US taxes are one of the most complicated things to understand. But luckily there are many ways to either do it yourself with the help of software or just hand it all to an accountant.
We moved from Singapore to the USA in 2008 with an internal transfer visa (L1) and then changed to a professional visa (H1B). We had to deal with tax equalization to avoid the double tax rule, which was mostly done by the company’s lawyers. They did a tremendous job to ease our transition, but it took almost two and a half years to finalize.
Since then we were adamant that we would file our tax independently. Looking at the paperwork during the tax equalization process, our confidence just plummeted. What if we file the document in the wrong sequences, should we hire a professional to help us? You come to the realization that this process could be beyond your capabilities, but we desperately wanted to understand the system.
In the end, we decided to use the tax preparation company H&R Block (hrblock.com) near our home in Sunnyvale, CA. They are a group of accountants that work under the franchise name. It’s quite straightforward: just bring all documents and they will sort it out for you. But the service does not come cheap, especially since we had just come out from the equalization period. When we purchased a house, we decided to use a local accountant in Los Gatos to deal with the more complicated matters, such as the loan, mortgage, university fee, and some overseas assets that needed to be reported too. The cost was probably about the same as using H&R Block. The advantage of finding a personal accountant is that they will get to know you, your finances, and your personal situation. At a company such as H&R Block, you’ll probably meet with a different person each time you visit.
It was the 2014 tax season (April 2015) that we thought, “enough is enough!” We got to understand the US tax system by actually doing it ourselves. We used the widely available software Turbo Tax as a starting point and actually realized that our taxes were not as complicated as we had previously thought.
Once you know how filing taxes works in this country, you will likely spot some disadvantages or unfairness that applies to you. It motivated me to educate myself about the US system.
Some tips for hiring a professional accountant:
- Make sure s/he lives locally and understands global tax issues.
- If your tax situation overseas is complicated, it’s better to hire an independent accountant in each country. This is mainly due to authorization to provide advice in one country vs another.
- It does cost money, but at least it gives a pathway to a basic understanding of the U.S. tax system.
- Check and recheck because even though they are professional, they do make mistakes so you need to do some homework too.
Some tips on preparing taxes yourself:
- Ask your friends and other expats for recommendations for tax preparation software.
- Make sure the software allows you to file electronically and paper-based.
- It’s helpful to choose a software that can import information from your bank and investments accounts. This will save you time, and minimize the risk of making an error or typo.
- Most software charges an annual subscription, so the next year you will need to buy a new version. Make sure you are still able to access the old files or rather save them on your computer for documentation purposes.
Resources from the Internal Revenue Service (IRS, aka The Tax Man) and the California Franchise Tax Board:
Although the IRS typically only gets bad press (they have the job of collecting money, so not surprising), their website offers an abundance of useful information and advice for filing your taxes, getting an ITIN number and much more.
This article contains personal experience only. Life in the Bay is not affiliated, and does not recommend any of the companies or products mentioned within this post.
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