Pay your Taxes

So before I met my husband, I had never heard of 'doing' your taxes. That doesn't mean I didn't work.

Back in England, I always had a job from as early as I can remember. At 14 years old I was doing a morning paper round that earned me 7 pounds a week. I worked Saturday on a sweety stall in the marketplace for 12 pounds, moonlighted in the evening as a babysitter for 5 pounds, then woke early on Sunday for a day at the cafe for a whopping 20 pounds. I can't believe I worked so hard all week for less than 50 quid! But back then it paid for a holiday to Greece and a suitcase of ridiculous clothes to boot.

Thankfully the tax system was automated. There was no form to fill in before starting a job, you worked, paid the tax percentage, and if you didn't earn enough to qualify by the end of the year they sent you back a cheque. Wonderfully simple.

When I met my Texan husband, we were backpacking in South America. And I still didn't hear anything of filing taxes until years later when we were living in Scotland. My husband was required to file his US taxes in spite of his UK residence. In fact he'd been required to file them every year since his eighteenth birthday. Apparently his Mum had been doing them. So he started the arduous task of filing every year just before the April deadline, with a little prompting and harassing from me. I'd never even thought of the tax man before. Suddenly he was real, and the idea of him scared the heeby jeebies out of me.

Then we immigrated to Texas. We tried to sell our house back in Scotland but we couldn't find a buyer quick enough, so instead we acquired agents who have been renting it out for us ever since. We sound like a super swanky International couple who have a summer home in Scotland. I only wish we were that fabulous. The rent pays the mortgage and we break even. I like to think that we are sitting on our future nest egg. But keeping the house meant filing a tax return - wait for it - in the UK. I'd never heard of such a thing. It turns out every self respecting self employed individual has to do it. And now I was apparently self employed, small potatoes, but no matter. After a few phone calls to my brother, the tax accountant, I gathered the necessary paperwork and started filing.

Now the UK like to keep it interesting, so they have their tax year starting on the 6th April, ending 5th April next year. Lovely. Not at all the same as the states who like it to stay consistent with an actual year. One up to the states. A surprise to me as they are still trying to catch on to the whole decimal system...

So every year (after April) I file my British Income Tax return. And every year I break even, I don't owe or receive a penny from the British Government. But it's all on record and everybody is happy. Apparently not everybody. The US Government also wants a piece of me....

Once in Texas my husband started to file 'married filing jointly'. He's not self employed. He's an honest to goodness, hard-working, under paid charter school teacher. Tax Accountants are kind of pricey, and International Tax Accountants are an extreme rarity (at least in our neck of the woods). After attempting to track a few, we turned to Turbo Tax. And the computer walks us through the tax jungle no trouble. Nowhere, however, did we find a place to input my Scottish house data. So I naively assumed it was not an issue - silly foreigner..

Until this year.

This year a new question has appeared with a simple sentence stating that the IRS now required all foreign financial assets to be included. So we start inputting our UK home and Bank information, and it's like opening a can of worms. We call Turbo Tax and as luck would have it an International Tax specialist picks up the phone....

It turns out all our Scotland shenanigans are indeed taxable on this side of the Pond. 'Yes, you have to include your foreign rental property income,' she tells me. I think I always suspected as much. 'And it must be converted to dollars at the actual times of each individual deposit, regardless that it remained in the UK, and irrespective that there was no actual profit....' Then she dropped the big shocker. 'And you pay the highest Country's tax'. The US charges 30%, which trumps the UK, so we owe the difference......

Well my current income tax in the UK is zero%. Our income is below the taxable quota, so what little we do make is ours for the keeping (the UK call it an allowance). But the US would take that meager amount multiple it by 3 years and take 30%... not so meager anymore.. in fact quite a big bill once converted to dollars. Enough to keep us penny pinchers sweating late into the night as we diligently build a foreign income excel spreadsheet to calculate the damage.

So after much researching of emails and old bills and inputting of data, we reach the happy conclusion that the house breaks even, with a few measly dollars profit that don't change our numbers one iota. Phew! We don't owe a penny. We do however, qualify for some kiddy EIC bonuses - not at all shabby! Perhaps we'll be able to pay the hospital bills for baby number 3 after all.

I'm extremely relieved and very happy to finally have our Scottish dealings transparent and declared in the US Tax system. And another plus (my husband reassures me) according to the Turbo Tax system we are low risk audit candidates. Well whoop-de-do! Even with nothing to hide, that would be a logistical nightmare for us -it's probably a nightmare for any Tom , Dick or Joe. I'm told they go back 7 years -  a year before we tied the knot.

Incidentally, I don't hold much stock in the low-risk prediction from Turbo tax. That's like assuming you won't get pulled aside at the airport for a full body search if you're not wearing gold chains and a baseball cap....  

But two weeks on after filing our e-return, no money has been deposited in our bank and we start sweating once again. My husband checks online only to discover our tax return has been rejected by the IRS. That's what it actually states on the Turbo Tax log in page - 'Rejected by the IRS'.

We've been on hold for the last 3 hours to the Turbo Tax hotline...  and so we wait.