[Providence]

Hello,

I am a US citizen married to a UK citizen and together we are self employed. We have resided in the UK for the past 7 years and filed UK tax returns as married filing jointly. I recently read an article that has me wondering if I should have been filing a US tax return all of these years even though our income is solely UK derived? If so, would I submit an income amount that is a portion of our total income (i.e. the value of my personal hours contributed)? Would I be able to claim the children as dependants on my US tax return and be eligible for child tax credits? We would like to return to the US and purchase a home as first time home buyers and I am unsure how this will affect our application? Our income will still be derived from the UK even though we will be residing in the US. Any help and advise will be greatly appreciated.

Kind Regards,
Providence

[MukatA]

Yes, a U.S. citizen or resident must file the tax return if the worldwide income exceeds the filing requirements. Yourself employed income is also subject to SE tax at 15.3%.
You are also required to file Form FBAR. Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income

You can file as married filing jointly or married filing separately.

[Five Rings]

Hello Providence, you have a little work to do.

First, download:
http://www.irs.gov/pub/irs-pdf/p54.pdf
And read it carefully. You will find it very helpful.

Now, find yourself a professional tax preparer who can deal with US taxation because you have several years you must deal with. I can recommend Liz Zitzow:
[email protected]

You will owe no self employment tax on your business income because of the "totalization agreement" between the US and the UK.

Moreover, UK tax being generally higher than US tax I doubt you will owe anything to the US.

Depending on your income and the age of the children, you may be entitled to the Child Tax Credit. Be sure you do not use form 2555 but use instead the Foreign Tax Credit.

Most likely you will file "Head of Household" unless your husband wishes to be taxed on his worldwide income.

[AtlantaTaxExpert]

Also, you DO qualify for the $8,000 First Time Home Buyer's Credit if you can purchase and close on the sale of the U.S.-based home on or before 30 November 2009.

We can also help you file your returns. Email us at [email protected] for fee quotes.

[MukatA]

Providence:
I am not sure if you can file as Head of Household.

[AtlantaTaxExpert]

Yes, she CAN file Head of Household if she has a non-resident alien spouse. That is allowed for in the IRS publications.

She just cannot claim the Earned Income Credit.