Filing for an Extension of Time for US 1040

Helen, you are most welcome to this board!  It's nice of you to help people out!

I'm an American who worked most of last year in the U.S.  I started my permanent job in London in September.  I have been on the IRS website and I know I can file for an extension of time which will allow me to file my tax return when I've been here for a year (to get the foriegn tax credit).

They warn that getting an extension to file is not an extension to pay, but if I do pay in April, I'll be paying taxes on my 3 months of income I earned in the U.K. (which I have already paid taxes on over here).  How would I pay what's owed without filing the tax forms at the same time?  Do I refile in September?  Or does this mean they assume you will pay late and incur interest charges when you finally file?  Would I also be fined for this?

I lived in North Carolina and will have to pay taxes for most of the year.  Do you know if I will have to pay State taxes on my foriegn income as well even if I wasn't living in U.S. for those 3 months?

I was a bit confused about this and wanted to know before I send my extension in.  I hope it's not to late to do this!

Any advice would help!

Thanks!  Caroline

Hi Caroline

You are absolutely correct in saying that the extensions are just for the "time to file" and not for "time to pay".  To determine how much (if any) is payable to the IRS before 15 April, you should do an estimate of your tax liability for 2002.  If you had enough withholding until September (when you worked in the US) and paid enough UK taxes from September to use as Foreign tax credit (FTC) and do not have much investment income, you will not owe them any money. However I can't say this with any degree of certainty without having sight of your information for 2002. Let me know if you would like me to prepare your estimate calculation for you. If so, you can send me a note to my direct e-mail address.

I also wanted to say that all US citizens living abroad on 15 April 2003, will have an automatic extension to June 15 2003(without needing to file an extension form).  But as mentioned before, this is an extension of time to file and not time to pay.  If you go for the automatic extension without making a payment, and it turns out that you have a balance due to the IRs, they will charge interest from 15 April.

You will not have to pay NC taxes on your foreign source income provided that you can break residency with NC from September 2002 (when you moved to the UK).  I need to know more about your situation before I can say for sure whether or not you will be able to break residency and file a part-year return in 2002. If you do not expect to file your return by April 15, you also need to file an extension form with NC and make the necessary payments then to avoid interest charges.

I hope this helps. Let me know if you have any further questions.

Helen
HT TAX
h.tanhaie@ntlworld.com
+44 208 466 9297