US taxes after abandoning green card/LPR - impact on USC

[Zeffe 2]

It all depends on the reciprocity agreements. For instance, it would work to your advantage if your spouse did not have a job in which case you would benefit from the better tax bracket for MFJ status. However, you may find out that once you work out your taxes with the Inland Rev Svc the taxable US amount be such that you would be exempt from filing or would have a small return or refund. Keep in mind that depending on your situation you will not be taxed for your entire overseas income.

The spouse (luckily?) has a job. Right now his income is below the maximum (pre-tax) limit set out in the US-UK tax treaty. But it sounds like if his income should exceed that number, then it would make more financial sense for me to file MFS?

[Zeffe 2]

My suggestion: If you have the time, do some homework of your own. Peruse the material available online first so you can gauge how much understanding you have. Then contact the IRS embassy office in London and ask if they can refer you to an accountant. Normally these are certified and bonded. Also, consider checking with HR in your company if they have any such type of assistance for expats. Many companies do.

Great advice. Thank you. Had no idea the embassy even had an IRS office.

It's only 14:25pm here this is driving me to drink!

[JohnR! 5,495]

It's only 14:25pm here this is driving me to drink!

Have a pint for me. :-)

[Zeffe 2]

Have a pint for me. :-)

Done!

[Ontarkie 14,313]

~~Moved to Tax & Finances During US Immigration as this is a new forum and this is a tax question~~

[dm559 34]

If you've never filed taxes jointly before and when you do you file married, filling separately then you are not lake f or any of his tax obligation and vice versa. It's the safety route to go and probably the best since I assume there's not a lot of deductions to claim.

[Big Baby 11]

http://www.irs.gov/Individuals/International-Taxpayers/Frequently-Asked-Questions-About-International-Individual-Tax-Matters

[datta.aj 1]

Hi everyone,

Thanks in advance for any advice. Here's our situation: My husband got his green card in 2013 (I'm a USC), but we've continued to live in the UK since then and have decided to formally abandon his GC (form I-407) because we do not intend to live permanently in the US at this time. I understand that my husband needs to file tax returns as an alien resident for every year he's had his green card. So he'll do that for 2013 and 2014. But after that, if we are not living in the US and he no longer has his GC, it is my understanding that he no longer needs to file tax returns with the IRS.

With this in mind, I am concerned about what impact his GC abandonment will have on my own US tax returns. As a USC, I file taxes with the IRS every year and for the 2013 returns I'll file them as "married, filing separately." The tax return form (e.g. form 1040) asks for my husband's name and social security number. Fine. I plan to list that info on my returns. But after he abandons his green card (and sends his SSN card back to the Social Security Administration), what do I do in future years? Do I keep listing my husband's SSN even though he has abandoned his SSN and green card? Or, do I list his SSN as "n/a"? Would that be a red flag for the IRS? Very confused.

A million thanks for your advice.

Zeffe

I am going to speak from personal experience. Me (Indian citizen applied for Green card recently) and wife (US citizen) were in UK for 3 years and just recently moved to the states. When we moved back to the states and started my green card process we realized that she had to file taxes even if she was out of the country (bad on our part not to do research).

Having said that, it is quite a complicated process. Even after reading through a lot of instructions on the forms and the IRS website it was complicated. Since my wife was married she had to include my details. She filed as Married filing separate since I did not have a SSN number or a TIN number and it would have been a lot of hassle to include my income. It did increase her tax liability since she filed separately. It would completely depend if you stand to gain from filing separately or jointly. The Foreign earned income exclusion was $97500 when my wife filed for her taxes as long as you earn below that and are out of the US for the full year you should be fine.

I would definitely advise you to use a CPA qualified in Foreign Income Tax. We used one and it helped a lot. They work out everything for you and will take care of all the forms for you and try to minimize your tax liability. Turbo Tax has a service called CPA intuit which is much cheaper than other CPA firms like H&R block etc. If you want I can send you the name of the CPA we used.

Hope this helps.

[Nich-Nick 3,354]

So if the American is living and working in the UK, would she have enough US income to even have a tax due? There is the foreign income exclusion approaching $100k now that would take a large chunk out of UK earned income. If at the end of the 1040, she owes zero tax, does it matter whether that is MFS? How can you do better than zero by filing joint?

What is the source of the American's income US or UK?

[Zeffe 2]

If you've never filed taxes jointly before and when you do you file married, filling separately then you are not lake f or any of his tax obligation and vice versa. It's the safety route to go and probably the best since I assume there's not a lot of deductions to claim.

I just wonder at what point it makes financial sense to file jointly vs. separately. Any clue(s)?

http://www.irs.gov/Individuals/International-Taxpayers/Frequently-Asked-Questions-About-International-Individual-Tax-Matters

So helpful! Thank you!

[Zeffe 2]

She filed as Married filing separate since I did not have a SSN number or a TIN number and it would have been a lot of hassle to include my income. It did increase her tax liability since she filed separately. It would completely depend if you stand to gain from filing separately or jointly. The Foreign earned income exclusion was $97500 when my wife filed for her taxes as long as you earn below that and are out of the US for the full year you should be fine.

I would definitely advise you to use a CPA qualified in Foreign Income Tax. We used one and it helped a lot. They work out everything for you and will take care of all the forms for you and try to minimize your tax liability. Turbo Tax has a service called CPA intuit which is much cheaper than other CPA firms like H&R block etc. If you want I can send you the name of the CPA we used.

Hope this helps.

Many thanks. Right now, even though I am living in the UK all of my income comes from the US (self-employment). So I've been filing my federal return annually and not filing a state return because I am not in the US enough days per year. Last year, when I got married, was the first year I filed as married (filing separately). Any idea whether this would have increased my tax liability vs when I filed as single? Is there a hidden marriage tax that I stupidly didn't know about (even if the spouse is a foreign national residing outside the US)?

[dm559 34]

It makes sense if one spouse would get a return but jointly they would have to pay in. Another would be if a spouse is cheating on their taxes. By going separate each spouse would be responsible for their own taxes, penalties and audits so the other spouse would not be responsible for levies, etc.

[Zeffe 2]

So if the American is living and working in the UK, would she have enough US income to even have a tax due? There is the foreign income exclusion approaching $100k now that would take a large chunk out of UK earned income. If at the end of the 1040, she owes zero tax, does it matter whether that is MFS? How can you do better than zero by filing joint?

What is the source of the American's income US or UK?

Hi Nick! The USC (me) is living in the UK but I'm here on a student visa. I don't work here. All of my income comes from freelance work I do for US-based clients. So each year I file a federal return prepared by an accountant in the US. (No state return needed because I don't spend enough time in the US annually.)

As far as I understand, because my husband is not a USC and (soon) no longer a green card holder, this means I don't (and he doesn't) need to declare his income to the IRS. But with that in mind, am I going to get taxed at a higher rate if I file MFS? I won't be able to file MFJ if my husband is a neither a USC nor a green card holder, so I'll have to go the MFS route. Do you know whether having to do that (MFS with a nonresident/citizen spouse) would screw me over financially? I'm guess still confused about the US tax implications of marriage...

[Zeffe 2]

It makes sense if one spouse would get a return but jointly they would have to pay in. Another would be if a spouse is cheating on their taxes. By going separate each spouse would be responsible for their own taxes, penalties and audits so the other spouse would not be responsible for levies, etc.

I like the personal accountability bit! Could you clarify what you mean by "It makes sense if one spouse would get a return but jointly they would have to pay in"?

[Nich-Nick 3,354]

But with that in mind, am I going to get taxed at a higher rate if I file MFS?

'

Ok. Let's look at the tax tables for examples http://www.irs.gov/pub/irs-pdf/i1040tt.pdf

Scroll down looking at various income levels and see how Married Filing Joint has a lower tax than both Single and and Separate for the same taxable income.

So here's a sample tax situation

US spouse income $25,000

UK spouse income $15,000 (converted to USD)

If filing single or separate, you get to reduce your income by $10,000 in 2013

$3900 is called personal exemption

$6100 is called standard deduction

$10,000

So with Single or Separate your return looks something like

$25,000 income

-!0,000 personal exemption and standard deduction

$15,000 TAXABLE income

Look on the tax table at $15,000 and you will see your tax would be $1808

But there's more.....

If you file with a spouse, you get to have 2 exemptions and 2 standard deductions. So having a second person on your return is worth

$3900 exemption

$6100 standard deduction

$10,000 extra taken off before getting to line 43 taxable income

So the return would look something like

$40,000 wages (Line 7 of the 1040) Both incomes reported.

-$15000 Foreign income exclusion (Line 21)

-$20,000 TWO people getting personal exemption and standard deduction

$5,000 TAXABLE income.

See the difference hubby makes?

You might think Yipee, now I look up $5,000 on the tax tables. ($503 tax) Not quite. When using the foreign income exclusion there is a different way to figure tax. It is worked out on a worksheet something like this--

$5000 from the taxable income line (Line 43)

+$15,000 the foreign income exclusion

$20,000

Find the tax for $20,000 ($2,111)

Find the tax the excluded amount of $15,000 would be by itself if not excluded ($1503)

Subtract

($2011-$1503) is your tax $608

So summmary for this example of US income and foreign income

Married Separate (or Filing Single): Tax is $1808

Married Filing Jointly: Tax is $608

This is over simplified because everybody has different tax situations, but it is one example showing that reporting foreign income isn't a bad thing to be avoided. It could save you money.

I won't be able to file MFJ if my husband is a neither a USC nor a green card holder, so I'll have to go the MFS route. Do you know whether having to do that (MFS with a nonresident/citizen spouse) would screw me over financially? I'm guess still confused about the US tax implications of marriage...

YES you can file jointly with your husband. Some who have never stepped foot on American soil do it if they get an itin.. See Publication 519....around page 9 or 10 on the subject of electing to treat the non-resident spouse as a resident alien for tax purposes.