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The UK deadline is right around the corner—again. January 31st will be here before you know it, and so it’s time to get prepared for filing both your UK and US expat tax returns. The worst course of action is to wait because interest and possibly penalties will start accruing. So here’s how you can take action and keep all the deadlines in order.
US and UK Deadlines to Keep in Mind
The UK tax year and the US tax year do not match up exactly, which can make things tricky when filing your taxes. The UK tax year runs from April 6th - April 5th, and the deadline for filing is October 31st for anyone filing a paper return or January 31st for anyone who elects to e-file. No extensions are available, and the penalties are levied quickly: anyone who hasn’t timely filed their UK self-assessment will be subject to an immediate £100 late-filing penalty. The US tax year is the calendar year, which goes from January 1st-December 31st. Taxes are due on April 15th, but expats receive an automatic extension until June 15th. Though this extension is inevitably granted, interest on any taxes owed accrues starting from April 15th.
Managing Multiple Tax Years and Deadlines
With more than one deadline and tax year to keep track of, it can be difficult to determine which tax return should be filed first. Of course, you’ll need to have everything submitted in accordance with the deadlines, but the simplest sequence of events is to file your UK return at the earliest possible time rather than waiting until the January 31st deadline. Right after you file your UK tax return, you will want to file your US return immediately after that.
You can, of course, file your US return first and then the UK return, but depending on your specific financial situation, this can create wrinkles in your return preparation. When you are required to file taxes in both countries, as nearly all US expats are, you likely will use all tax credits and exclusions to avoid any double taxation that you would otherwise have to pay. For instance, the Foreign Tax Credit is a dollar-for-dollar credit for taxes paid to the resident country that you can use to reduce your US tax liability. Another exclusion available to expats is the Foreign Earned Income Exclusion. The Foreign Earned Income Exclusion allows expats to exclude up to $105,900 of foreign earned income from US taxation.
If you wait to file your UK taxes until your US taxes are complete, you may end up in a situation where you have to file an amended return in order to claim all the credits available to you. Further, the IRS only allows taxpayers one mode of using tax credits: a cash basis or an accrual basis. If you use the cash basis (where the tax credit applies to taxes paid), waiting to file your returns until the January deadline can place you in a situation where you would be better off using the accrual basis (where the credit applies to taxes owed but not yet paid). This is a one-time-only decision, meaning once you switch, there is no going back.
The Most Straightforward Path to Tax Compliance
To avoid any snafus come tax time, file your UK return as soon as you can. Then, file your US return immediately after the fact. In most cases, this progression will help you have a painless time staying tax compliant in both countries.
David McKeegan is the Co-Founder of Greenback Expat Tax Services (www.greenbacktaxservices.com) a company specializing in the expert preparation of US expat tax returns for Americans living abroad. David is an Enrolled Agent, an MBA and an experienced finance professional and entrepreneur. Greenback was founded in 2009 by David and Carrie McKeegan, and now has helped thousands of Americans in 200+ countries and territories get compliant with their US expat tax returns.