Tax nightmare - advice?

In order to successfully apply for an IR1 visa for me, my wife has to get the last 3 years tax submissions filed. Forms 1040, 2555, 1116 and Schedule C.

The tax forms are INCOMPREHENSIBLE, in places. I'm not thick, my IQ is 149, for goodness sake. How the hell anyone manages to file taxes from overseas is beyond me.

Does anyone have any ideas on where to get advice on how to complete these forms, short of hiring an expensive tax expert to prepare the paperwork? Yes, I've trawled through the ludicrous 155-page "information" PDF for the 1040.  I've been quoted circa £600 for someone to prepare the paperwork for me.

It's more about actually calculating the tax amount that is my issue, which is utterly pointless anyway, given that she qualifies to not pay any tax as her income is well under the threshold for overseas earnings.

If I post more specific hangups I am having here, is anyone able (and has the inclination and patience!) to help me please?

41 views and no replies?  Nobody any ideas?

I'll reply but I've no help to offer, sorry.  I feel for you.

I have paid someone to do mine every year.  I just can't figure it all out by myself.

Good luck with it. 

Well, okay, I don't know jack about it. But my idea...my hope is that a program like TurboTax will do what needs doing. It's what I use to file in the US. I'm not in the UK yet, so that's purest speculation.

Anybody tried it?

Hi Britishguy

I think a good place to start as any is to gather up all your paperwork thats associated with the figures you need to complete the returns. Get them into order.

I then suggest you look at software such as Turbotax which allows non accounting types to fill in and complete their own returns. I used to work for Intuit & spent some time on the UK equivalent (TaxCalc - before it was sold off) and the above is pretty much what I and our team would suggest to those like yourself who are at the 'tearing out of hair' stage!

Software like this allows you to go through a simple question and answer type procedure and asks you to fill in amounts from your paperwork - for those who have a little more experience, you can fill the forms as if they were on paper (facsimile paper returns within the software)

The great thing is that plenty of advice and notes comes with the software! these notes and tips can really help. Minimal cost too!, personal tax return software isn't expensive - I think in the US Turbotax for your scenario should be around $40-50.

Finally, if your tax scenario is complex, it's always a good idea to speak to a professional accountant familiar with US and/or UK tax to get more guidance to help you.

Hope this helps a bit!
Cheers, DtM! West London & Slough UK!

Cheers for that.

Her income is not complex at all, in fact exactly the opposite.  She has a total figure for income from each year, I have transposed her UK figures (6 Apr to 5 Apr) to the US tax year (1 Jan to 31 Dec) on a new spreadsheet.  She has NO expenses to offset or claim for, no receipts at all to mess with.

I was hoping that it would have been simple enough but not being familiar with the forms, the way it's laid out just doesn't make sense to me.  I may have another go tomorrow as I really need to avoid the costs of hiring someone to do it.

Perhaps I will cheat and use one or two of these online thingamajigs to see if it makes it "click".

Hiya

I'm not a tax rules expert - i'm a little rusty on those now! however from what you've said I think you'll find rather than expend energy making up spreadsheets, to get the software and use the 'plain english questions' type route and 'plug in' figures as you go along. The software will calculate for you once you reach the end and have just input the figures from your paperwork.

Obviously, I'm commenting from what you've typed here, I'm not saying this is the 'only' way forward for you! it may be to 'get those figures' you are having to use spreadsheets etc. however, from experience, most people who have relatively 'simple tax affairs' will use software like TurboTax /TaxCalc and grind through it over a couple of days - once done, we tended to find users would then find it much easier in subsequent years!

I know the USA system can be a little more in depth in terms of tax rules for individuals - so take a look at the notes to help you.

We used to find the 'online' calculators were limited in their functionality and/or only offered ballpark figures i.e were test beds and/or website enhancements with an overall tax view rather than an accurate reflection as calculated by specific software. Things may have changed in recent years though, but I haven't heard of an accurate online tax calculator - the main routes are to file by paper, use specific software or use the governments own systems on their websites.

Cheers, DtM! West London & Slough UK!

I have the three basic figures I need already worked out and ready (total income for each year, 1 Jan to 31 Dec).  Those appear to be the only figures I need to "plug in".

Ok. I tried TaxACT Online. I answered the questions as well as I knew how. What I did figure out is that, although the first wave of questions appear to relate to US-earned income - it doesn't state that specifically. So I put in her income and then later, when it asked about foreign-earned income, I put it in again. This resulted in a gross income figure double what it should have been.

So I started again, and didn't fill in the first section (income from own business) and just filled in the foreign-earned income bit. This seems to work, and results in a tax owing amount of $0, but the forms don't look right to me (not that I would know what a correctly filled in form looks like!).

For example, on the 1040, the figure on line 22 is a negative figure (by the exact amount my wife earned, in USD). I am presuming that this is because the figure from the form 2555 (the full amount of foreign-earned income) is put in line 21 on the 1040, so the gross adjusted figure is a negative amount, as there was no other income at all.

Does anyone know enough about it to know if this sounds correct or not?

You have said she is self-employed.

1. Don't forget to file Schedule SE as well.

2. I assume she also needs to file Schedule B and TD F 90-22.1 to disclose her foreign bank accounts.

3. Don't forget the $30 refund for 2006.

Thanks guya.

When she rang London to ask what forms to file they didn't say anything about Schedule B and TD F 90-22.1.  They just said file 1040, 2555, 1116 and Schedule C.

Do you have any guidance on the speific question I asked about the negative figure on 1040 line 22?

Actually, I think I've cracked it (with a little help from some friends - see below).

I phoned IRS London at the embassy asked if they could help with the specifics of the 1040 and she said "I can try".

So I asked her about which fields I was actually supposed to fill in under my circumstances.  The answers were as follows -

Demographics:

Where the USC is married to a non-USC and you both live outside the US, your filing status should be Married Filing Seperately.  If the spouse has no SSN/ITIN you leave the SSN field for the spouse blank and where it says "enter spouse's full name here" you enter Non Resident Alien rather than the person's name.  Check box 6a, and put the number "1" in boxes checked on 6a and 6b and in exemptions part 6d add numbers on lines above.

Onto the bit with the figures:

1040 line 7 is for total worldwide income, but NOT for self-employment income.  That's line 12 (for which you attach a schedule C).

Then on 1040 line 21 you list a NEGATIVE amount corresponding to the entire amount of earnings being claimed under the foreign earnings exclusion (as long as it's less than the allowance for 2007, which is $85,700).  This is the amount arrived at on form 2555, line 45.  This leads to a "total income" of $0, which is listed on 1040 line 22.

Once your official total earnings is zero obviously your tax figure is also zero.

I was told that a form 1116 was not mandatory and only required if you are claiming credit for tax paid in a foreign country.  If the full amount earned is less than the maximum foreign income exclusion ($85,700) then this is irrelevant as you don't pay additional tax anyway - so no point in filing it.

Form 2555: I had originally put one or two items in the wrong fields but after I did the online thingamajig at taxact.com and compared my copy to the one it produced - I saw where I went wrong.

Now it all makes more sense.  I'm glad I revisited it this morning rather than spending a fortune on a tax professional.

I have one more question on the 2555 form but I can ring IRS London about that (tomorrow - the lines are only open till 12 noon!  ).  It's relating to item 6a.  If you are filing the last 3 years at once, in truth the answer to "have you filed form 2555 before" is actually no - but if one had submitted the forms annually then the answer would be no for 2005, but yes for 2006 and 2007.  I will try and clear this up with them tomorrow.

Thanks to all for your input and hopefully the above explanation may also help someone else.

I have one more question on the 2555 form ..... It's relating to item 6a.  If you are filing the last 3 years at once, in truth the answer to "have you filed form 2555 before" is actually no - but if one had submitted the forms annually then the answer would be no for 2005, but yes for 2006 and 2007.

I phoned and they were very helpful again.

The answer was to put "no" for 2005, then yes and the previous year for 2006 and 2007.  "They are looking for continuity".

Thanks guya.

When she rang London to ask what forms to file they didn't say anything about Schedule B and TD F 90-22.1.  They just said file 1040, 2555, 1116 and Schedule C.

Do you have any guidance on the speific question I asked about the negative figure on 1040 line 22?

The penalties for failure to file TDF90-22.1 are criminal ones; this is a Treasury - not an IRS - form but if you need to file then you disclose on Schedule B and on form TDF90-22.1. 

Guya,

The penalties are civil as well as criminal for not filing TD F 90-22.1.  They used to be only criminal, but that meant they had to go to trial and prove you were guilty of malice aforethought in not filing the form.  As a civil penalty, no intent need be proven to assess the penalty.  Summation:  It actually s**ks big rocks more as a civil penalty than as a criminal one.

BritishGuy,

With a high IQ, one could easily figure out the tax system, but like everything else one must learn in life, it requires sufficient time and resources that most of us don't have.  Like most other professions, the average tax accountant's IQ is a mere 105 - 110, though you might be surprised to note that I'm two standard deviations from the norm.  Plus, not minus.  :-)

Folks pay us (me and Guya and all the rest of the US/UK tax accountants out there) not for our potential to grasp a deep and complicated subject, but for what we have already have grasped for which they don't have the time to get up to speed. 

That's a very fair comment Lizzie.

Fortunately, I did have the time (I was on vacation from work the past two weeks) and although I nearly tore my hair out trying to wade through the 155 page "help" PDF for the 1040 form, I did the right thing and walked away from it for a few days and went back afresh - and then the second time around and with some assistance it all came together.

I see that I am not alone in having issues as I have replied in a surprising number of threads already from folks that seem to have identical questions to mine, with people trying to get their taxes up to date with the IRS.