Moved to UK in 2006--filing US taxes for part-year residency?

Hi everyone,

My husband and I moved to the UK last summer (2006) and need to file our US taxes for 2006, when we were living in the US for only part of the year.  Does anyone know what we do?  A friend of ours who was in this situation last year told us something about filing for an extension so we would wait to file our taxes until after we'd been UK residents for a full year, but he didn't know the details on this because he'd had someone else do his taxes for him.

Can we just file our taxes normally, reporting our income for the months we were in the US as our income for the year?  Or do we need to do something like filing as part-year residents?  I was hoping to do our taxes myself, since, with the exception of our move to the UK, they should be very straightforward (married filing jointly, only one income, not planning to take any deductions other than the standard ones for ourselves and child).

If anyone has any advice, I would appreciate it very much!

Thanks,

Jade

Can we just file our taxes normally, reporting our income for the months we were in the US as our income for the year? 

My husband and I moved to the UK in the summer of 2006 also, and we just filed our taxes as normal...we had an accountant friend of the family look them over and he confirmed that we filed correctly.  So as far as I know you change nothing when you file for a partial-year residency...next year will be another story though 

We moved here last June and have filed an extension (you get an automatic 2 month extension anyway for living overseas) to meet the requirements of the physical presence test so that our foreign income will be exempt from taxation by the US. Look up the IRS website and read up on Publication 54 - lots of good info. Also, call the Philadelphia number which is there to answer questions for people living out of the country  - they are helpful and walked me through all the forms I would need to fill out. I think the number is: 215-516-2000 and the line is open 20 hours a day.  By law you have to include all worldwide income - it's in your best interest if you can avoid getting taxed on it in the US.

Just a quick response to say you'll get quicker answers from the website of the IRS at the US embassy in London (and the IRS staff in that office are also helpful only sometimes it can be difficult to get through to them on the phone).

Just Google for IRS London embassy and you'll find some really helpful explanations.

You'll also need to review your State filings if you came from a State with an income tax.

Just as Smootie said you must alsao report all of your UK earnings (and any other UK income) too; so the return might be more complicated this time around.

KK - Another quick note.  You say your family accountant reviewed your return and said it was correct. 

A wrong return would be one where you actually lie about your income or your deductions, or you do the maths and sums wrong, or you put right figures on the wrong lines.  Your family accountant assured you it was correct, which means that these particular errors did not occur.

But there are may shades of correct beyond simply ensuring outright boo-boos were not made.  For example, it's quite "correct" to file your return and not take any deductions for foreign income or foriegn tax credits.  But most people would prefer a correct return that also had the lowest tax possible.  Your family accountant may not be a specialist in international tax, and may have missed loads of things you are eligible to take.  Alternatively, you could have taken a position that would result in a super-low US tax - very correctly - but at the expense of paying even higher taxes in the UK.  In any case, there were probably 100+ variations as to what to include and what to omit that would still be a correct return. 

You might want to have last year's return reviewed by a dual-national specialist to confirm the lowest tax has been achieved between both countries.

I may be stupid, but I thought the correct tax is automatically taken out of paychecks (in the UK)?

Liz,

Do you think it would be worth it for us to hire an accountant to do our taxes for us this year?  As I said, everything seems straightforward (married filing jointly, one income from one employer, had a baby this year and moved overseas), but I would very much prefer not to overpay and not to file incorrectly.  Do you know how we would go about finding an accountant who specializes in international taxes?  How much should we expect to pay for this?

Thanks for your help!

Jade

Jade,

I do not wish to toot my own horn here. 

You can find a number of good ones using various search engines for "UK US expatriate tax".  Fees range from as low as £300 to as high as £1,000.  The fees are higher than in the US in part because they have to be highly specialized and take more advanced course work annually. 

Whether or not you should hire someone depends in part on your gross income:  If you earn over $82,500, or if your husband does, then you may save significant amounts by hiring someone.  If you earn under this figure, you might do just as well with Turbotax.