Some foreign income questions

[jeepcoma 0]

So I think I've completed my 2008 tax return, which I need to do in order to send my I-864 Aff. of Support form finish my half of the work for the NVC before my wife can get her interview. This is ready to be sent out and I will be doing it separate from my tax return filing to the IRS.

In my tax return, I've selected that I am filing as SINGLE, but since I am in fact married I need to attach with it the W7 form and signed "treat NRA as a RA for tax purposes" form for my wife to get an ITIN so that I can then file a 1040X and adjust my status to MJF. OK, easy, right? Here's where I'm getting (more) confused.

For 2008 my wife came to visit me twice with a regular Australian tourist visa, the first time for 90 days around July, and the second time for 90 days from November through New Year's for Feb 09... so she does not qualify under the Physical Presence Test no matter how we slice it, even though she was here for about 150 days total in 2008. Her 2007 trip comes up just short if 2008 is the main year (which I think is correct since it's a 2008 tax return) with her trips from 07 and 06, and even if 09 is used as "this year" she wasn't here long enough. Although looking at the 2555 form, it simply says "12 month period" as opposed to the IRS's website guidelines which state "this year", which to me indicated 2008 calendar year, or 2009 calendar year or whatever. If it's really 12 month period I think she would qualify under the PPT and I can put her income under the foreign tax exemption option since it's less than the limit?

So, since she does not pass the PPT, I looked at the Bona Fide Residence Test... here's the thing, she doesn't pass that test for either the US or her tax home of Australia! So I can't file the 2555EZ and have her income be exempt (it's not a lot, since she's been working part time while she was there)? Or since she visited the US just under a tourist visa, does that not go against the Bona Fide Residence Test? She's already filed and paid her Australian tax forms, it's ridiculous to consider that I would have to report her income combined with mine and then pay additional taxes on it and end up owing MORE money to the IRS, despite changing filing status to MJF and an additional exemption, when she doesn't even live here yet because we're waiting for this entire immigration procedure to come to an end!

My brain needs a break for a while now, I'm not quite sure of everything I need to do anymore (I had all my I's dotted and my T's crossed about 1.5 hours ago... until I found out some more info and said oooh MAN I have to do it again!!). I've read through tons of helpful posts here (like this one) about taxes and filing and all that, but I didn't come across a situation like mine where it appears that I cannot list my spouse as either here or there for tax purposes... so I'll either need to list her currency rate adjusted income (see below) to my own and pay taxes on it, or change my status to MSF?

I think... but my brain is a bit beat at the moment and what was clear a few hours ago isn't so clear anymore. Time for a break. At least I did find info about what to report for her income, I'll paste it below since it might help some others (judging by the number of tax questions recently!). Anyway, what I really need to know is whether or not I should be OK to send in my copy of my current single filing tax return for my I-864 proof of support form! I need to get this in ASAP so we can get on with the interview process! I've got plenty of time to figure out the tax stuff, as long as I'm not screwing up my Visa process.

From Publication 54:

You must express the amounts you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U.S. dollars. How you do this depends on your functional currency. Your functional currency generally is the U.S. dollar unless you are required to use the currency of a foreign country.

Make all income tax determinations in your functional currency. If your functional currency is the U.S. dollar, you must immediately translate into dollars all items of income, expense, etc. (including taxes), that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Use the exchange rate prevailing when you receive, pay, or accrue the item. If there is more than one exchange rate, use the one that most properly reflects your income. You can generally get exchange rates from banks and U.S. Embassies.

If your functional currency is not the U.S. dollar, make all income tax determinations in your functional currency. At the end of the year, translate the results, such as income or loss, into U.S. dollars to report on your income tax return.

[aaron2020 11,651]

Have you considered filing "married filing separately?" It should be relatively easy if you don't share any income with your wife.

[aaron2020 11,651]

http://www.taxgirl.com/ask-the-taxgirl-nonresident-spouse/

This is almost your exact situation.

[jeepcoma 0]

So after a break, I looked through some more stuff and that link you sent and played around with turbo tax a bit more. After reading the same thing for about the 100th time, something clicked! It's so obvious...

You must be a resident of a foreign country for an uninterrupted period that includes a complete tax year (January 1 to December 31) unless you are eligible to clain a waiver.

Key word... be a resident for an uninterrupted year... but not necessarily have been residing there continuously! Right? I think. And also confusing, in Australia the tax year July 1 to June 31 I think, but regardless, she has been an uninterrupted resident of her country for her whole life.

Anyway, more to look at in the morning.