US Insights

If you claim foreign tax credits on a paid basis, you may be required to accelerate your UK (or other foreign country) tax payment into the current calendar year.

Focusing on the UK, the tax due here on untaxed 2024 income and gains will likely be payable after the end of the 2024 calendar year (potentially 31 January 2026).

By making an advanced tax payment to HMRC by 31 December 2024 you can ensure that this tax credit is available to offset the 2024 US tax that would otherwise be due.

Is this relevant to you?

Individuals who will likely need to consider year-end planning include:

• a self-employed individual
• a partner in a partnership
• UK residents receiving pension income (including social security)
• those switching from the Remittance Basis (taxed on UK source income and gains) to the Arising Basis (taxed on worldwide foreign income and gains) in the 2024 calendar year.
• an individual becoming ‘deemed domiciled’ in the UK
• UK residents receiving pension income
• an individual with significant one-off transactions in 2024, such as capital gains, carried interest payments or remittances to the UK

However, it is less relevant if you only receive employment income, on which taxes are typically correctly withheld at source.

Due to the increase in UK Capital Gains Tax (CGT) in the current year, it is particularly important to ensure UK CGT is paid by 31 December so it can be claimed as a credit on your US 2024 return.

The US/UK Income Tax Treaty should be reviewed to determine which jurisdiction has the primary taxing right on the specific income in question.

If you are a US taxpayer resident in the UK, the UK is awarded that right on most types of investment income (e.g. interest and dividends), excluding US real estate and a portion of US dividend income.

One-off capital gain transactions and their associated UK tax liability must be calculated with the exchange rates at the time (i.e. spot rates).

For the avoidance of any doubt, if you claim foreign tax credits on the ‘Accrued Basis’, the above will not apply to your situation.

Even if your main sources of income are employment income/income subject to withholding, we would strongly suggest you still seek tax advice to confirm if year-end planning considerations will be relevant.

It is important to remember that the standard deduction has increased in recent years.

For 2024, the standard deduction for single taxpayers and those married but filing separately is $14,600. Married couples who file a joint return will be entitled to a standard deduction of $29,200.

With this in mind, and depending on the amounts involved, some taxpayers who have claimed itemised deductions historically, including charitable donations, may now be better off simply claiming the standard deduction instead.

Making the choice between an itemised deduction and the standard deduction is something that you can do each year. It could be more efficient to carry out one-off larger charitable donations every few years, rather than smaller annual payments.

To deduct a charitable donation in the 2024 tax year, it must be paid within 2024. This applies to both cash and other property or stock donations.

Typically, the amount of charitable cash contributions you can deduct on Schedule A is limited to 60% of your adjusted gross income (AGI).

It is always worth exploring non-cash methods of donation that may help you achieve your aims. For example, donating shares instead of cash is often overlooked. Appreciated stock can be donated to charity, with the fair market value of the stock generally being the donation value. In most instances, this clearly represents a double tax saving as there’s also no need to consider the Capital Gains Tax that would have otherwise been due if the shares had been sold before making a cash donation to charity.

There are also specialist donor-advised funds (DAF’s) available that enable both a US and UK tax deduction on your charitable donations. With careful consideration, the timing of a DAF donation can maximise the impact of your Income Tax deduction. However, a fee is often payable for these services, so they should only be considered for larger donations.

Finally, many large US universities and investment houses offer dual-qualifying structures. When donating, it might be worth asking the charity if they have such a structure in place, as they may not be aware of your status as a US and UK taxpayer.

It is worth considering utilising any unrealised capital losses to offset capital gains before the end of the calendar year. In most circumstances, capital losses cannot be carried back to earlier years, so by realising losses in the same year as gains, you can achieve a noticeable tax saving.

Note that the ‘matching’ of losses to gains is not necessarily required and so you do not need to realise short-term losses to offset short-term gains. If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income (up to an annual limit of $3,000, or $1,500 if you are married but filing separately).

If your capital losses for the year exceed your capital gains after the deductible amount, the remaining loss is carried forward indefinitely for use against future capital gains.

By realising losses there is also the ability to mitigate Net Investment Income Tax of 3.8% for that relevant year. This may be particularly more relevant for 2024 for taxpayers who have realised large gains prior to the UK Autumn budget.

If you have refinanced or are considering refinancing your UK mortgage, the strengthening of the US dollar may lead to US-taxable income.

This is a result of onerous US tax legislation which considers any foreign exchange gain on your mortgage (i.e. if you are deemed to be repaying fewer US dollars than the USD equivalent of when you originally took out your mortgage) as US taxable.

The benefits of refinancing and possible interest rate savings may outweigh any negative US tax consequences. It is advisable to seek professional advice to see if this tax can be mitigated and to avoid any surprises.

Despite continued debate in Washington about the State and Local tax (SALT) deduction, the $10,000 cap remains in place for 2024. Taxpayers can only claim up to this amount as an itemised deduction.

Bearing this in mind, it’s worth considering whether accelerating your fourth quarter estimated state tax payments could be beneficial. This decision should consider whether you will be claiming itemised deductions or the standard deduction.

We would recommend speaking to your tax adviser about this.

The gift tax annual exclusion for 2024 is $18,000. This means you can generally gift up to $18,000 per person in the tax year without those gifts being taxable. For married taxpayers who are splitting gifts, the exclusion for 2024 is $36,000.

You can also give unlimited amounts towards tuition or medical expenses if you pay the provider directly.

Beyond the gift tax annual exclusion, the lifetime gift and estate tax exemption will apply. This is adjusted for inflation each year, and currently sits at $13.61m for 2024.

Use of the lifetime gift and estate tax exemption during your lifetime will of course reduce the exemption available upon death.

The annual gift limit to a non-US spouse has also been increased to $185,000 for 2024.

There is still time to make contributions to your retirement plan for the 2024 tax year. For those under 50 years of age, the amount you can generally contribute to a Traditional Individual Retirement Account (IRA), or Roth IRA is $7,000 for 2024 ($8,000 for those over 50).

The maximum 2024 contribution to a 401(k) plan is $23,000. Again, this applies to those under 50. Those over 50 can contribute an additional $7,500/

To maximise your tax-deferred savings, you may wish to discuss with your financial adviser whether fees levied by your pension provider can be met using assets held outside of the plan.