Gone are those days when Americans used to go abroad to work, marry and spend a good life without having to worry about tax authorities running after them. The situation has become entirely different now and therefore with more and more Americans moving to different places, they are also finding themselves being restricted to a number of tax obligations set by the tax authorities in the US and UK as well.
As a result, US expats living in the UK have to take the filing of their taxes seriously but that doesn’t seem to go well very often. A lot of expats make small but costly mistakes and some who understand the matter also don’t get the right advice from tax consultants for expats in the UK.
To help you in the matter, we decided to highlight some of the most common mistakes so that if you’re about to deal with double taxation, you don’t repeat them in your case.
- “I don’t need to file returns while living and working in the UK”.
This is the biggest misconception that can put you in trouble once you come back to your home in the US after spending a number of years. It doesn’t matter whatever the reason has been of your stay abroad especially in the UK, you are still required to file your returns in the US.
The only time Americans are allowed to avoid filing their returns is if the gross income falls below the set threshold by the IRS.
Along with the filing of tax returns, Americans are also required to file “Foreign Bank Account Reports”, or FBARs in case of having account balance around $10,000 or more at any point of time during the tax year. Also bear in mind that if you keep multiple accounts in order to avoid this threshold on a single account, the trick won’t work since $10,000 is an aggregate amount set as the limit.
- Failing to Report If You Have Had Capital Gain Upon Selling A Home Abroad
There is no doubt in the fact that buying a home abroad can be the best and safe gift you can give to yourself or your family but IRS will still have their eyes on you when you would decide to sell it.
The mandatory requirement of paying taxes and reporting to IRS will also stand valid if you live in countries like the United Kingdom where the authorities don’t tax on the sale of personal residence of any individual.
- Not Taking Investment Advice Only to Fall in Tax Trap
The current American tax system has made investing in foreign lands more complicated than ever and a good example of this is “passive foreign investment company”, or PFIC.
For those of you who don’t know “PFIC” is a part of non-US mutual funds which are always taxed disadvantageously and every American should take of them beforehand.
- Not Knowing the Right Tax Year
The worst part about taxation around the world is that every country has a different tax year. So, while in the US it may be December 31st, the UK tax year ends on 5th April.
Although US does allows people to take a credit against US tax for any amount that you have paid in the UK in the form of taxes, this credit will not stand valid till the time if you don’t pay your UK taxes within the allotted time.
Some of you may already know a couple of tips among the ones mentioned above but it is always good to be on the safe hand by taking care of little details.
