US State tax question

Hi,
I have a question about state taxes. I worked 1/3 of the year in the U.S. and then moved to the UK temporarily. I've decided to keep my US residency as the move is quite temporary. But I do work for a UK firm and pay UK taxes and get NHS and all that. 
I've done my federal taxes (on Turbo Tax) and I've been able to count the taxes paid to UK there. But on my state return, Turbo Tax isn't showing any kind of credit for those, and thus I have a big state tax bill due. Does this sound right? or is this Turbo tax not being particularly wise?

Hi,
I have a question about state taxes. I worked 1/3 of the year in the U.S. and then moved to the UK temporarily. I've decided to keep my US residency as the move is quite temporary. But I do work for a UK firm and pay UK taxes and get NHS and all that.  
I've done my federal taxes (on Turbo Tax) and I've been able to count the taxes paid to UK there. But on my state return, Turbo Tax isn't showing any kind of credit for those, and thus I have a big state tax bill due. Does this sound right? or is this Turbo tax not being particularly wise?

Well you need to be UK resident to get the NHS......but it is possible for you to have dual residency in some circumstances. If you are actually also still a resident of a US state then you'll have to abide by their income tax rules, and yes you will probably have a hefty state tax bill for income you earned in the UK. You need to think seriously about your status if you want to minimize your taxes and you also need to consider health insurance and the ACA rules for US residents.

Thank you.
Follow up question. I know we can't count NI taxes as income taxes in computing the foreign income tax credit. But can we count it as an "other foreign tax" for which we can take a deduction? If so, is this a deduction that we take under "definitely related expenses" for the foreign income?

Thank you.
Follow up question. I know we can't count NI taxes as income taxes in computing the foreign income tax credit. But can we count it as an "other foreign tax" for which we can take a deduction? If so, is this a deduction that we take under "definitely related expenses" for the foreign income?

Good question and I expect the answer to be "no", but it does beg the question on other foreign taxes equivalent to the U.S. Taxes that can be used as deductions such as sales taxes (VAT) and council taxes (equivalent to US property taxes).

Thank you.
Follow up question. I know we can't count NI taxes as income taxes in computing the foreign income tax credit. But can we count it as an "other foreign tax" for which we can take a deduction? If so, is this a deduction that we take under "definitely related expenses" for the foreign income?

National Insurance contributions are not recognised as a "tax" in the UK. Therefore, they are certainly not recognised in the US.

Good question and I expect the answer to be "no", but it does beg the question on other foreign taxes equivalent to the U.S. Taxes that can be used as deductions such as sales taxes (VAT) and council taxes (equivalent to US property taxes).

Well lad, you've really sent my mind spinning with this. 

I've never filed a US return for a UK business so I have no idea if VAT can be taken as a deductible expense, but I'm unaware of any other area (generally) where UK VAT paid can be "used as a deduction" on a US tax return.

UK Council Tax is a tax on the occupancy of a property and, unlike the US, is not a tax on the ownership of the property, although I'm guessing there has been more than one US tax return from the UK which has listed UK Council Tax as an itemised deduction.

Thanks. I'm honored to have such a complicated question.
I guess more generally I would love to know how best (or at all) to account for any of these UK employment related expense (travel back and forth to the US, temp moving here, council tax, etc...).

I think you are more than hinting that you will be claiming both detached duty relief and away from home expenses. Sounds a very sensible plan.

Well lad, you've really sent my mind spinning with this.  

I've never filed a US return for a UK business so I have no idea if VAT can be taken as a deductible expense, but I'm unaware of any other area (generally) where UK VAT paid can be "used as a deduction" on a US tax return.

UK Council Tax is a tax on the occupancy of a property and, unlike the US, is not a tax on the ownership of the property, although I'm guessing there has been more than one US tax return from the UK which has listed UK Council Tax as an itemised deduction.

Thanks for the reply, and I'm sure you are correct.

When we lived and worked in Louisiana (for 15 years) we had a mortgage and paid State taxes so we itemized each year, and I used to keep all the receipts from groceries to cars during the year, totting up the sales tax on a spreadsheet as the year progressed, and then added the sales tax to the deductions to get a reduction in Fed taxes.  Same went for charitable donations.

Since we retired the mortgage, sold the house and now rent a place in Texas (no State or property tax) there is no need for all that record keeping.  Just take the standard deduction each year.

Thanks again. I was hoping more to deduct these expenses from US taxes. I don't qualify for detached here in the Uk as far as I know (i started a new job here)

You asked: I have a question about state taxes. I worked 1/3 of the year in the U.S. and then moved to the UK temporarily. I've decided to keep my US residency as the move is quite temporary. But I do work for a UK firm and pay UK taxes and get NHS and all that. 

I've done my federal taxes (on Turbo Tax) and I've been able to count the taxes paid to UK there. But on my state return, Turbo Tax isn't showing any kind of credit for those, and thus I have a big state tax bill due. Does this sound right? or is this Turbo tax not being particularly wise?

It is probably a mistake to claim UK tax as a credit (form 1116) rather than exclude your income (form 2555). Ask for an extension until you've been abroad long enough to qualify for the exclusion, which will then reduce your AGI (adjusted gross income) for state purposes as well.

It's true that many states tax their expatriates abroad (NY, CA, IL and others do not, if they've been abroad around 11 months or more). But unless you are doing business from a permanent establishment in a state, why volunteer to pay tax?

NI contributions are dealt with in the US-UK totalisation agreement. Unless you work for a multi-national firm that has contracted with the SSA to pay FICA to its workers abroad (this is because of defined-benefit pension arrangements integrated with Social Security; most companies have moved to 401(k)s now) you do not have to pay both NIC and SET. It is rarely in your interest to do so unless you are trying to finesse the system or need quarters of coverage.

NIC and VAT would only be deductible for US tax purposes if they were business expenses.

TurboTax does not deal well with SET issues; there is a workaround by clicking the box to say your Sched C income came from "notarial services" and then with pen-and-ink changing your return to refer to the Totalisation Agreement. But I don't think that's you problem.

So: File a part-year tax return with your state ending on your date of departure. Unless you come from one of those greedy states that want to tax their expats forever...