Tax status whilst on K1 & AOS in US?

[jen2198 5]

Hiya - whilst waiting for my K1 visa (fingerscrossed), am starting to look at the whole future tax situation. Hugely unromantic, but sadly necessary... and know it's tricky, hence heaps of overseas US-citizens turning in their passports.

A previous thread said any funds you currently have in UK will not be taxed in US - fantastic!

But, at what point do you become liable for US tax on overseas income, or overseas capital gains? Is it as soon as you arrive on the K1, during the AOS process... or, only once AOS completed?

Also, does anyone know of a basic source where i can start reading up on US tax on overseas earnings?

Thanks much any advice/info/pointers - would be hugely helpful x

[Merrytooth 5,748]

Get yourself familar with these 2 FATCA and FBAR

http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements

https://www.hrblock.com/expat-tax-preparation/articles/fbar-fatca-filing-requirements.html

[rutabaga 209]

You should also start familiarizing yourself with the IRS website, I'd start here:

http://www.irs.gov/Individuals/International-Taxpayers/Determining-Alien-Tax-Status

[Nich-Nick 3,353]

With a K1 it's kind of a gray area to me. Your are no more than a 90 day visitor when you arrive. The EAD and greencard give you some status as a resident alien. Publication 519 found on the IRS.gov website will give you a lot of information. Too much almost because it can be overwhelming. It's all laid out down to days physically present, greencard, etc and you might sort through that for some answers depending on what part of the tax year you arrive in, whether you work in that tax year or whether you choose to be treated as a resident alien for the entire tax year based on marrying a USC.

Basically when you become resident in the US, you follow US tax laws. You report as taxable income any interest, earnings, capital gains, etc. earned worldwide. So if you bring $20k over, it is not taxed but if you invest it and it starts earning, you report the interest it earned. The same thing if it stayed in the UK and earned interest, you report it to the US once you are considered US resident. The UK should no longer tax you on anything you begin to report to the IRS. It is even possible to be a dual status alien in the same year.

Most K1s make the election to be treated as resident aliens for tax purposes the year they marry and also file a joint tax return with their spouse for that year. (You'll find a that info on page 9 of Pub 519.) If you make that election, then you can skip all the info on non-resident alien or dual status. Your UK earned income for that entire tax year will be reported to the IRS. (That's considered worldwide income that joint filers must report).

BUT you will also qualify for Form 2555 Foreign Income Exclusion to keep from being taxed on it. That almost always works out to an advantage because the new spouse on a tax return reduces the USC's taxable income by $10,150 in 2014 and probably more when 2015 is set. So the USC gets the deductions for having a spouse, and her foreign income is excluded from taxation that first year. It all depends on each individual's tax situation, but my spouse of less than three months in 2008 saved me over $2000 in taxes. That was even with reporting eight months of UK wages (then excluding them). It was a year of a bonus tax rebate and by filing jointly with me, he qualified to get it too eve though he had no greencard.

That's just one example of tax filing, but seems to be the best choice for most.

Edited March 11, 2015 by Nich-Nick

[jen2198 5]

Wow. Big thank you for the replies & links. Much appreciated.

Now looks like I have a bit of gentle bedtime reading to do!

[Nich-Nick 3,353]

FATCA and FBAR apply to anybody with assets remaining in the UK. They are reports.

Link to Publication 519 Tax Guide for Aliens http://www.irs.gov/pub/irs-pdf/p519.pdf

Only 68 pages

[jen2198 5]

Back again. Have been reading - thanks for all the links. Still unclear about one thing, and advice very welcome:

If sell my property here in UK, after have arrived in US on K1. Then is it liable to US capital gains tax of 30%?

Does this differ if i manage to sell before I enter US on K1?

[Nich-Nick 3,353]

Back again. Have been reading - thanks for all the links. Still unclear about one thing, and advice very welcome:

If sell my property here in UK, after have arrived in US on K1. Then is it liable to US capital gains tax of 30%?

Does this differ if i manage to sell before I enter US on K1?

I am unclear on that because I never had a house in the UK (I'm the American) to sell so never studied that. But I have have read a few threads and I believe you are correct that once you are stateside you go by American tax laws which tax capital gains as unearned income while the UK does not tax you on gains from a house sale. I do not know the rate. Just looked this up and there seems to be an exclusion before you are taxed. http://www.irs.gov/taxtopics/tc701.html. I didn't read it fully, but something for you to read.

If you are still in the UK and not married or filing taxes with a US citizen, then you can sell you house and not worry about the gain. You are totally under UK taxation right now.

HOWEVER--

It looks like you will be in the US and married in the tax year 2015. If you want to file a joint tax return with your spouse for 2015, you have to elect to be treated as a resident alien for tax purposes for the entire year. Most do that and it is an advantage because your foreign income is excluded, so it is like your husband gets double the exemption and standard deduction without taxing your excluded income. But the exclusion of foreign income (Form 2555EZ) is only your EARNED income, meaning from wages. It does not mean your capital gains. So by filing jointly, it is feasible that you could get hit with taxation on gains selling the house. But look into the exclusion allowed in the link I gave. It says you may be able to exclude $500,000 of house sale gains. If you are below that threshold, then maybe no taxation. I haven't read what qualifies you to exclude on a house sale. See if you qualify, then no problem when you sell it.

More reading for you to do, which is best. Get it straight from the IRS, and use forums to point you toward your research.

A person who is likely more knowledgeable on this topic is a British man now in the US called Owen_London on VJ. He still pops in so try to PM him on VJ. I am not sure if that is his exact user ID, but I think it has the underscore. Try combinations of "Owen" and "London". He is very smart and may have studied this topic.

[jen2198 5]

Thanks much Nich-Nick, once again - very clear & helpful. Yes, will pick it up with IRS. And also once US Tax filing season clears my fiancé's tax advisor. The advice from this thread has been invaluable. Thank you!

[CheekyMonkeys154 27]

With a K1 it's kind of a gray area to me. Your are no more than a 90 day visitor when you arrive. The EAD and greencard give you some status as a resident alien. Publication 519 found on the IRS.gov website will give you a lot of information. Too much almost because it can be overwhelming. It's all laid out down to days physically present, greencard, etc and you might sort through that for some answers depending on what part of the tax year you arrive in, whether you work in that tax year or whether you choose to be treated as a resident alien for the entire tax year based on marrying a USC.

Basically when you become resident in the US, you follow US tax laws. You report as taxable income any interest, earnings, capital gains, etc. earned worldwide. So if you bring $20k over, it is not taxed but if you invest it and it starts earning, you report the interest it earned. The same thing if it stayed in the UK and earned interest, you report it to the US once you are considered US resident. The UK should no longer tax you on anything you begin to report to the IRS. It is even possible to be a dual status alien in the same year.

Most K1s make the election to be treated as resident aliens for tax purposes the year they marry and also file a joint tax return with their spouse for that year. (You'll find a that info on page 9 of Pub 519.) If you make that election, then you can skip all the info on non-resident alien or dual status. Your UK earned income for that entire tax year will be reported to the IRS. (That's considered worldwide income that joint filers must report).

BUT you will also qualify for Form 2555 Foreign Income Exclusion to keep from being taxed on it. That almost always works out to an advantage because the new spouse on a tax return reduces the USC's taxable income by $10,150 in 2014 and probably more when 2015 is set. So the USC gets the deductions for having a spouse, and her foreign income is excluded from taxation that first year. It all depends on each individual's tax situation, but my spouse of less than three months in 2008 saved me over $2000 in taxes. That was even with reporting eight months of UK wages (then excluding them). It was a year of a bonus tax rebate and by filing jointly with me, he qualified to get it too eve though he had no greencard.

That's just one example of tax filing, but seems to be the best choice for most.

Hey Nich-Nick ! Thanks for the info, I too am planning on handling this way since I know the exempt amount for the tax year for the Uk earnings is like 100,000 lol And he most likely won't be working at all in 2015 since it'll be August/September before we file for AOS. So my question is this, how do you find out what your earnings in the UK were? Is that something he needs to just contact his employer for? What is the easiest way to find that do you know? I hope we can still efile when doing this too I hate sending papers. lol Thanks for the info

[Nich-Nick 3,353]

Hey Nich-Nick ! So my question is this, how do you find out what your earnings in the UK were? Is that something he needs to just contact his employer for? What is the easiest way to find that do you know? I hope we can still efile when doing this too I hate sending papers. lol Thanks for the info

Does he get a pay check that says gross earnings before they take out the massive taxes? A work contract saying salary? I guess the employer knows his monthly income as well. It doesn't have to be on an official form like the W2 we get in the US.

His UK income will be self reported to the IRS on your 2015 tax return. That means you enter a number and there is no official documentation sent to IRS. You sound better prepared than I was ...telling him to find out. My husband gave me a blank stare when I asked how much income he made from Jan to Sept (when he left work). He had brought nothing like that with him. So I pulled a number out of the air based on what he could see online in bank deposits. Best guess really. IRS wasn't bothered because that was 2008 tax year and I haven't heard from them. My opinion of the IRS is that they don't analyze every tax return. If it seems reasonable then no red flags come up. Yes, if you under reported your W2 earnings a computer would catch that because your employer provides W2 earnings to the IRS. But something like a self-reported small foreign income, they probably generally accept (especially because it is going to be subtracted back out). So do the best you can and don't panic over nickels and dimes.

[CheekyMonkeys154 27]

Ok awesome then we are good I can just use his monthly income wages for 6 months. He'll be under the exemption amount so they shouldn't be bothered. Lol thank you for the information! I am trying to make sure that I know what we need. I've got most of the aos stuff filled out except a few things I wasn't sure about lol I'm a planner I can't help it it drives me insane not knowing Haha so I'm trying to prepare. Only thing I can't get a straight answer about is a driver's license for TN lol I get different answers all the time haha

[Nich-Nick 3,353]

Only thing I can't get a straight answer about is a driver's license for TN lol I get different answers all the time haha

Looking at the TN website, he will have to have one of these to get a license:

Conditional Resident Alien Card (I-551). --that's the greencard

Valid Foreign Passport with Valid Visa and I-94 attached --he will have this only for 90 days.

(Note: The passport must have an English translation)

Valid Foreign Passport with I-94W attached

Holders of F1, F2, M1, or M2 status should also present a valid SEVIS I-20

Holders of J1 or J2 status should also present a valid DS-2019

Temporary Resident Identification Card (I-688)

Employment Authorization Card (I-766). --EAD he will get 60-90 days after submitting AOS packet.

If they will give him a license based on Passport and I-94, it is normal that the license will expire when his proof of legal presence ends (90 days after his POE). The reason I say "if" is because some places won't bother with issuing a two month license....or three month of he goes his first day in the US. That would be a busy day because he would have to first visit a notary to get the affidavit of having no SSN. That's also on the website.

Next opportunity looks like the EAD card which will have a one year legal presence on it, so probably a one year license.

[CheekyMonkeys154 27]

Yeah it says it would expire after the 90 days. But some there say that he can drive on his UK one for 6 months or until he gets his ead since he won't be a legal resident and my insurance said if that's the case I can still add him once we are married but getting a straight answer from the dmv about that is like pulling teeth lol

[Nich-Nick 3,353]

Yeah it says it would expire after the 90 days. But some there say that he can drive on his UK one for 6 months or until he gets his ead since he won't be a legal resident and my insurance said if that's the case I can still add him once we are married but getting a straight answer from the dmv about that is like pulling teeth lol

It's like everything else with a K1. I think it is just an odd minority of people that none of the "rules" quite fit, so nobody really knows how to answer your questions. My husband drove on his UK license until EAD, just like he had on every visit before. He wasn't about to sit around and not drive. My State Farm agent said the car was covered as long as I gave him permission to drive it. Kinda like when we borrow grandad's pickup truck...it is covered by his insurance and we don't have to go add our name to his policy for the day. Once he got a license, I added him as a regular driver.