To hire a UK/US Tax Expert or Not?

Hi All,

I'm not sure how to phrase my question, since I'm so new to the UK tax system. I arrived here in the UK in mid-Sept. I started working in early Oct. I am a contractor (not sure if that matters, but thought I'd share). I noticed on my paystub stub that I'm not paying income tax, and I called my umbrella company to ask why. They said I will not begin paying taxes until I've reached the ~£9000 'threshold' (not sure what the proper term would be), seeing as I've never earned income in the UK before.

By the end of 2013, I will be pretty close, but don't think I'll reach that mark until very early next year. My concern is, that upon doing my US taxes I will be screwed because I will have essentially earned about ~$12k tax free.

I'm beginning to wonder if we should consider hiring a UK/US tax expert to do our US taxes for 2013. Between this situation, and the fact that my husband basically received about $9k for relocation assistance (tax free) in 2013, and a couple of other things that (in my mind) seems a bit more complex, I'm very worried we are going to be slammed with a massive tax bill.

If you do hire an expert, how much should we budget to pay someone to do our taxes? We've only used TurboTax, and never had anyone do our taxes before.

Welcome to the tax board, and thanks for raising these questions!

Your "personal allowance" is approximately £9k - this is the amount you can earn tax free (similar concept to the standard deduction/personal exemption in the US tax system).

Your UK tax bill for the first year will likely be lower than usual because you are coming to the UK part way through the tax year but you still get the full year's personal allowance.

You do not need a tax expert just to avoid a tax bill, as there are various ways you can shield your UK income from US tax, and all of these can be done using TurboTax or another tax software offering:

• Use foreign tax credits, carrying back any unused credit from 2014 to 2013.
• Use foreign tax credits and calculate your tax on the "accrued" rather than "paid" basis so that some of your tax for the 2013-14 UK tax year is attributable to the portion of your income you received during calendar year 2013.
• Use the foreign earned income exclusion to shield those earnings from US tax. However, be aware that using the exclusion can push your non-excluded income into a higher tax bracket, which can be a concern if you spent a chunk of the year in the US before relocating to the UK.

It's worth doing the math for each of these strategies to see which one works out best in your particular situation.

Good luck!

You won't be double taxed!

Your situation as stated is quite simple. Your UK tax will be paid through PAYE and you can use the Foreign Earned Income Exclusion to exclude your UK earned income from your US taxes. If you have investments or other US source income things will get a bit more complex and then you can probably just use one of the more generic US expat tax services like "Taxes for Expats" or "Greenback Tax". The cost of their services is a few hundred dollars with extra charges for more complex returns. You  might also consider asking your questions at the US Embassy Tax service.

What impact would it have that I earned approx. $16k in the US before I left?

What impact would it have that I earned approx. $16k in the US before I left?

No one on this forum could plausibly tell you the impact of your $16k in US earnings. You need to compute this as part of the process of preparing your tax return. In general terms, you have to pay US tax on your US income, and as nun said, you will not be double taxed on your UK income.

As I mentioned in my earlier post, do the math using both the exclusion and the credit and see which works better for you.

Why not give TurboTax a shot (it's free to use until you need to file) and then hire a tax expert if you really can't figure it out after that?

What impact would it have that I earned approx. $16k in the US before I left?

For the $16k US earned income specifically there will be no UK tax liability, but you'll obviously have to enter it on you 1040.