# Tax Confusion



## Meepmeepy (Sep 17, 2014)

Hi guys,

Just had a few question as online seems to be a total mess of information when I google.

SO.
My partner may well be self employed in the UK for a while, and has a small "self employed" US business that can easily be transferred when they move here soon. 

My questions are about taxes. Obviously they will need to pay their US tax up to the period in which they leave for the UK, state/federal/self employed etc.

I also understand the US and UK have a tax treaty that will stop overlap.

HOWEVER I'm looking to find out exactly what they need to do, who they need to call, what forms they need to fill out and when to let the US know they are in the UK, paying all taxes and NI insurance there etc. We obviously want to avoid any confusion and fines with the IRS. I've heard they need to tell social security? Tell self employment tax/Medicaid people? Just looking to see if anyone knows the exact list of actions we need to take.


----------



## BBCWatcher (Dec 28, 2012)

Meepmeepy said:


> My partner may well be self employed in the UK for a while, and has a small "self employed" US business that can easily be transferred when they move here soon.


I think before we can start to offer a reasonable set of answers there are a couple relevant questions:

1. What is your partner's U.S. status? Is he/she a U.S. citizen or U.S. green card holder?

2. Is the business formally constructed in any way? In what way (e.g. incorporation)?

3. Will the business continue existing after the move? In what way(s)?


----------



## Meepmeepy (Sep 17, 2014)

BBCWatcher said:


> I think before we can start to offer a reasonable set of answers there are a couple relevant questions:
> 
> 1. What is your partner's U.S. status? Is he/she a U.S. citizen or U.S. green card holder?
> 
> ...


1/ US Citizen but settling permenantly in Uk has 2.5 year settlement visa granted.

2/ No, not incorporated so just standard US self employed individual to UK self employed sole trader.

3/ Yes, they are self employed and have a number of clients who will continue to use their services regardless of country of residence.


----------



## BBCWatcher (Dec 28, 2012)

OK, she really has nothing particularly "special" to do then, as I read it. It sounds like she's just a simple sole proprietor and reports her U.S. self-employment income via IRS Form 1040 Schedule C. If my suppositions are correct, then she'd (in no particular order):

(a) Continue filing U.S. tax returns (IRS Form 1040 and related attachments), still with Schedule C. That really doesn't change, though the tax owed will.

(b) Start filing (if she isn't already) FinCEN Form 114 and/or IRS Form 8938 if she has "signature authority" over any foreign financial assets that meet the reporting thresholds.

(c) Register for U.K. National Insurance (get a U.K. NIN, etc.) and start making contributions to the U.K. system. Thanks to the U.S.-U.K. social security treaty she would no longer need to make U.S. Self-Employment Tax contributions. She should be aware that her future U.S. Social Security retirement benefits and potentially U.S. Medicare qualification will be impacted, though she will pick up some U.K. benefits presumably. (She can qualify for U.K. national pension benefits with as few as two years of contributions, as I understand it, assuming she has enough U.S. years for the U.K. to count -- the two countries have a social security treaty to coordinate benefits to some extent.) If she doesn't have 10 years of contributions in the U.S. she hasn't yet qualified for free Part A Medicare in the U.S., so she should be aware of that.

(d) Take the U.S. Foreign Earned Income Exclusion (FEIE) if she wishes, once she qualifies. She can file IRS Form 4868 to get an extension of her filing deadline in order to make it easier to file an FEIE-qualifying tax return.

(e) Take the U.S. Foreign Tax Credit for U.K. and other foreign income tax paid on non-FEIE income (if she takes the FEIE).

(f) Continue following all applicable U.S. legal rules, e.g. not doing business with embargoed countries and blacklisted parties.

(g) Maintain a U.S. bank account if she wishes to continue receiving payments in the United States, preferably with the lowest cost facilities for spending money in the United Kingdom -- low cost debit/ATM card, low cost U.S. credit card, etc. (That doesn't affect tax issues.)

(h) Comply with applicable U.K. rules, e.g. VAT registration and collection.

(i) Continue making U.S. estimated tax payments, though adjusted for U.K. residence and the likely impact on U.S. taxes. Start making U.K. estimated tax payments, as applicable.

(j) Evaluate whether any liability insurance coverage (e.g. "umbrella policy") needs to be adjusted, if applicable.

(k) Evaluate whether any disability insurance coverage, including U.S. Social Security disability insurance, needs to be adjusted. (U.S. Social Security DI will stop providing coverage after a couple non-contribution years to the U.S. system.)

(l) Consider the impact on her retirement savings (e.g. IRA contributions) of her U.K. move and make adjustments if necessary, and to the extent possible. In general that means trying to boost savings, keeping those savings in the U.S., to compensate for the partial or complete loss of U.S. tax-advantaged retirement savings -- and (in general) to avoid U.K. vehicles, allowing you alone to specialize in those.

(m) Take care of state-based implications. In particular, if she's currently collecting a state sales tax for the services she provides then she would probably be able to stop collecting that tax if she no longer has a business presence (herself, for example) in that state. It depends to some extent on the state and their definitions, though, about state residence.

That's a pretty good list.


----------



## Bevdeforges (Nov 16, 2007)

Probably a good idea for your partner to take a look at IRS publication 54 now rather than later. Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad 

As a US citizen, your partner will always be required to file US tax returns unless their income falls below the reporting threshold for a given year, or unless they formally renounce their US citizenship at a US consulate (fee: $2350 or thereabouts).

Pub 54 explains the main ways to avoid double taxation when living abroad and the various forms that need to be filed and how to file them.
Cheers,
Bev


----------



## Meepmeepy (Sep 17, 2014)

Thanks for all your help guys! Clears a lot up.

Had one more question regarding her continuing to file estimated US taxes (something we don't really do in the same way in the UK). If her US tax will equate to zero (for following tax year) does she still file estimated taxes every 3 months and indicate that they are being reduced to 0 in the US by the treaty? (she won't make more than $60,000 a year in the UK).


----------



## Bevdeforges (Nov 16, 2007)

If you don't owe anything, then you don't bother with the estimated filings. This, from Publication 54:



> If you had a tax liability for 2014, you may have to pay estimated tax for 2015. Generally, you must make estimated tax payments for 2015 if you expect to owe at least $1,000 in tax for 2015 after subtracting your withholding and credits and you expect your withholding and credits to be less than the smaller of:
> 
> 90% of the tax to be shown on your 2015 tax return, or
> 
> 100% of the tax shown on your 2014 tax return. (The return must cover all 12 months.)


It looks complicated at first glance, but basically, if your prior year's tax was 0, then you don't bother filing estimated taxes, unless you have reason to know/suspect that you'll owe money at the end of the year.
Cheers,
Bev


----------

