# Haven't filed US taxes since living in the UK-what do I do



## daniellegoodwin394

Hi,

I've been living in the UK since February 2014 and have held various jobs since then. Only today, my Dad asked me whether I have been paying taxes to the U.S. Of course I haven't! I've been paying taxes in the UK because I live and work here...

Now I find out that I was supposed to be paying taxes in the US?? Is this true? How is this right? I would get taxed twice by two different countries!

Please help because I'm panicking now, not sure what to do or if this is true!?

Danielle


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## Crawford

As a US citizen you must complete a US tax form for the US every year.

As you pay tax in the UK then, unless there are unusual circumstances, you won't pay taxes to the US due to the tax agreement between the two countries.

However, as said above, as a US citizen, you are obliged to complete a US tax return every year.

I'd start doing your back tax returns if I was you.


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## colchar

daniellegoodwin394 said:


> Hi,
> 
> I've been living in the UK since February 2014 and have held various jobs since then. Only today, my Dad asked me whether I have been paying taxes to the U.S. Of course I haven't! I've been paying taxes in the UK because I live and work here...
> 
> Now I find out that I was supposed to be paying taxes in the US?? Is this true? How is this right? I would get taxed twice by two different countries!
> 
> Please help because I'm panicking now, not sure what to do or if this is true!?
> 
> Danielle



As a US citizen you are required to pay taxes no matter where you live and work, but there are agreements in place to prevent double taxation. Despite that, you still have to file returns.

As for it being right - Boris Johnson was born in the US but only lived there for about eight seconds and he recently had to come to an agreement with the IRS because the US government claimed he owed taxes for all of his earnings.


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## daniellegoodwin394

Hi both,

Thank you so much for your help! Do any of you know how I can go about providing the correct information to the US from the UK?

Thanks again,
Danielle


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## nyclon

I've moved your thread to the tax forum where you should get more help.


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## iota2014

daniellegoodwin394 said:


> Hi,
> 
> I've been living in the UK since February 2014 and have held various jobs since then. Only today, my Dad asked me whether I have been paying taxes to the U.S. Of course I haven't! I've been paying taxes in the UK because I live and work here...
> 
> Now I find out that I was supposed to be paying taxes in the US?? Is this true? How is this right? I would get taxed twice by two different countries!


Don't panic. A lot of people don't realize that under US law, US citizens living abroad are required to file US tax returns. The US is the only country that does this to their citizens (apart from Eritrea). But never mind - it is what it is. 

You probably won't end up actually having to pay much (if anything) in tax, so take a few deep breaths and relax before you do anything. Basically, you'll probably need to file returns for the missing years, and file information reports for your UK bank accounts. Pain in the neck, but not a catastrophe.

When you're ready, you can start finding out what you should do at https://www.irs.gov/individuals/international-taxpayers/taxpayers-living-abroad


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## Bevdeforges

As already said, you're hardly the only person in this situation. Fortunately, there's a fairly straightforward process for remedying this - called the Streamlined Filing Compliance Procedures. There is a link on the right side of the page that iota linked you to.

Basically, you just have to file the current tax year (i.e. 2016) and three years back, plus any FBAR reports of foreign bank accounts (assuming the cumulative total in your non-US accounts is at least $10,000) for the past 6 years. If you wait until after the end of 2017, you should file for 2017 and three years back from there. (If they haven't found you out by now, waiting a few months won't make any difference.)

As far as finding the "right" information, your best bet is to "read the fine instructions" - IRS publication 54 is a good start. The IRS will generally only be aware of any income you receive 1099s or W-2s for - i.e. US source income. Reporting UK or other sourced income is more or less on the honor system. (At this point, all the FATCA disclosures you may have heard about are still limited to the year-end balance in your bank accounts, with nothing about interest or other income). You may have to add up your calendar year income (since the UK is on a different tax year), using your gross pay rather than what the UK considers "taxable income." But you can then apply either the FEIE or the Foreign Tax Credit against your foreign source income (see Pub 54 for details) and chances are you'll owe little or nothing in taxes to the US.
Cheers,
Bev


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## iota2014

Bevdeforges said:


> As already said, you're hardly the only person in this situation. Fortunately, there's a fairly straightforward process for remedying this - called the Streamlined Filing Compliance Procedures. There is a link on the right side of the page that iota linked you to.
> 
> Basically, you just have to file the current tax year (i.e. 2016) and three years back, plus any FBAR reports of foreign bank accounts (assuming the cumulative total in your non-US accounts is at least $10,000) for the past 6 years. If you wait until after the end of 2017, you should file for 2017 and three years back from there. (If they haven't found you out by now, waiting a few months won't make any difference.)


Indeedy.

The alternative to entering the Streamlined Procedures, if you find you'll owe no tax, is simply to submit the returns and informations reports (FBARs) for the missing years. 

See https://www.irs.gov/individuals/international-taxpayers/delinquent-fbar-submission-procedures for instructions on submitting late FBARs.


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## Bevdeforges

There are actually a couple of alternatives. Yes, you can just late file, starting either with the current year or doing a few years in arrears. If you owe nothing, there's no penalty and unless you're a 1% er or something, the IRS isn't going to bother going back to see if you should have been filing before. Or you can continue on flying below the radar - unless you have some "need" for showing that you are up to date on your filings (like petitioning to sponsor a spouse or other family member for a visa).
Cheers,
Bev


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## Bevdeforges

There are actually a couple of alternatives. Yes, you can just late file, starting either with the current year or doing a few years in arrears. If you owe nothing, there's no penalty and unless you're a 1% er or something, the IRS isn't going to bother going back to see if you should have been filing before. Or you can continue on flying below the radar - unless you have some "need" for showing that you are up to date on your filings (like petitioning to sponsor a spouse or other family member for a visa).
Cheers,
Bev


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## daniellegoodwin394

nyclon said:


> I've moved your thread to the tax forum where you should get more help.


Hi Nyclon,

Thanks.

Apologies, I did not know there was a separate forum for this topic.


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## daniellegoodwin394

Hi Iota/Bev,

Thanks for your help! I'll have to figure out how to do all of this.

Would it work for now if I had my family in the US sort out my taxes if I pass them the info? Or do I have to do it from the UK?

Thanks again,
Danielle


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## iota2014

daniellegoodwin394 said:


> Hi Iota/Bev,
> 
> Thanks for your help! I'll have to figure out how to do all of this.
> 
> Would it work for now if I had my family in the US sort out my taxes if I pass them the info? Or do I have to do it from the UK?


What's the point? Since you're the one who has to gather the information, and you're the one who has to sign the forms and take responsibility for the content (under penalty of perjury), involving your family seems pretty pointless unless someone in your family happens to be a dual-qualified US-UK tax accountant.

If you put your data into one of the tax software packages (Taxact, Turbotax, etc), you can use what it produces as a model to show you where to enter the various items. 

It's probably not going to be that complicated as long as you don't have a lot of investment income.


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## Bevdeforges

As iota says, you probably don't need to get your family involved - and in point of fact, they may not understand enough about how things work in the UK (e.g. the different tax year) to be of much help.

Unless you are somehow pressed to get this sorted, I'd be tempted to wait until the end of the year, and then take a look at one of the free online e-filing services - whether one available through the IRS free-file program or not. To file the back years, you wind up having to pay (the least expensive one I know of is $15 for each prior year) so it's normally best to start with the current year. Most of the online services, however, will end access to their free version round about October or November (I suppose to get the next year's ready). 

But once you've gotten the current year done, it may be just as easy for you to just follow the model for the prior years - and that you can do for free by just downloading the forms from the IRS website. 
Cheers,
Bev


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## iota2014

A way to start learning: download Form 1040 for the tax year ending Dec 31 2016, download the instructions, gather your monthly pay slips covering that period, and start trying to fill in the information. You'll feel less overwhelmed once you have a go and see how it works.

The form: https://www.irs.gov/pub/irs-pdf/f1040.pdf

The instructions: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf


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## daniellegoodwin394

Yes, I see what you're saying. I suppose it's because I never did my taxes in the US and they are done for me in the UK so I don't have to worry about it. Not sure how to figure out the different tax year when I don't have any payslips - I only have annual tax summaries.

I'm just worried about messing up the form I suppose, whereas my Dad uses H&R Block for taxes! haha


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## iota2014

daniellegoodwin394 said:


> Yes, I see what you're saying. I suppose it's because I never did my taxes in the US and they are done for me in the UK so I don't have to worry about it. Not sure how to figure out the different tax year when I don't have any payslips - I only have annual tax summaries.
> 
> I'm just worried about messing up the form I suppose, whereas my Dad uses H&R Block for taxes! haha


Divide the annual pay for the UK tax year ending April 2016 by 12. Multiply the result by 4.

Divide the annual pay for the UK tax year ending April 2017 by 12. Multiply the result by 8.

Add the two results together, and convert to USD.

Believe me, it's worth the hassle to learn how to manage your own tax affairs. You then know where you stand and can feel happy. 

PS Don't worry about messing up the form. Use a pencil and a rubber, and expect to have to make corrections. You can download a fresh form to fill in eventually, when you've worked your way through everything.


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## daniellegoodwin394

iota2014 said:


> Indeedy.
> 
> The alternative to entering the Streamlined Procedures, if you find you'll owe no tax, is simply to submit the returns and informations reports (FBARs) for the missing years.
> 
> See https://www.irs.gov/individuals/international-taxpayers/delinquent-fbar-submission-procedures for instructions on submitting late FBARs.


Can you explain to me more about Streamlined Procedures? I've read the page 3 times but still not sure what it means! (Sorry!) 

My understanding so far was that this is the route to use if you have not filed tax returns every year. Just trying to understand the "non-residency requirement". I have lived in the UK since Feb 2014 so does that mean I would qualify for this? I don't live at my parents' house anymore and rent a house in the UK. In the past 3 years I have definitely been out of the US for 330 days!


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## iota2014

daniellegoodwin394 said:


> Can you explain to me more about Streamlined Procedures? I've read the page 3 times but still not sure what it means! (Sorry!)
> 
> My understanding so far was that this is the route to use if you have not filed tax returns every year. Just trying to understand the "non-residency requirement". I have lived in the UK since Feb 2014 so does that mean I would qualify for this? I don't live at my parents' house anymore and rent a house in the UK. In the past 3 years I have definitely been out of the US for 330 days!


You meet the non-residency requirement. You can use Streamlined if you wish.


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## daniellegoodwin394

Is there a benefit from filing this way?


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## iota2014

daniellegoodwin394 said:


> Is there a benefit from filing this way?


Not for you, as far as I can see, provided you owe no tax. Bev may differ.


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## daniellegoodwin394

How do you find out if you owe tax then? Can you only find out by filling out the forms? Do they take into consideration the fact that I already pay tax in the UK and live here? I mean I don't get how I can afford paying taxes in two different countries! :-(


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## iota2014

daniellegoodwin394 said:


> How do you find out if you owe tax then? Can you only find out by filling out the forms?


Yes, you find out by filling in the forms. (Or getting it filled in by tax software or by a tax accountant.). You need to know whether or not you owe tax, so that you can pay any tax due when you file the return. Otherwise you could be charged interest and/or penalties in addition to the tax.



> Do they take into consideration the fact that I already pay tax in the UK and live here? I mean I don't get how I can afford paying taxes in two different countries! :-(


You probably won't be double-taxed on what you earn. You can claim the Foreign Earned Income Exclusion, to exclude the first $90,000 or so from US taxation. If the FEIE doesn't cover all of your salary, you may have to pay some US tax.

Interest on savings may be taxable, if it hasn't been already taxed by the UK.

It's entirely unreasonable that USCs are taxable in two countries, I agree. Many of us have renounced our US citizenship because of it. Keeping it in perspective though - if your US citizenship is important to you, the tax situation is just one of those things you have to accept. That's the deal.


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## Bevdeforges

Despite our occasional differences, I second the information iota has given you here.

The difference between the Streamlined filing thing and just filing the back returns "late" is that the streamlined filing thing is actually designed for people who have been living overseas for ages (10, 20, 30 years in most cases) and who just discovered that they were supposed to be filing US taxes all this time. The Streamlined Procedure just codified a long-standing IRS policy that said that if you had been living overseas and not filing for "a long time" you could simply file the current year plus three years back, and if those filings showed that you owed little or no tax for that period, they would close out any tax years prior to that without your having to file anything more. (The FBAR stuff got added to this later - and technically isn't actually handled by the IRS anyhow.)

If you've only been in the UK since 2014, there's no real point in using Streamlined because you wouldn't need "exoneration" for any years before 2014 anyhow. (And you wouldn't be granted it for years where you were living and working in the US either.)

Anyhow - in your case, start learning the system by playing with the US tax forms for 2016. Take a look at Publication 54 (https://www.irs.gov/publications/p54/ for the online version) to get the general idea - and the 1040 form and instructions to get yourself started. There are some sample forms in Pub 54 - all much more complicated than anything you'll need. Come January or February, you can file your 2017, using one of the free online services if you like. Then, you just back file 2014, 2015 and 2016 - but no need to mark them all up for Streamlined. As long as you owe nothing, they're just "late" and the late penalty is a %age of what you owe - and any percentage of 0 is 0, so there you are. 
Cheers,
Bev


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## celticweb

I agree with others here and don't panic. It is more normal not to know about this requirement of filing US taxes than to know and you can definitely learn to do this yourself. 

You mentioned renting a house so you may qualify for the foreign earned income exclusion and foreign housing exclusion. The FEIE is for wages. Even if you earn above the exclusion amount, you would then be a higher rate UK tax payer and unlikely to owe US tax. You can utilize the foreign tax credit. If you have been paying into an employer company pension scheme, that may require another form and is not included in the FEIE but you won’t have to pay tax now if you take the treaty form 8833 approach. 

The USA has personal exemption and standard deduction that generally wipes out any tax that might have been owed on minor passive income like bank interest. 
Unless you have lots of passive income over this exemption and standard deduction or some capital gains, you won’t need to pay any US tax. It’s just form filling and as mentioned by others, Fbars if you meet the threshold.

In your shoes if I were going to file, I would just start filing next year for this current year and see if they ask for any back years. And just learn as much as you can from the publications. You can always come back to ask questions here. I first learned of this requirement a few years ago after being decades outside the USA (and an accidental American to boot) and this forum was a huge help to me.


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## Bevdeforges

Since celticweb mentioned the publications, too, let me just suggest that, in addition to Pub 54, you download a version of Pub 17. Pub 17 is basically Everything (and more) you Ever Needed to Know about US Income Taxes. It's a freebie and gives you pretty much the same overview of the system as books you'll find on the market for $25 or more. (And some of the books they publish each year on doing your own taxes are nothing but Pub 17 annotated.)

https://www.irs.gov/uac/about-publication-17 (avail. in pdf, html and e-book formats)
https://www.irs.gov/uac/about-publication-54 (pdf and html only)

The current versions are for the 2016 tax year, but if you start getting family with the forms now, when the 2017 forms come out, you'll be able to just scan the "What's New" section to see what, if anything, has changed that affects you.
Cheers,
Bev


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## celticweb

Also another consideration (unless you already are a dual UK/US citizen) if you see yourself settling in the UK permanently and taking up British citizenship and possibly renouncing US citizenship in future, i would start to file my US taxes now just to establish tax compliance now which will make the renunciation process much easier. 

The USG requires 5 years compliance prior to renouncing. and it's the 5 previous years. It appears you have ties to the US, as you mentioned your dad so it will be important to exit the right way. 

You probably haven't given this any thought at all but unless there is law change, you would be surprised on how many US citizens are being forced to take this action just to live a normal life abroad.

Take care with investments too, don't invest in anything like an Isa or foreign mutual funds.
Learn as much as you can and do come back and ask questions.


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## daniellegoodwin394

Hi both,

Thanks! Looks like I have a lot of reading to do..

Why? What happens if you have a ISA?? I have one now - a Help to Buy ISA that should be closing soon. What do you mean by "foreign mutual funds"?


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## Bevdeforges

First things first. Though it's not your traditional "summer reading" you may want to start looking at the IRS publications. They'll explain some of the concern about various forums of investment that could cause issues. Generally, it's a matter of adding a form or three to your filing requirement. Sometimes, it may come down to having to declare the income (even if it is "tax free" to the UK government) and depending how you are reporting your other items, it could eventually come down to having to pay some US taxes on "tax free" investment income.

HOWEVER, until and unless your salary income exceeds the FEIE maximum (around $100,000 these days), the standard deduction and personal exemption will allow you to shield about $10,000 in investment income from the need to pay US taxes, no matter where and how you have it invested.
Cheers,
Bev


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## iota2014

daniellegoodwin394 said:


> What happens if you have a ISA?? I have one now - a Help to Buy ISA that should be closing soon.


If I'm not mistaken, a Help to Buy is just a type of cash ISA. Cash ISAs aren't particularly dangerous: interest earned is US-taxable, but as we all know, cash ISAs pay such pitiful interest rates these days, it's not going to amount to much in US tax even if you've got your entire deposit salted away.

Stocks-and-shares ISAs are a different matter, as these are essentially a wrapper for investments and the IRS treats them in a terrible, terrible way (as PFICs) which you want to avoid at all costs. My advice - don't bother reading up about it, just avoid stocks-and-shares ISAs.


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## daniellegoodwin394

celticweb said:


> Take care with investments too, don't invest in anything like an Isa or foreign mutual funds.
> Learn as much as you can and do come back and ask questions.


Hi Celticweb,

Thanks for your reply. What do you mean by 'foreign mutual funds'? Do you mean like a joint account?


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## daniellegoodwin394

celticweb said:


> You mentioned renting a house so you may qualify for the foreign earned income exclusion and foreign housing exclusion. The FEIE is for wages. Even if you earn above the exclusion amount, you would then be a higher rate UK tax payer and unlikely to owe US tax. You can utilize the foreign tax credit. If you have been paying into an employer company pension scheme, that may require another form and is not included in the FEIE but you won’t have to pay tax now if you take the treaty form 8833 approach.


How does this work if you own a house? Do you pay taxes on that? Or would I be covered under FEIE? From what I read I should be covered by FEIE as I have been a resident in the UK since Feb 2014 and have only been back to the US for 2 weeks in 2015 and 1 week this June to visit my family. I live and work in the UK (I have a spousal visa.)


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## daniellegoodwin394

iota2014 said:


> If I'm not mistaken, a Help to Buy is just a type of cash ISA. Cash ISAs aren't particularly dangerous: interest earned is US-taxable, but as we all know, cash ISAs pay such pitiful interest rates these days, it's not going to amount to much in US tax even if you've got your entire deposit salted away.


Hi Iota,

Thanks for your reply and thanks for all the reading homework Bev  

Yes, you are correct, they are a type of Cash ISA. Currently, my ISA is 3.50% tax free interest, which actually isn't bad. But as Bev said, as long as I'm under the $100,000 for the tax year, I should be fine, right?


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## celticweb

daniellegoodwin394 said:


> Hi Celticweb,
> 
> Thanks for your reply. What do you mean by 'foreign mutual funds'? Do you mean like a joint account?


Iota explained about the Isa (Thanks Iota!) and that's what I meant, Stock & Share Isas. and you should stay clear from that. and mutual funds, I mean like any type of mutual funds (the same as you would buy in the USA) except be very careful in investing over here in the equivalent in foreign funds. There are a handful of US listed investment ETFs that are not PFICs and are also HMRC reporting funds and those are the ones you want to look into.

However you mentioned spousal Visa, so i assume a UK citizen spouse. There is a lot of planning that you can do around this. Your spouse could invest in their name for you. Future Mortgages could be taken out in your spouse's name only. I read something once about foreign mortgages for US citizens being tricky because they could result in capital gain on a phantom currency gain. I won't bother explaining because even I didn't quite get it and this is one of those areas where calculations may not be expected but if you go to an accountant to do your taxes, more than likely they will bring things like this up if they apply. that's why the more you learn the better and the less you rely on the compliance industry the better. Take your time, no panic and don't act out of fear.


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## celticweb

regarding joint accounts, if you meet the Fbar threshold, those accounts held jointly with your spouse will need to be reported on Fbar. (as a joint account). This was a big bone of contention with my spouse who has nothing at all to do with the USA and was a big factor (as well as other things) in my decision to renounce.


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## iota2014

daniellegoodwin394 said:


> Hi Iota,
> 
> Thanks for your reply and thanks for all the reading homework Bev
> 
> Yes, you are correct, they are a type of Cash ISA. Currently, my ISA is 3.50% tax free interest, which actually isn't bad. But as Bev said, as long as I'm under the $100,000 for the tax year, I should be fine, right?


I think Bev was referring to the Foreign Earned Income Exclusion. Unfortunately, that can only be used against _earned_ income. Interest, dividends, capital gains etc all come under the category of "passive" income. 

As I understand it (and my knowledge on this is quite sketchy), if you have paid UK tax on passive income, the US will allow you credit for the UK tax paid. That doesn't help where ISAs are concerned, because they're tax-free in the UK. But you do have a personal exemption amount and a standard deduction amount to set against tax that's not covered by the FEIE, so it's not as bad as it might sound.


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## Bevdeforges

daniellegoodwin394 said:


> Hi Iota,
> 
> Thanks for your reply and thanks for all the reading homework Bev
> 
> Yes, you are correct, they are a type of Cash ISA. Currently, my ISA is 3.50% tax free interest, which actually isn't bad. But as Bev said, as long as I'm under the $100,000 for the tax year, I should be fine, right?


This is why you need to take a look at those two publications I mentioned. There's some terminology you need to learn and don't worry, you can skip over the parts that are about exotic investments and the types of deductions you probably don't have anyhow.

But the FEIE is only applicable to your earned income (i.e. salary). Interest and other investment income is considered "unearned" and therefore may be subject to taxes. However, if your salary income is completely eliminated by the FEIE, the first $10,000 (ten thousand) or so of unearned income is protected by the personal exemption and the standard deduction, which add up to around $10,000.

Mutual funds are those accounts where you own part of a batch of stocks. You don't control what stocks you "own" - you just own a part of the whole pot. When the stocks go up, you have income. When the stocks go down, you have losses.

But this stuff will make more sense once you have taken a look at the tax instructions. And, since you're on a spouse visa, chances are you'll be filing as "married, filing separately" (again, we can discuss this later) since your spouse has no US tax obligation. There are some tricks and ways to work with and around this "filing separately" thing that mitigate some of the worst of the disadvantages.
Cheers,
Bev


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