# Beginner question - Dual Citizen Daughter living in UK after graduation from UK university...



## winneymj (11 mo ago)

Hi,
This is the first year my daughter will be filing taxes as an USA expat in the UK.
She was born in USA to British parents and is dual USA/UK citizen. She has been in UK for last 3 years as student at UK University, and she has graduated and has job in the UK. She earnt approx $20,000 last year and has some small savings in a bank, less than $15,000, and any interest she got from this has already been taxed in the UK. She has no investments or income from investments.
She know she has to file taxes for 2021, but it can get very confusing which documents she needs to fill in.
From what I have researched it looks like she needs to:

1) file a 1040 even though she has no W2, with here income from UK job.
2) complete the 2555 (Foreign Earned Income) form.
3) complete the FBAR.

Does this look correct for a very simple case.
Any help is appreciated
Mark.


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## Moulard (Feb 3, 2017)

There will be those here that will argue that she should simply stay off the radar and not file at all. There is some merit to that approach but given she is only just filing for the first time, an one presumes there is the possibility of returning to the US if she ever becomes interested in that side of her story.

If she chooses to exclude her UK wages then you are basically correct. 

Although she will also need to file Schedule B (if only to complete Part 3) and I think its Schedule 1 (which is an intermediary between the 2555 and the 1040.
That on its own will probably suffice for several years for a US tax return perspective.

While she may have paid UK tax on interest, the only way to prevent double taxation is to either be able to deduct it, or to use Foreign Tax Credits to claim a credit for UK taxes paid. So while it may not be an issue while interest is under the standard deduction, a day will come when that is not the case.

While more complicated, it may actually be worth considering (or at least doing the sums on it and bearing it in mind for future) revoking the Foreign Earned Income Exclusion and use Foreign Tax Credits for both general and passive income from the outset or at least have a plan to transition in future.

For a back of the envelope calculation, convert UK taxes paid into USD. convert UK income into USD subtract the standard deduction and look up the US tax on that amount. Compare it to the UK taxes paid. If UK tax is higher then it may be wise to consider FTCs. 

There are a lot of gotchas in this... for example the fact that once you start to use FTCs for earned income you cannot use the FEIE for 5 years; vagaries of unemployment and exchange rates that can influence the balance a bit particularly early in ones career.

Some food for thought at least.


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## Bevdeforges (Nov 16, 2007)

Just a further note to what Moulard has already laid out. She should take a look at IRS Publication 54 for information on how filing from overseas works.

As far as the UK bank interest works, yes, she has to declare it - though at this point in her life (and given the paltry interest rates most banks are paying just now), it is pretty much certain that that income won't push her above the standard deduction for filing single, so she can safely take the Foreign Earned Income Exclusion and just mail in the tax forms with nothing due.

You can always switch at a later date to taking the Foreign Tax Credit for investment income when and if that approach becomes preferable. And, it's possible to take the FEIE and then use the FTC for only the investment income when that becomes significant enough to generate taxes due. (The FTC requires you to segregate your income into categories and you can only claim the tax credit of like for like. Publication 54 probably explains this a bit better than I can.) 

Granted, the FEIE eliminates the ability to carry over the tax credit for UK tax paid on investments - but there are limits to that, and sometimes it is very worthwhile to consider the "convenience" of being able to complete your tax returns in a bare 15 or 20 minutes before you pop them into the mail for them to go missing forever in the bowels of the IRS!


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## Harry Moles (11 mo ago)

Did your daughter grow up in the US, or did she move to the UK as a child? This doesn't matter from a tax perspective, but it does matter from a cultural perspective. 

Anyway, yes, I'm the one who will ask the question: for what purpose is she filing US tax returns? If she plans to return to the US one day, has strong family ties or expects a US inheritance, then by all means, she should file. If she has no plans to return or other connections then she can safely ignore these obligations.

FATCA can be a bit troublesome for anyone with a US birthplace. If she doesn't want her accounts reported, and potentially restrictions placed on how she's allowed to invest, then she'll need to conceal her US citizenship from financial institutions. Given that the UK passport only shows city/town not country of birth, if it's something fairly innocuous - and she doesn't have an obvious American accent - then it should be possible.


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## winneymj (11 mo ago)

Harry Moles said:


> Did your daughter grow up in the US, or did she move to the UK as a child? This doesn't matter from a tax perspective, but it does matter from a cultural perspective.
> 
> Anyway, yes, I'm the one who will ask the question: for what purpose is she filing US tax returns? If she plans to return to the US one day, has strong family ties or expects a US inheritance, then by all means, she should file. If she has no plans to return or other connections then she can safely ignore these obligations.
> 
> FATCA can be a bit troublesome for anyone with a US birthplace. If she doesn't want her accounts reported, and potentially restrictions placed on how she's allowed to invest, then she'll need to conceal her US citizenship from financial institutions. Given that the UK passport only shows city/town not country of birth, if it's something fairly innocuous - and she doesn't have an obvious American accent - then it should be possible.


Hi Harry,
Thanks for the response. To answer some of your questions.
Yes she was raised in the USA and we put her through college in the UK. Both her parents (myself and wife) are also both Dual Citizens and live in the USA.
Believe it or not she has a very "fluid" accent. She picks up the accent of where she lives in around a month or less. People who meet her in UK have no clue she was born/raised in USA.
When it comes to coming back to the USA I guess anything is possible in the future so we want to make sure she has that option in the future, so prefer to file the tax returns.
Thanks for the tip on the banks accounts and citizenship.


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## Harry Moles (11 mo ago)

Given the ties it does probably make sense to file. In that case she should see whether it's still possible to collect some or all of the $3200 stimulus benefit by back-filing 2020 and/or 2021 returns.

Going forward, if she remains in the UK she will need to be careful with investments. Bit of an advanced skill at present, but something to keep in mind for the future. That's where dual citizens can get screwed by tax treatment (US will want to tax the gains in an ISA) or hideous reporting requirements (mutual funds considered PFICs) or differences in tax systems (poor old Boris and capital gains on the sale of his primary residence). Not to mention starting a business.

Financial institutions may not offer some products to American customers. If she stays in the UK permanently and does not want to deal with these limitations, her options are either to renounce or conceal US citizenship. Investing in the US is also a possibility, but that brings its own set of complications.


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