Tax advice for creatives moving to America
https://www.instagram.com/ineslongevial/
Every year thousands of individuals and families leave the UK to further their career in America. The increased opportunity is very attractive for a wide range of different careers; however, the differences in tax regulation can be tedious and difficult to navigate for those who have taken the step to move abroad.
We aim to aid expats in their exciting new journey and alleviate some of the stress and pressure that comes with moving to America by providing free tax advice.
We are a team of American and British Accountants who are expert in all areas surrounding cross border taxation.
Contact us for support in your UK and US Taxes
How Different is the American Tax System?
The American tax system, when compared to the United Kingdoms tax system, is widely considered to be much more complicated and difficult to understand. According to the BBC a ‘typical company’ will spend around 110 hours to comply to the UK tax code, this is substantially less than the 175 hours that American companies spend with the US tax code. Below are some key differences
What British Expats need to know about the IRS
It is important to know the regulatory body for the American tax system is the IRS. Like the HMRC (UK’s regulatory body) they are responsible for the collection of tax and enforcement of tax laws. This includes, auditing households and individuals, providing the yearly tax brackets, providing tax aid, collecting tax, etc.
The Taxation of Households rather than individuals
The US tax code allows couples to file under one household, this doubles the tax bracket and is generally favored over opting to file separately. This is because it provides a tax break to households with one high-income earner, as the tax bracket will essentially double.
State Taxes
Different states have different State Taxes. For example, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no state income tax at all; whereas, a state such as Utah has a flat income tax rate of 4.95%.
Better Rates for High Income Earners
Despite the more complicated nature of the American tax system there can be substantial benefits in regards to the money you come away with for the wealthier portion of the population. This is because of the lower tax percentage for higher earners. Where in UK the income tax brackets can go as high as 45% in the US federal income tax is capped at 37%.
How to know if I need to submit a US Tax Return?
According to the IRS any individual can be considered a “United States resident for tax purposes if you meet the substantial presence test for the calendar year”.
The Substantial Presence Test is a means of measuring the amount of time an individual has spent in the USA for work purposes. To fit the requirements you must either be “physically present” for 31 days of the current year and 183 days over a 3 year period (this period being the current year and the 2 years prior).
For queries regarding your tax the IRS has an interactive tax assistant. This online database contains answers to frequently asked questions to help individuals and households with tax problems.
The income tax due date is normally the 15th of April; However, due to the current coronavirus pandemic, the due date for income tax return 2018/19 has been deferred 3 months to July 15th.
Tax Advice for Actor Expats in America
The USA has one of the biggest entertainment industries on the planet. Every year thousands of budding actors from all across the globe make the move to America to further their career. We have compiled brief tax advice for an actor who has moved to America.
The Forms
British expats who are employed by a US employer must fill out form W-4, which lets their employer know how much tax to withhold from their pay check, based on their circumstances.
The US tax return form is called form 1040, and it can be e-filed online. The American tax year is the same as the calendar year, and the filing deadline is 15th April following the end of the tax year. It’s important not to miss this deadline, as fines for late filing are much higher than those in the UK.
There is a vast array of forms all with different uses. For a comprehensive list of each form and what each one is for, visit irs.gov/forms-instructions. Failing that you should contact a tax professional to assist you with your tax return.
More information on tax forms
Deductions
Tax-deductible expenses function to reduce an individual/ household’s taxable liability. For example, if a household’s net income is $40,000, and they have $5,000 in tax-deductible expenses, said household will only have to pay tax on $35,000 of their income.
Some common deductible expenses include:
· Travel - Any transportation, accommodation, Airfare that occur as a direct result of your work. You can also include 50% of Meals within this category
· Agent Fees
· Manager Fees
· Equipment - Film Camera, Lights, etc.
· Headshots
· Office Expenses
· Education
· Promotional Expenses - Photos, Videos, Websites, Advertisements in trade publications, Business cards and other promotional expense
· Makeup and Wardrobe - Deductible only when incurred through business use directly, i.e. not for a pair of Jeans you have used on stage but also wear day-to-day outside of Acting
· Subscriptions: Magazines, Newsletters and other Subscriptions relevant to your business
· Legal and Professional Fees
Receipts
It is very important that you keep your receipts organized and filed. If the IRS were to conduct an audit on your account, and were to query a deduction claimed, it would be your responsibility to provide the receipt for said deduction. Failure to do so would lead to a re-evaluation in tax owed and, depending on the severity of the circumstance, could lead to fines and maybe even legal action.
Tax Legislation for Expats
Specific legislation has been formed to provide financial aids for expats. It is important to be aware of the various legislations as they can allow for maximum savings on your tax bill.
Double Tax Treaty
Double tax treaties (also known as double tax agreements) are created between two countries, which define the tax rules when it comes to a tax resident of both countries. These agreements often aid in the reduction of overall tax liability for individuals who have to submit tax returns in two countries. Double tax treaties are complex and often require a tax professional’s assistance to make sure you are claiming correctly and taking full advantage of the legislation.
The Totalisation Agreement
The Totalisation Agreement is designed to ensure that UK expats living in America (and Americans living in the UK) only pay social security tax (i.e. National Insurance tax) contributions in one of the two countries rather than both, with the contributions counting towards state pension entitlement in both.
Aid for Expats
Navigating the murky waters of US tax legislation is the last thing you will want to do when making the exciting move to further your career. We understand this and want to help. Please do not hesitate to contact us for expert advice on any and all of your tax needs.
Bambridge Accountants London and New York aims makes tax simpler for self-employed professionals worldwide.
Our team of highly trained US and UK accountants are expert in tax for all sectors within the creative industry. We have worked with self employed actors, photographer, graphic designers, architects, directors, creative directors and so much more. We have prepared thousands of UK tax returns and US tax returns for self employed professionals and learn't so much along the way.