Overview of basic US tax filing obligations

The US is one of the few countries to tax their citizens not on their US residency status but on their citizenship. This means that US citizens (and Green Card holders) living outside of the US are still required to file an annual US tax return with the IRS.

The annual filing obligation is required even if a US citizen has little or no US source income and ultimately there is minimal or no US tax on the tax return and can therefore be more of an administrative requirement that comes with US citizenship as filing.

Nonetheless there can be hefty penalties for non compliance with many of the penalty regimes being compliance and not tax based.

As well as the tax return filing obligation there are other potential filing requirements for the US citizen. One of the most common of these is the Report of Foreign Bank Account, FinCEN Form 114.

U.S. citizens, residents and certain other U.S. persons must annually report their direct or indirect financial interest in, or signature authority over, a financial account that is maintained with a financial institution located in a foreign country (ie: outside of the U.S.) if, for any calendar year, the aggregate value of all foreign accounts exceeded USD $10,000 at any time during the year.

For more information about the FinCEN 114, Report of Foreign Bank Account please click here.

The IRS has conducted 2 initiatives over the last couple of years known as “Offshore Voluntary Disclosure” programs. Aimed non compliant US citizens, they were “designed to bring offshore money back into the US tax system and to help people with undisclosed income from hidden offshore accounts get current with their taxes”.

In June 2012, the IRS announced a streamlined procedure specifically for those cases with a low compliance risk. While this streamlined procedure does not replace other IRS programs, it does appear to offer a less draconian avenue for low risk compliance cases to come up to date. If you are delinquent with your US filings and would like to get up to date please contact us.

The interaction of the UK and US tax also needs careful handling, and the application of the UK/US tax treaty is often important. There may even be a third jurisdiction to bear in mind in terms of establishing taxing rights and claiming appropriate foreign tax credits, where the source of income arises outside both the UK and the US.

Having your US and your UK returns prepared by the same preparer can help to keep compliance costs down as well as well as being less time consuming for you.

We can help to manage the interaction of UK and US tax and assist with the following:

  • Identifying US compliance and filing requirements
  • Preparation of US Federal and State tax returns
  • Managing the timing of UK and US tax payments and other foreign tax credit planning
  • Cross-border pension planning
  • Identifying taxing rights and planning opportunities under the UK/US double tax treaties
  • Estate tax planning in light of the UK inheritance and US gift & estate tax regimes

Please contact us to speak to an adviser about UK and US tax assistance.