Law Offices of Chris M. Ingram

    American Dream – Finance/Taxes

    Finance

    The world of finance is far too big a subject to cover in this guide, but there are some fundamental ABCs of everyday life that you should be prepared for if you are going to function for more than a couple of weeks in the US.

    Having A Social Security Number (SS#): Bearing in mind that I am writing this guide as a Brit I never realized how important having a SS# would be. In Britain, having a SS# or National Insurance number (NI#) is something that only our employer would need to see. Once the UK employer had that number he could sort out your payroll. That’s pretty much the last time you would think about it, unless you had to file your own taxes. In other words, having a SS# or NI# was not really a big deal, and being British your NI# came automatically anyway.

    In the US, having a SS# is used more broadly than in the UK. Your SS# identifies you for tax purposes, but it also identifies you for your credit score. Without a SS# you cannot get any form of high street credit whatsoever and you can’t get one as an alien without government approval. No SS#, no credit. Imagine trying to live your life without being able to obtain any form of credit for any purpose; life would quickly become very expensive and restrictive indeed.

    The Social Security office has a list of all the visas that will qualify for a SS#. Not all visas qualify for a SS#. In fact your particular visa may qualify you for a SS# but this will not automatically extend to your spouse or your children. Therefore, it is very important to find out from your immigration attorney whether you and your family members will be eligible for a SS#.

    Every finance-based transaction you make will ultimately determine your credit score. This will not only determine what credit cards you will be able to qualify for, if any, but also if you want to rent or buy a place. Also, when you come to lease or buy (on finance) a car, your credit score will determine your eligibility. As a result most people zealously protect and nurture their credit score. Developing a bad credit score can have disastrous consequences.

    State Driving License and Finance: In Britain, a driving license is what you get when you pass your driving test. The only times you have to produce it is when you get stopped by the police and for related police matters, and perhaps when you want to rent a car or buy car insurance. In other words, it’s not something you use everyday or in every quarter for the most part. In the US, many states use your state-driving license as your principal form of identification. Let me explain how it works.

    Every time you use your credit card the cashier will want to see your state-driving license. Every time you write a check the cashier will want to see your state-driving license. If you don’t have a state-driving license you are going to experience difficulties with every transaction you make unless you pay in cash all the time.

    American commerce relies on your state-driving license as the most common method of proving your identity. This is because in order to get a state-driving license you would have had your identity scrupulously checked by a government agency. So, for Americans, it makes sense that if you have a driving license you are who you say you are.

    Commerce has built all its software that runs all the retail outlets to receive the unique alphanumeric code on each driving license. Therefore, if you don’t have one, the system fails and you will have a cashier looking at you with a blank expression wondering what to do. While these issues are annoying, they can be tolerated while on two-week holiday. However, imagine trying to put up with this for months on end.

    So to re-cap, you need to have a SS# to be able to get credit, but to be able to use your credit card in the stores you need to have a state-driving license. That’s pretty much it. In truth, you can probably make your transaction without a state-driving license, but you’ll probably be able to do so when you get the cashier to get the manager who would use his special code to override the till, having first checked your passport, UK driving license and anything else he thinks will cover his back if he gets it wrong!

    Imagine having to go through that delay and hassle each and every time you shopped. You can use your English (international) credit card, but you’ll need some sort of ID to back it up, and that’s where it gets ‘sticky’ when you don’t hold a US state driving license.

    Check Books vs. Cheque Books: This may seem like a small point but it’s probably worth noting as it may explain some of the issues above. Americans call what we spell chequebooks, checkbooks. Americans do not operate a check guarantee card system. US banks generally do not guarantee the payment of checks. Without a check guarantee system in place, this puts all the retail outlets in a very vulnerable position. They have two main sanctions. Firstly, if your check bounces they can write to you for the funds and charge you an administration fee for doing so. Secondly it is a criminal offense to deliberately write a check knowing that it will bounce. The retailer could threaten to call the police if you don’t pay up.

    However, none of these sanctions will have any teeth if they cannot prove that the author of the check actually wrote the check in the first place. The retailer can prove authenticity if at the time of writing the check the retailer took the payer’s driving license number. Also, state-driving licenses include photo-identification, as is now the case with British driving licenses.

    So even if you open up a US bank account, which can be difficult without a SS#, you will need to have a state-dri ving license if you want to be able to use it, and you won’t be able to obtain a driving license (in most states) without a valid visa.

    Obtaining Your First Credit Card and Building Your Credit Score: Let’s now assume that you have a job, SS#, bank account and state-driving license. Now you want to apply for your first credit card. In America the credit card companies have this thing called a ‘secured’ credit card. Basically, if you want a $2,000 credit limit, you first have to give them $2,000 in cash for them to hold on deposit for up to a year. During this time you can demonstrate how responsible you can be with a credit card. After a few months, you may be able to apply to other credit card providers and they may accept you without requiring a similar bond. After about a year or so you will start building up a credit score. A solid credit score would be 700 or more, the maximum being 850. Every time you apply for any kind of credit, your score will initially go down by 5 points. Every time a payment is late (typically 14 days overdue) your credit score will go down. Finally, every time you pay off your credit cards or maintain very low outstanding balances your score will go up.

    Mortgage Applications: Making a mortgage application is very similar to making an application in the UK although there are some differences. First of all, if you are a new arrival you will still need to have a SS#, state driving license and credit score built up. The higher the score the more lenders will be interested in helping you. In most cases you’ll probably go through a mortgage broker. Also, as a new arrival, if you do not have a green card, the amount of deposit you will have to put down may be much higher, for example 20-25%. Where possible it is good to have your mortgage provisionally in place before you make any offer on a house.

    Banking Tips: Although this may vary from state to state beware of going overdrawn. If a US bank gives you an overdraft limit of say $1,000.00, what this means is that at any time you can go overdrawn, but you may not stay overdrawn for more than 45 days. This is well known to Americans so is seldom, if ever, explained to a new account holder. If you happen to stay overdrawn for more than 45 days your account can be automatically closed down, and any other bank accounts you have anywhere else will be notified and they in turn can automatically close your account. Even if you have thousands in that account, they may send you a check for your credit balance. It’s all connected. So be warned. Instead of using an overdraft, talk to your bank about a loan or simply use your credit card instead.Many banks have a bill paying system whereby you can pay all of your utility bills etc online. This system is very helpful indeed when you want to make sure that your bills get paid on time, all the time, whether or not you are in the country. Many companies do have direct debit systems whereby they can debit your account, but this option has become less popular with the advent of online banking.

    Creditors from any source, whether it is a utility bill or otherwise, are very vigilant. If you are late for any reason, expect a rather rude telephone call with a financial penalty notice in the post very quickly. Even if you under pay by one dollar, expect the call. To avoid these frightful intrusions, it is always a good idea to over pay your bills in order to create a margin between you and them and to cover you for any oversights by you or your credit. It makes for a much quieter life all around.

    Taxes

    There are two tiers of tax systems in the US, federal taxes and state taxes. Depending on your level of earnings and exemptions etc, everyone of working age is liable to the federal government for taxes. However, not all states have an income tax system. This is primarily because some states are able to raise sufficient income to run their affairs without having to set up a state tax. Most notable of the states that do not set state taxes are Florida and Texas.

    All adults must file a federal tax return whether they owe taxes or not. Even if your employer deducts your taxes at source you are still required to file a tax return as you may be entitled to a tax re-bate. Many experienced Americans handle their own tax affairs without the need for an accountant.

    Accountants are generally called Certified Public Accountants (CPA). It is probably a good idea to get in touch with a CPA as soon as you can so that with the benefit of their advice you can quickly adapt to the US way of doing things. This would be even more time-critical if you have entered the US in order to start your own business.

    If you owe taxes it is advisable to pay them quickly as late payment can result in regular monthly fines and penalties for each month the debt is outstanding. Put it another way, it would be cheaper to use your credit card to pay off the government rather than to keep them waiting for their money. Again, working closely with a CPA will be very useful.