When the tax payday (15th April) approaches, most American Expats and green card holders who reside in the UK have to go through many complexities regarding federal and state filing requirements.
The process is as lengthy and complex as it can be when it comes to paying attention to state residency woes to FBAR/FACTA reporting. US taxpayers living in the UK often mess up things and require help during the process but with COVID many offices were either closed or on a work-from-home basis which not only slowed things down but also made the whole procedure even more difficult.
The IRS in order to help people with tax filings has instituted new legislations that include zombie tax breaks and revamped standard deduction. Those who were facing difficulties with tax filings had to hire a U.S tax CPA in the United Kingdom in order to help them out with their tax filings.
How Can The CPA Help?
A U.S tax CPA in the United Kingdom serves the purpose of helping you create a personalized tax filing strategy that helps save your money from double taxation, wrong filings and makes sure that your U.S income tax returns are filed to perfection.
These people are usually aware of the commonly missed and misconstrued IRS requirements which can create a big problem if not met properly. While many U.S expats have been a target of double taxation while living in the UK, the U.S tax CPA helps you under the knowledge umbrella of the reciprocal tax agreement, the aim of which is to stop double taxation and capital gains tax.
How Can A U.S Expat Get Exempted From Double Taxation?
If you’re wondering if there is a way for you to get exempted from double taxation, then here’s the good news. There is! Being a U.S Expat, you can either take advantage of Form 116 (Foreign Tax Credit) which helps you claim credit for the foreign taxes that you have already paid.
If that doesn’t work then there is another form 2555 (Foreign Earned Income), that gives you an exclusion of up to $100,800 from the income you’ve earned abroad.
Form 2555 remains active for the U.S expat until he or she decides to revoke it.
The difference between the two forms is that Form 116 can be used on other types of incomes as well. These include pensions, the gains you receive from the sale of a property, and other such gains which include business investments.
Whereas, Form 2555, can be taken on earned income which includes your monthly or yearly wages or a form of self-employed income.
Another major difference is that the Form 2555 requires the time span of your earning abroad and the place of the income earned. Whereas the Form 1116 does not have any such requirements. Now you can consult your accountant and see which Form suits you better according to your circumstances.
