover that indeed, by definition, there is some limited liability. So as a sole trader, you can have a company that falls under that definition of a singularly owned "company" with no limited liability. Therefore it makes sense that would default to being ignored as a separate entity, not requiring the 8832. But as a registered limited company, an 8832 would need to be filed if I wanted the company to be ignored as a separate entity.

It may. however, benefit me to have it be a separate entity. More to come!


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## Bevdeforges

Just an aside here: this is a perfect illustration of the nature of tax (and other) law in the US. Everything hinges on your "interpretation" of various forms, laws and regulations. 

On the bright side (perhaps), it does mean that there is probably never any one "correct" way to fill out a US tax return for a given set of circumstances. (Then, too, there is the notion of "what works" which is akin to the notion of "what you can get away with" particularly when dealing with various sorts of foreign entities and tax concepts.)

It does at least sound like you have found a tax adviser who is willing to look at your circumstances from a variety of points of view to try to find what works best for you. Potentially expensive, but as the old advertisement says, potentially "priceless."

Good luck with the scenarios and do keep us posted (though we certainly don't expect you to reveal all the ins and outs of your situation).
Cheers,
Bev


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## liquiduty

rpsharman said:


> It may. however, benefit me to have it be a separate entity. More to come!


Bear in mind the following...

As a UK limited company owner from a UK tax perspective it is beneficial to pay yourself mostly in dividends rather than salary. (That said it won't be quite as advantageous next year - thanks George.)

If you are a foreign disregarded entity then the IRS treats the earnings of your limited company as though they were your personal earnings and so they're eligible for the FEIE regardless of how you have paid yourself in the UK.

If the IRS sees your limited company as a corporation then your UK salary is treated as earned income eligible for the FEIE but the dividends are treated as unearned income and so not covered by the FEIE. Foreign tax credits will help recover some of that greater US tax paid but not all of it.


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## liquiduty

Bevdeforges said:


> Just an aside here: this is a perfect illustration of the nature of tax (and other) law in the US. Everything hinges on your "interpretation" of various forms, laws and regulations.


In this instance I don't agree. Yes, there are choices of how to classify a UK limited liability company in the eyes of the IRS but I believe the decision process to be quite clear and pretty unambiguous.


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## BBCWatcher

rpsharman said:


> Schedule C would incur SE tax, which I know I don't need to do.


(Sigh.) Unless a treaty says otherwise, and there is such a treaty between the U.S. and the U.K.


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## Bevdeforges

liquiduty said:


> In this instance I don't agree. Yes, there are choices of how to classify a UK limited liability company in the eyes of the IRS but I believe the decision process to be quite clear and pretty unambiguous.


Was speaking in general terms. Since the OP mentioned that he has unusual circumstances, it may well be that those will lead to a variety of ways his particular case might be handled. It sounds like a good idea in his case to have consulted a paid adviser.
Cheers,
Bev


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## rpsharman

BBCWatcher said:


> (Sigh.) Unless a treaty says otherwise, and there is such a treaty between the U.S. and the U.K.


Yes... But in this case, surely only if NI contribution is paid on all income. If I only pay UK NI on labour or salary, and not on my rental income, but the US government sees my rental income as Schedule C earnings, then they're going to want SS contributions paid on that income in the US, since they weren't made on that income in the UK.


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## Bevdeforges

rpsharman said:


> Yes... But in this case, surely only if NI contribution is paid on all income. If I only pay UK NI on labour or salary, and not on my rental income, but the US government sees my rental income as Schedule C earnings, then they're going to want SS contributions paid on that income in the US, since they weren't made on that income in the UK.


That's not normally how the SS treaties work. If you pay into the UK NI plan and are covered by them while resident in the UK, then what matters is that you are under the UK "social security" system. Get a certificate that states you're covered in the UK and you're done. No monkeying around with which kind of income you did or didn't pay NI on.
Cheers,
Bev


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## rpsharman

Bevdeforges said:


> That's not normally how the SS treaties work. If you pay into the UK NI plan and are covered by them while resident in the UK, then what matters is that you are under the UK "social security" system. Get a certificate that states you're covered in the UK and you're done. No monkeying around with which kind of income you did or didn't pay NI on.
> Cheers,
> Bev


I suppose that makes sense. As long as I am making all contributions required by the country I'm living in, then that ought to be the end of it.


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## BBCWatcher

I agree with Bev, and I think I made that point upthread, too. But don't take our word for it. Just check the U.S. Social Security Administration's table that I linked to and obey it. If you look at the table you'll see it doesn't even discuss this pound versus that pound. It's simple stuff: who did you work for, where, how. Just allocate your income accordingly, by activity that generated the income. It sounds like all your activities fell on the U.K. side the treaty, and that's fine.

Now, if for example you work in the U.S. at least on a self-employed basis, then *that* income is subject to the U.S. Self-Employment Tax (and, per treaty, *not* U.K. contributions). But if the U.K. chooses to levy social insurance taxes on every fifth pound instead of every third on the activities you undertook that fell within the U.K. side of the treaty, that's up to the U.K. and its particular social insurance revenue raising scheme. The U.S. side does not second guess that, or vice versa.

Note that the U.K. permits making voluntary NI contributions, beyond/outside the treaty requirements. If you do that, you still must honor the U.S. side of the treaty requirements.

General taxation is under a different treaty, the U.S.-U.K. tax treaty, not the social security treaty. That general tax treaty has something called the savings clause which means that U.S. citizens (in particular) don't get much help from the provisions in the treaty. But they do get considerable relief already in the U.S. tax code itself through things like the Foreign Earned Income Exclusion and Foreign Tax Credit. Different treaty, different parts of the tax code, different rules.


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