Filing overseas for the first time - a few questions

Hi,

This is our first year in the exciting world of foreign taxation. My wife is a USC, resident in the UK since January 2009. (Last year, somebody else handled the process for us, since she was resident in the US during 2008.) I'm a UK-citizen NRA with no ITIN.

I have a few questions about the process of filing:

1) Does my wife fill in a 'normal' 1040 like the one here? http://www.irs.gov/pub/irs-pdf/f1040.pdf

Or is there a 'special' 1040 for overseas citizens?

2) Am I right in thinking that, unlike the UK tax year, the US tax year is the same as the calendar year? (By this, I mean the period under assessment - not the April 15 deadline.) Apologies if this is a very basic question, but I've no prior experience with the US tax system...

3) Can we delay filing until June 15th, as per the US Embassy IRS FAQ page? Do we need to do anything to take advantage of this extension? I know the FAQ page (http://london.usembassy.org.uk/irs/irsfaq.htm) describes the extension as 'automatic', but then a few paragraphs later states that

"Taxpayers filing their first overseas return may elect to file Form 2350 anytime before the due date of their return (including extensions) in order to meet residency requirements to exclude foreign income."

Does this mean that we will need to file Form 2350 before June 15th, or before April 15th, or not at all? The wording isn't entirely clear. (No issue with interest - my wife is unlikely to have to actually pay anything.)

4) Her only income during 2009 was a UK-based salary (UK income tax paid of course), and about $200 of interest from a US-based bank account. Is she likely to have to do anything other than file a 1040?

I know these are basic questions, so many thanks in advance for advice and answers!

jenmaries

Hello jenmaries,
1) Generally, there are two 1040's that can be used: the 1040 in your link, or a 1040EZ. There are no special 1040's for overseas Americans.
2) It's the calendar year, 1 Jan. to 31 Dec. (and no apologies needed).
3) Depends on your decisions on 4).
4) She may have to file 1040 Schedule B. If she had NO accounts in the UK (or elsewhere abroad), including joint accounts, then she would fall under the $1,500 level required for reporting and would only declare the interest on 1040 (please read the instructions for Sch. B for other qualifications). If her name is on any account in the UK, including joint accounts, then she must file Sch. B, and particularly Parts I and III. If the aggregate value of all foreign (to the US) accounts with her name on them is over $10,000 (total value of account, not just her half) she must file TD F 90-22.1. If she does not want to be taxed by both the UK and US on the same income (no one does), she will need to file either, or both depending on circumstances, Forms 1116 (credit for UK taxes paid) and/or Form 2555 or 2555-EZ (exclusion of UK income). Form 2555 comes with requirements on Residence or Presence Tests which may require filling for extensions. You need to have a read of the 2555 instructions to see how you want to proceed. You do have other options, such as filling the 1040 now, paying the taxes, and once she qualifies for 2555 filling a 1040X to reclaim the taxes paid.  

And before anyone jumps in, please pardon my non-PC language.

Wait.  If I have any bank account in the UK I need to file a Schedule B?

I have never done this or even knew that I needed to do.  I hate taxes. 

If you get any interest from your accounts in the UK you need to declare it on line 8a of the 1040 and attach a Schedule B.

Wait.  If I have any bank account in the UK I need to file a Schedule B?

Under General Instructions, Purpose of Form for Schedule B, it states "Use Schedule B if any of the following applies". The last bullet point says "You had a foreign account...". Under the instructions for Part III, line 7a, (2), Exceptions, you check the NO box if the aggregate value of the foreign accounts was under $10,000 (among others). Under the increased FBAR enforcement the IRS now wants to make sure you don't miss Part III. In the past, some have claimed they didn't file Sch. B, hence missed the instructions to file an FBAR even though they should have, and didn't file one because of that. I think (and I may be wrong) that an Appeals Court agreed to their argument. With all the passed and proposed legislation in Congress, things may only get worse.

theOAP et al,

Thanks for your help so far. I've looked through publication 54 and instructions for 2555-EZ, and I think I've arrived at the answer for question 3:

It doesn't look as though my wife qualifies for the bona fide test, because she wasn't in the UK for an uninterrupted tax year (she arrived on 31 January 2009).

However, I think she qualifies for the physical presence test, if the test is based on the period 1 February 2009 - 31 January 2010. Her only period in the US during this time was a 14-day visit in May (visiting family), so she was overseas for more than 330 days.

Therefore, my understanding is she qualifies for the automatic 2-month extension (without filing 2350), based on the following:

"You are automatically granted a 2-month extension of time to file if, on the due date of your return, you live outside the US or Puerto Rico, and your tax home is outside the US. If you take this extension, you must attach a statement explaining that you meet these two conditions." (From Instructions for form 2555-EZ.)

On 15 April 2010, she will be living outside the US, and her tax home (defined as 'regular place of business or employment') will be outside the US. She passes the physical presence test. So she qualifies for the 2-month extension.

Does this sound reasonable? Let me know if not - we've hopefully still got time to do a 2350, or pay the taxes and claim back later.

Thanks!

The answer I got from the IRS was to enter NRA into my spouse's social security field, as well, but does anyone know of a tax program that will actually let you do this? I always try to and it tells me to enter a valid SSC, which, of course, I can't.

The answer I got from the IRS was to enter NRA into my spouse's social security field, as well, but does anyone know of a tax program that will actually let you do this? I always try to and it tells me to enter a valid SSC, which, of course, I can't.

I used Turbo Tax to prepare my federal taxes. At the end it checks your document and will tell you you have an error on your form due to a missing SSN. Just override the error message. You can't eFile from overseas, so you have to print them off and mail them in. You can just write NRA on the form before you send it.

Fantastic, thank you! I was wondering if we could e-file or not. I'll put it in the post tomorrow.

Also, does anyone know if it's okay to have them directly deposit your refund into your American account, or would that send up any red flags? Should I just have them mail me a check here? I'd rather have it deposited into my American account, for obvious currency-exchange reasons.

Remitting the refund to the UK could result in a UK taxable remittance so it would normslly be sensible to keep the money outside of the UK.