USA and the UK
Who needs to pay taxes in the United States?
In the United States, every individual who is working legally in the U.S. must pay federal income tax. This includes U.S. citizens, permanent residents, temporary workers, and even undocumented workers who are without legal immigration status.
Those individuals who believe that the U.S. government has taken too much in taxes may file for a federal tax refund (aka, tax return) where they will receive a lump sum of money for what is owed to them. The amount of this money will depend on each individual’s personal circumstances such as if they are married, have children, earn below a certain annual salary, have valid tax deductions, etc. Filing for a tax return is not mandatory the way paying taxes is in the United States.
How do you file taxes in the United States?
Anyone who is working legally in the United States will receive a W-2 Form from their employer(s) in January or February. If you are self-employed or have earned over $600 in the past year in various business endeavors, you will receive a 1099 form. Both of these documents should provide you with information such as how much you have earned and have been taxed in the previous year. You will use these forms along with receipts for any charitable donations, medical expenses, business expenses, student loan payments, and any other tax-deductible fees to calculate your adjusted gross income which is defined as your total income minus any adjustments that you had to pay for during the year.
Once you have gathered all necessary documents to calculate your adjusted gross income, you will need to file taxes and send them to the Internal Revenue System (IRS). You can do this by using an agency, accountant, or tax preparation software (the most preferred by the IRS). Depending on factors such as marital status, the number of dependents in your household, and even some miscellaneous itemized deductions, you may find that you are eligible for a tax deduction. If eligible, the IRS will process this request and provide you with a federal tax refund.
However, if you file taxes and are found to actually owe tax money, you will need to send a tax payment to the IRS. It should be noted that all taxes should be filed by mid-April of every year. To find out the exact date of when taxes need to be filed along with any other relevant tax advice, visit the IRS website.
Are immigration fees tax deductible?
As a general rule, the IRS does not recognize USCIS fees as tax-deductible. The IRS will only allow certain fees to be tax-deductible if they are found necessary either directly or indirectly to the generation of a taxable income. The IRS considers immigration fees to be of a personal nature and therefore not a valid tax deduction for income tax purposes.
What tax deductions are available for me?
The general rule for tax deduction is that any fee directly or indirectly related to income generation is eligible for a deduction. Therefore, businesses can deduct legal fees ordinary and necessary for the operation of the business. This can include justifiable business expenses such as the following:
- Attorney fees for a business-related lawsuit (such as suing someone for back rent owed or for collection of royalties on a property)
- Any legal fees incurred for the necessary and standard operation of a business
- Attorney fees for an employment lawsuit involving a whistleblowing claim or unlawful discrimination lawsuit
- Legal expenses related to the hiring of an attorney to defend a business against criminal charges
- Legal expenses owed to a lawyer who helped an individual claim or obtain an IRS tax refund
- Legal expenses owed in connection to a lawsuit where an attorney to a business had to defend the business against a claim
- Legal expenses owed to a lawyer who helped facilitate the adoption of a child (if the individual qualifies for the federal adoption tax credit)
- Visa application fees if an employer required an employer to enter another country as part of their employment duties
- Fees related to the drafting and reviewing of contracts
- Expenses related to business incorporation and planning
- Commercial properties or business real estate closings
- Legal expenses for a business to file for bankruptcy
- Expenses related to farm income and expenses
With the exception of attorney fees related to the adoption of a child, all personal legal fees will not be considered tax-deductible. This includes legal fees related to personal matters like divorce, personal injury lawsuits, personal real estate matters, or any other personal expense where you can not generate or collect taxable income.
It’s important to keep personal fees separate from business fees which can be deducted on a federal tax return.
What are the consequences of not paying taxes?
The United States government and the IRS take an individual’s duty to pay taxes very seriously. All individuals legally working in the United States must pay federal income tax. Those who do not file their taxes with the IRS or even file their taxes late, may face penalty fees, be denied a federal tax return, have their passports revoked, have federal tax liens taken out on their assets, have their property seized, and even have charges filed against them for tax evasion. Individuals found guilty of tax invasion could face a felony conviction that carries with it a 5-year prison term and fines up to $100,000.
Why you should keep records of your tax history
It’s very important to keep up-to-date and detailed records of your tax history, especially if you are a permanent resident (aka, a green card holder) of the United States. Not filing taxes in the U.S. as a lawful permanent resident could cause the government to believe that you are a resident in another country and have therefore abandoned your permanent residence status in the United States.
Individuals who would like to apply for U.S. citizenship will need to keep detailed records on their yearly tax filings to submit as evidence of ‘good moral character’. Failure to pay your annual taxes as a permanent resident could result in you being denied an application for U.S. citizenship.
Individuals who have not filed for taxes and would like to apply for U.S. citizenship can enter into ‘an Offer in Compromise’ (OIC). An OIC is a payment plan where the IRS settles the taxpayer’s tax debt for less than the full amount owed. If you are on an OIC payment plan when you file for naturalization, you must submit a letter from the IRS detailing your payment plan to the USCIS officer along with receipts of payment.
It should be noted that undocumented immigrants (those who entered the U.S. without inspection or who have overstayed a visa and are without legal immigration status) still have an obligation to pay taxes. To pay and file taxes, undocumented immigrants in the United States will need to obtain an Individual Taxpayer Identification Number (ITIN) from the IRS.
Last modified on February 11th, 2022 at 6:23 am
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