Another Completely Confused Taxpayer

As you can see, I am a new forum member.  Started looking at this website as a friend recommended it as a source of useful information for us expats living in the UK.  It certainly is that.

Unfortunately one of the first forum Topics I started reading was the Tax chat.  The result is that I'm now in a complete panic as I've realized I've been doing my taxes incorrectly for years.  I have only myself to blame as I never read into the details of reporting, and only used the easy way out of continuously reporting the way I had done for previous years.
 
My situation is this.  I'm US citizen, my wife is British, not a dual citizen, and we've been living in the UK since 1985 as I was a US Civil Servant stationed here in London.  I've since retired here, in 2001, and draw my retirement, directly deposited in a UK bank.  My income has always been through the U.S and have never had a source of income from anywhere else.

The wife has held several parttime jobs through the years and does her taxes with the UK accordingly.  I have never included her income in the US tax reporting, instead choosing to show her as "Housewife" only to (in my mind) simplify the process.  We do own property here and have always maintained UK bank and savings accounts.

So now I'm sitting here reading about FBARs, FATCAs and like I said, have gotten myself into a complete panic.  How on earth did I get myself into this situation?  Well, I know the answer to that - it's called sheer stupidity and laziness.

I don't really know where I should start and I'm convinced I need some professional assistance to get me on the right track.  I've looked at a couple of websites offering such assistance in the London area.  Unfortunately they seem to be online assistance, ie., correspondence and documentation submitted via email and such.  That, I'm sure, will confuse me even more.  Would prefer face to face meetings so I can try and get my head around all this.  Anyone have experiences with Tax Consultants who deal face to face?

Any advice from the members would be greatly appreciated.  I know one of the first pieces of advice will be "No need to panic".....but that's easier said than done at this point.

This is a useful thread on tax preparers, some if not all with offices in London.
http://talk.uk-yankee.com/index.php?topic=81013.0;topicseen

I'm still living in the USA so I can't speak from experience.

"No need to panic". There, that's out of the way. Yes, there may be some remaining business to attend to, but honestly you are in a strong position for two reasons.

First, it appears you have been filing returns yearly with the best of intentions. Mistakes happen, especially when US tax is involved. That's what a 1040X is for.

Second, it sounds as all your pension income is US source, so many of the nasty "foreign" problems go away.

The problem areas, as you've identified, are the "informational" foreign reporting.

FBAR (FinCEN 114) has a drop down box on the first page which says the reason for not filing in the past is "I didn't know". Even the Treasury Department has realised communication about this obligation left much to be desired.

Predominately, the rest are in the 8938 (FATCA) area, and PFIC's. These may require a 1040X.

I can't help as far as recommending an advisor, but I will make this comment:

IMHO, you should not be in any type of "programme" to correct past mistakes. You've filed, and therefore at most, amended returns for the past 3 years plus 3 late FinCEN reports would be the maximum. So, when you interview someone for advice, don't let them convince you a severe problem exists. Correcting past returns might suffice.

Again, IMHO, and depending on what additional sources of income you might have had in the past (stocks and shares ISA's for example), correctly filing forward might be a solution. In other words, forget about the past returns, you filed them believing them to be correct. File your 2014 return (with assistance if it helps you feel more confident) correctly and go forward from there.
 
Unless you are in London, I would guess most preparers these days prefer Email or telephone conversations rather than face to face meetings. Guya has a list of what you should look for in a preparer to assist you. Perhaps he will re-post it here. The most important item I do remember is to be sure you're comfortable with the person. 



 

Why do you think you have done your tax return incorrectly? Unless your filing status was 'married filing jointly', then your wife's income is irrelevant, and did not need to be reported. She can be claimed as an exemption with Married Filing Separately if she has no US source taxable income.

As far as the FBAR filing goes, you only hit that threshold if the aggregate value of your financial accounts exceeds $10,000 at any time during the calendar year. And yes, that would include an account with $6K on day X and another with $4K on day Y. Other permutations and combinations can trip the need to file. Your house is not a 'financial account' nor is your mortgage for FBAR/FATCA purposes.

BTW, theOAP has just given you some VERY sound advice.

Good advice above, I just want to emphasize what theOAP said that corrected returns are not mandatory if you believed it was correct when you filed. If I were you I would do a sanity check on the last return you filed and if the tax you paid is close to being the same as the original filing, then I would not file corrected returns.
http://www.forbes.com/sites/robertwood/2012/04/20/5-simple-rules-to-follow-when-amending-your-tax-return/

Amended returns are not mandatory even if something happens after you file that makes it clear your original return contains mistakes. Ask if the return you filed was accurate to your best knowledge when you filed it. If it was, you are probably safe in not filing an amendment.

The taxation of US government funded pensions and SS is pretty easy for the US expat in the UK, once the rules of the DTA are applied.

Definitely get your FBAR and 8938 compliance up to date and look at your taxes to make sure you are paying the right amounts to the right country

Gentlemen,  (theOAP, durhamlad, nun and vadio)

Thank you all for your quick responses.  My intent was to hang out on the forum each day to read responses, but that went by the wayside as we were called out to a family emergency in the west country.  So, sorry for not reply more promptly.

You've given me some sound advice, and Yes OAP, managed to calm my nerves to a degree - and for that I thank you.

Vadio - unfortunately I have been filing as "married filing jointly".  That was the basis of my assumption that I have been filing incorrectly for all these years.  There were years in the past where it was the correct status, but I was in the mode of "copying what I had done the previous years", and that was my mistake.  When the wife started her parttime employment in the UK I should have immediately changed to "Married filing separately".

Durhamlad - thanks for the link.  I'll start looking through and see if I can choose one.  I do believe that because I was using the wrong reporting status that I will have to do amended returns for the past 3 years at least - even though at the time it was correct "to the best of my knowledge".  The correct status should mean that I'll owe back taxes.  Do you agree?

OAP -  you are very comforting in your knowledge and advice.  Your info is thorough and has outlined exactly what I need to concentrate on - and that's exactly what I intend to do.   

I've had a few PMs with recommendations for a consultant in the area.  I feel more comfortable with going with someone who has been used in the past and comes highly recommended.

I can't thank you guys enough.  You're great!  I would love to offer you all a pint or two if you're in (or even passing through) my area.

CFL 

I am almost to the point of being obsessive-compulsive when it comes to tax returns, but if I were in your shoes.....I would not go back to point zero to 'fess up. In all likelihood, unless other reportable/taxable income was significant, you probably still would have owed no US tax.

A few years back, I did my annual SEP-IRA contribution, as always, near the dreaded April 15 deadline. A couple of years after that, I was looking through some paperwork and noticed that the bank person put the wrong tax year on the form. Did I go back to correct that (which would have affected 2 returns)? Nope, hands up, I did not, as my fuzzy math re-check told me that the overall tax due would have been the same (actually a bit less, as my larger SEP contribution came in a year when I was in a higher tax bracket, and I was still way under the maximum contribution as self-employed) . Don't stir that hornets nest if you don't need to.

FBARs  - well, yes, if you needed to file, you need to catch up. After all, you may be a mega-rich drug overlord and the feds want to know where you keep your bazillions.

Do you need a consultant? Probably not, and the cost of using one is likely far more than the IRS might have collected if you had reported your wife's miniscule income. Actually you could continue as MFJ - report the wife's income, and take a credit for UK tax paid. Typically it's easier to keep the NRA spouse out of US tax affairs, but sometimes it's a disadvantage.

I would download the forms/tax tables etc. for the past 3 years, do the math for the additional income, use the credit for any UK tax she paid, and see how it floats out. If you owe no tax, then do the 1040X and you're golden. If the tax owed is negligible, do the 1040X and pay the tax  instead of a consultant. For 2014 onward, file MFS and don't look back.

I agree with vadio, and if looks like there is little or no difference in taxes owed then I would not back file corrections for the years you filed MFJ.

Last year my daughter got a letter and amended W-2 from a firm she no longer works for.  They had failed to account for the life insurance benefit the employees received for free 3 years ago, which is actually a taxable benefit.  They said they would pay for the amended return, but the problem she had was that she had since divorced her husband and they now lived thousands of miles apart in different States, and he was the one that used to do the tax returns, using TurboTax online. I did a quick calculation and what they owed on that modified joint return was no more than $45.  That link above (or another) says that if an amended form is received, and the IRS cares, they will send you a bill.  I told her not to bother with trying to get in touch with her ex and go through all the hassle and emotions for $45.