Is professional help necessary?

Hi everyone,

I'm just trying to figure out if it is worth getting professional help for filing tax returns.  I think my situation is pretty straightforward but this FBAR thing has me worried due to all of the horror stories around! 

I'm a dual US/UK citizen (just became a UK citizen last year).  I have been filing my tax returns since I moved to the UK in 2004- well, actually my dad has been filing them for me.  The only thing I ever put on there is my student loans which I pay out of a US account.

I think this is the first time my husband (UKC) and I would have possibly reached $10,000 in our UK bank account which is also our offset mortgage account.  We have finally managed to save some money and there are probably times (not for very long) where our balance would exceed $10,000.  Now, from what I can see, this would needs to be reported, correct? even though my husband is on the account and should not be subject to US tax laws (but that is beside the point). . . and I really don't quite understand what needs to get reported on pensions (I work at a university and have some sort of USS pension plan).

My question is, does this sound complicated enough to warrant professional help or do you think it is easy enough to just tick that box to say I have a foreign account and then fill in the FBAR thing myself?  I don't want to fork out money unnecessarily (I've seen some prices which are like $300-$450 for filing a return- that sounds like a lot to me!) but then I don't want to do something wrong and get caught out and wish that I had just got some proper advice.  Just wondering what other people do? 

Thanks,
Sarah

The FBAR filing sounds scary, but it really isn't, more tedious. Download the form and have a look at it.

The next question I have is how have you been dealing with your USS pension plan on your US taxes?

If the FBAR is the only thing that has you worried, take a look at the form.  I found that I basically had to give all the same information about my accounts to the accountant, that was required on the actual form.  So like the other poster said, it's just tedious.  I had an accountant for other reasons and it was just an extra small fee for FBAR.

Just make sure you file the revised form (Jan 2012), it's changed. As others have said, it's not a difficult form and something you can do yourself. Most things will be easy to value, (bank account etc) but as for your pension, you can give an approximation to it's maximum value for the year, as often this information is not available from the provider. Remember that it's the total value of all items for the 10k threshold. So for example, if your pension is worth $9,000 and you have $1,000 in the bank then you need to report

One other point I would add, make sure that you mail the FBAR and get some receipt back that the U.S. Treasury have received it. I believe there might be electronic filing for this year.

Thanks everyone for the helpful replies!!

Although, Barcrest, your post has me slightly concerned because I have never reported anything about my UK pension to the US on my tax returns. . . I take it I was supposed to? I understand why it is part of FBAR but never realised I'd need to report it on a tax return. . .Is there a way to rectify this when I file this year? 



 

Thanks everyone for the helpful replies!!

Although, Barcrest, your post has me slightly concerned because I have never reported anything about my UK pension to the US on my tax returns. . . I take it I was supposed to? I understand why it is part of FBAR but never realised I'd need to report it on a tax return. . .Is there a way to rectify this when I file this year? 
 

UK pensions are a bit of a pain when it comes to the IRS and this is a situation where you need some professional advice to file amended returns. The good news is that there's probably no tax due.

The UK/US tax treaty covers pensions and you can take a tax treaty position to make your employer's and your contributions tax deferred on your US taxes and to shelter any gains in your pension fund from US tax until you take income out; just like in the UK. The alternative is to declare your and your employers contributions as income and gains in the pension fund on your US taxes and pay the tax now taking tax credits if you have them. However, this route requires a lot more paperwork.

Thanks, nun (and sorry - I realise now I meatn to say it was your comment and not Barcrest's!)  OK . . .lots to think about.  Good thing I just handed in my thesis and now have time to concentrate on sorting out my taxes!

The next complication- we want to sell up and move to Canada. . . but that's another post for another day!

Robert H. Green Date and Diane Hay (U.S. competent authority & U.K. competent authority) provided clarity to U.K pensions in 2005, especially private and those held in trust under article 3(1)(o). This added to the double taxation agreement that states that pensions are not taxed until distributions are made. So any gains or losses are tax deferred. If you paid tax on any internal gain currently, then you would in effect pay twice, now and when you receive the distribution.  From reading the DTA, it would indicate that employer contributions are not considered part of an employee's compensation and you can deduct, (up to IRS limits) your contributions, just like you can Stateside. There was a time that a treaty based return was to be made, although according to the IRS 8833 is no longer needed. Although the form has not been updated since 1996, the “Claiming Tax Treaty Benefits” section from the IRS web site offers exceptions. Anyway this is my interpretation, ask ten people and you're likely to get ten different answers, such is the animal.

“The term “pension scheme” is defined in Article 3(1)(o) as any plan, scheme, fund, trust or other arrangement established in a Contracting State which is: (i) generally exempt from income taxation in that State; and (ii) operated principally to administer or provide pension or retirement benefits or to earn income for the benefit of one or more such arrangements.”

BTW the FBAR is not a tax form, rather an asset reporting tool for the U.S. Treasury.

Thanks everyone for the helpful replies!!

Although, Barcrest, your post has me slightly concerned because I have never reported anything about my UK pension to the US on my tax returns. . . I take it I was supposed to? I understand why it is part of FBAR but never realised I'd need to report it on a tax return. . .Is there a way to rectify this when I file this year? 

If it is an occupational defined benefit scheme e.g. final salary type, it is not taxable in the US under Article 18.  I have also been informed  by a major firm of London accountants who specialize in US/UK tax returns that the scheme doesn't have to be reported on the FBAR (nor any attached AVC'a or Executive Pension plans which augment the occupational scheme.)  However, other tax advisors may have other ideas about the FBAR.  Still don't know about the new form, but I expect it will have to go on there along with everything else one owns. 


 

Even if you did decide to report a defined benefit pension plan on an FBAR, it seems you would have a problem entering the maximum value. What number should be used? Perhaps zero since it cannot be cashed out now but then it's hardly worthless!

Even if you did decide to report a defined benefit pension plan on an FBAR, it seems you would have a problem entering the maximum value. What number should be used? Perhaps zero since it cannot be cashed out now but then it's hardly worthless!

This is a very good point... Is it undistributed value, (plans worth) or the distribution taken for the tax year, (zero if under retirement age). If it's zero, can the pension then be disregarded for the FBAR?