Trying to think ahead for the UK

Couple of questions I have been pondering on this evening. This next year 2015 we should be back in the UK and this year 2014 will be the last year for filing married jointly here in the US. I am selling some more of our Vanguard mutual funds in January and I am trying to figure out how much I can sell and avoid the dreaded 25% bracket. For 2015 the top of the 15% bracket seems to be $37,450 of taxable income.  My gross income for the year should be around $28,000. Looking back at my 2013 TurboTax it was about the same gross but after deductions etc I only had a taxable income of less than $8,000. So If I have figured this out anywhere near correctly.....
For 2014 it should be
*Gross income= $28,000
*Married jointly deduction= $12,400
*Personal exemption x 2 = $7900
*Taxable income for 2014= approx $7700 Do I have that correct?

If so.....then since 2015 will be about the same for Gross income, but only 50% of the deduction/exemption totals since I would be filing separately since we would be back in the UK..... my taxable income should be around $17,700. IFFFFF so.....then since the 2015 top of the 15% bracket is $37,450 I should be able to sell off enough Vanguard as long as my capital gains are a little under $20,000. Does that sound right?

Fred

If your spouse has no US income, you may be able to claim an exemption for her as well even with MFS.

See the explanation here (#2) and also read the IRS publications.

https://americansabroad.org/issues/taxation/us-tax-implications-of-a-non-american-spouse/

vadio- thanks.....but if I read that right, since she has a green card right now it kind of buggers things up. I don't know why I didn't think of that earlier. Even if I put a bunch of money into her name in her UK account....at the very least she (meaning me) will have to fill out FBAR+FATCA wouldn't she? We would get rid of the green card as soon as possible this next year, but we would be stuck for at least the 2015 tax year. And.....if I have to do that paperwork anyway for her account for 2015....I may as well file jointly since I can get twice the amount of capital gains for funds I will be selling in January. Then is there anything that would stop me from moving to filing separately for the 2016 tax year? Is there anything that stops me from moving from filing jointly one year (or more) and then separately in other years while we live in the UK? Thought that came up in a post earlier in my FATCA...NISA topic.

If your spouse has no US income, you may be able to claim an exemption for her as well even with MFS.

See the explanation here (#2) and also read the IRS publications.

https://americansabroad.org/issues/taxation/us-tax-implications-of-a-non-american-spouse/

Good spot, he can claim an exemption for his wife.  

I just ran TurboTax 2014 Q&A mode with a fictitious Fred and Mary.  I said that they lived in a foreign country from April 6th, Fred was filing MFS, Mary had no US income and was not going to file a US return and TT said "Good News, you're qualified to claim an exemption for Mary"

This thinking ahead stuff is starting to really get to me.....

This thinking ahead stuff is starting to really get to me.....

+1

Consider it as good exercise for the brain.

This thinking ahead stuff is starting to really get to me.....

That way lies madness; you can only do the best you're able given the present circumstances. The sad fact is, what are the rules today will not be the same rules come next year, or the year after. Take it from experience, Congress/the IRS will pass a new law or make a new ruling which will render a portion of your planning void. It just happens; and it will happen.

There are no perfect solutions. Go with your best shot, but ultimately, there is no way you can make a perfect plan that will survive for 5, 10, or 20 years completely intact, especially if you live abroad.

If your spouse has no US income, you may be able to claim an exemption for her as well even with MFS.

See the explanation here (#2) and also read the IRS publications.

https://americansabroad.org/issues/taxation/us-tax-implications-of-a-non-american-spouse/

There's a favourable twist to this, depending on how you read the instructions for the spouses income. There is a line found in the instructions which says when filing MFS, if the spouse has no US income which is taxable by the US, then they can be claimed as an exemption. According to the US/UK DTA, US Social Security is only taxable by the UK, and not the US (if you elect the treaty) if the individual receiving the income is resident in the UK. That applies equally for a spouse who is claiming the US SSA 'married spouses benefit' and is resident in the UK. An additional consideration for F4m's forward planning.

Yeah.....OAP....I had already picked up on that one....although I easily easily easily could have missed it. But like you said.....who knows if it will still be the same in another 7+ years before she hits 62. But coming back to a question I asked above.....it looks like I will need to file jointly for 2015 so I can sell off a larger chunk of Vanguard in January and take advantage of the high capital gains limits for joint filing, my wife would still have her green card for part of next year anyway before we can try to get rid of it. I could see wanting to do that for a couple more years even and just suck it up and do the FBAR+FATCA paperwork fun. Is there anything that stops us from beginning things in the UK filing jointly and then switch to filing separately?

Yeah.....OAP....I had already picked up on that one....although I easily easily easily could have missed it. But like you said.....who knows if it will still be the same in another 7+ years before she hits 62. But coming back to a question I asked above.....it looks like I will need to file jointly for 2015 so I can sell off a larger chunk of Vanguard in January and take advantage of the high capital gains limits for joint filing, my wife would still have her green card for part of next year anyway before we can try to get rid of it. I could see wanting to do that for a couple more years even and just suck it up and do the FBAR+FATCA paperwork fun. Is there anything that stops us from beginning things in the UK filing jointly and then switch to filing separately?

When are you moving to the UK? If it is after April 5th then any US income in January will not be considered UK taxable for the 2015/16 year. I am planning on this for ourselves in 2016 so that I can do some more ROTH conversions without them being taxable in the UK that calendar year.

Putting the house up for sale at the end of Feb most likely. Even if we are lucky and get a quick sell I would bet it will be after 5 April before we move. My wanting to file jointly is more just to avoid paying 25% in the US on fund sales. I will likely really sell off more than we need just to have enough cash (300K Pounds including sale of this house) to get us through at least one year including a UK house purchase sometime within that year. Then we go back to being tight-wads again.

Also reminds me to go ahead and get the letter written for my wife's parents to sign saying we will be staying there. Need to get a copy of the land registry online as well. In the next couple weeks I need to get busy.

Is there anything that stops us from beginning things in the UK filing jointly and then switch to filing separately?

You'll have to decide when is the best time for Mrs F4m to make a break with the US system. IMHO, and I may be wrong on this, it would seem the best time for her to give up her green card and file 8854 (if she is an LTR, Long Term Resident) would be the last US tax year in which it is advantageous to file jointly. It appears you will both be resident and subject to filing for 2015, so declaring her non-tax status with the 2015 filing (going forward), with you then filing separately for 2016 should work. This is where the professional advice will come in handy. If Mrs F4m files jointly with you in 2016, then she will have subjected herself to continue with US returns ( forever, until the election is revoked) as an NRA filing jointly by election if she has given up the green card in 2015.

Have a read of Publication 54, on pages 6(?) or 7(?) under filing jointly with an NRA spouse. Mrs F4m may want to delay making an official surrender of her green card if you wish to file jointly for 2016. Again, this is in competent advisor territory for the correct advice. There is also the option of filing part year as resident in the US and part year as non-resident, but if memory serves me, doing so means you can not file jointly (I may be wrong). Giving an answer to this is beyond my knowledge base.

Remember, the rules for giving up a green card for immigration purposes are not the same as giving up a green card for exiting the US tax system.

Just to add, by and large given what I've read of Mrs F4m's situation, her UK filings will not be complicated even if she must file a self assessment return due to foreign income for a year or so.  

Guess it's one of those things were I kind of need to file jointly for 2015 to cover the largish fund selling, after that it shouldn't be much of an issue as I will only need to sell off a little each year to keep us limping along. I would also like to cut as many ties to the US as far as my wife goes. It looks like filing separately from 2016 onwards is likely the way to go. Part of the problem in my head is that I keep thinking that I can only sell off enough Vanguard (and eventually the Govt TSP) to stay under that $36K range for the filing separately. Even though my pension+supplement (supplement dies at 62 and social security will start) will range between $27-31k my taxable income ends up being a lot lot lower than that and I can actually pull out $20-30K a year from my TSP without going into the 25% bracket. But my head keeps getting in the way and keeps telling me I can only sell off the difference between $27-31K and the $36K limit for filing separately. I have issues......

Giving up the green card will be to cover both situations (tax+immigration). We really aren't planning on coming back. Sure going to miss the nice weather here though...although I will be able to golf all year over there (well...kind of....it's Yorkshire after all )

If you go into the 25% tax bracket it isn't that bad for income taxes as obviously only amounts over the 15% tax bracket upper limit will be taxed at the higher rate. Another advantage to keeping income low is getting 0% tax on capital gains by staying as a basic rate tax payer in the UK or staying within the CGT allowance....and staying inside the 15% bracket for the US.

By taking money you get from the sale of a house in the US to buy one in the UK (or if you have money in regular accounts not subject to income tax when you make withdrawals) you can really reduce the need for income and thus keep CGT and income tax rates very low.

Another advantage to 0% CGT is when you file your taxes as there's no need for 1116s or treaty resourcing.

Thanks nun- kind of feeds into what I am thinking at the moment about selling off even a little more than I planned...maybe $110-120K. Iffff the house sells for an "even close to reasonable" amount....and I sell another $100k of Vanguard....plus the cash we already have that should get us to 300-310K Pounds. The houses we are looking at online are anywhere from 170K pounds to 235K (nowhere near Harrogate for these prices), plus renting for 6 months, a tiny cheap car (thinking Hyundai i10), some furniture etc. The money disappears quickly. Only leaves us with a total of about $140k left in Vanguard and $510K in my TSP(which I need to pay taxes on as I pull it out). Unless some money sucking issue comes up....we only need to pull about $15K a year out of our savings to get by (and still play golf etc). I was kind of hoping that once we get settled and back to our nice boring lifestyle that I might be able to move a little of my TSP over to ROTH without triggering bigger taxes. I just bought a used octave mandolin for myself....so my wife is saying she gets hardwood floors when we get back...I may have made a bad trade on that one