Are you an American living outside the USA?
Did you know that US Citizens are still required to file taxes with the Internal Revenue Service (IRS) in the USA even though they may not receive any income from sources inside the USA. This is because the US taxes on the basis of citizenship. The same can apply to Green Card holders who are living outside the USA.
For 2014 the filing thresholds for submitting a US Tax Return are as follows:
Single – $10,150
Married Filing Separately – $3,950
Married Filing Jointly – $20,300
These figures are based on gross income (not the amount that is taken into account after expenses). An example of Married Filing Separately is when you are an American Citizen who is married to a non-US citizen who is not required to file a US tax return. You will also see that the filing threshold is much lower for those who are filing married filing separately.
If you are living in the United Kingdom
Normally UK taxes are much higher than the US and you should not have a liability to the USA. Does this mean you are not required to file a US Return? Unfortunately it does not! This is because even though income taxes are much higher in the UK than the US it does not stop you from filing returns. In fact you must make the claims for Foreign Earned Income Exclusion (FEIE) on the return itself or by claiming Foreign Tax Credits. There are certain items that are tax efficient in the UK but would be taxable in the USA. A few examples below are:
ISAs – Tax free interest and dividends are subject to taxes in the USA
Capital Gains – the USA does not have a tax free Annual Allowance which is just over £11,000
Dividend income – taking a basic salary and dividends up to basic rate may not always work if you are a US citizen
There are just some examples there are many more.
If you are above the filing threshold you must file the returns and submit for the last 3 to 4 years with the IRS and letting them know why you had not filed before.
Are you an Accidental American?
What is an accidental American?
If you were born (for example) in the United Kingdom and at least one of your parents was an American citizen of born in the USA, you are by definition an American citizen. You must inform the embassy in the UK that you are a citizen and informing them of where your parents were born. It’s your duty to inform them and you should never bury your head in the sand. Once you have informed them (this process may take a long time) you will be given a social security number which you will need to use when you prepare your US Federal Tax Returns. If you have never filed with the IRS, you must do this as soon as possible to bring yourself up to date.
You may consider giving up your citizenship. In order to do this, you will need to be up to date with your US taxes for at least the last 5 years before leaving the US system.
If you are a US citizen living in the UK and would like to discuss this, please do not hesitate to contact us at firstname.lastname@example.org. We look forward to hearing from you.