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

[Zeffe 2]

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 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.

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.

Wow, Nick. Thank you so much for taking the time to do these calculations!! And for correcting my assumption that a USC with a foreign/nonresident spouse can only file MJS.

I can see the financial sense in MFJ if both people earn under $97,600 per year (the current Foreign Earned Income Exclusion, http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion), although it feels somehow wrong to have to report income of a non-USC/non-LPR! Any idea at what stage it would make sense to go MFS? For example, if the foreign spouse makes more than the Foreign Earned Income Exclusion?

[Nich-Nick 3,354]

I don't know the world of taxes enough to know when joint and when separate makes sense. There are things that hinge off that Line 7 wage amount that could be affected by the combined numbers.

One is how taxes are figured if you have Schedule D capital gains. Taxes don't come straight off the tax table. There is a capital gains worksheet to calculate a tax figure and it starts with the higher joint income and trickles down. Then the foreign income worksheet figures the tax on the foreign portion and subtracts it from the calculation of the capital gain worksheet. I had that but still did better joint. So is there a spot where it isn't an advantage? I don't know.

Another might be Earned Income Credit. No experience with the calculations, but it is for poor individuals with children who work instead of welfare. They get "bonus money" so to speak...no tax and more money refunded than paid in. So a higher Line 7 might affect whether they qualify for the extra money. Totally speculating here because I have never done a tax return with EIC. Don't even know the rules. But the point is, some things might be affected by a larger wage before the point where the excluded taxes kick in.

And you probably want to examine whether if both live abroad, is there anything that prevents the foreign income exclusion. My example was quick and true for most VJ people for the first year the spouse or fiancé arrives. And it is true for those who live in separate countries.

As far as having to report to income of a non-USC/non-LPR--you don't HAVE to. You can file married separate. But if you CHOOSE to file joint, they must know the total income of the family. You can't get perks without disclosing the whole picture. Your choice.

Basically tax returns should be calculated both ways each year to make the decision. Laws, tax breaks, etc change every year.

[Zeffe 2]

I don't know the world of taxes enough to know when joint and when separate makes sense. There are things that hinge off that Line 7 wage amount that could be affected by the combined numbers.

One is how taxes are figured if you have Schedule D capital gains. Taxes don't come straight off the tax table. There is a capital gains worksheet to calculate a tax figure and it starts with the higher joint income and trickles down. Then the foreign income worksheet figures the tax on the foreign portion and subtracts it from the calculation of the capital gain worksheet. I had that but still did better joint. So is there a spot where it isn't an advantage? I don't know.

Another might be Earned Income Credit. No experience with the calculations, but it is for poor individuals with children who work instead of welfare. They get "bonus money" so to speak...no tax and more money refunded than paid in. So a higher Line 7 might affect whether they qualify for the extra money. Totally speculating here because I have never done a tax return with EIC. Don't even know the rules. But the point is, some things might be affected by a larger wage before the point where the excluded taxes kick in.

And you probably want to examine whether if both live abroad, is there anything that prevents the foreign income exclusion. My example was quick and true for most VJ people for the first year the spouse or fiancé arrives. And it is true for those who live in separate countries.

As far as having to report to income of a non-USC/non-LPR--you don't HAVE to. You can file married separate. But if you CHOOSE to file joint, they must know the total income of the family. You can't get perks without disclosing the whole picture. Your choice.

Basically tax returns should be calculated both ways each year to make the decision. Laws, tax breaks, etc change every year.

Thank you. Incredibly helpful. My situation is complicated by the fact that my income is self-employment and my foreign spouse's is standard W-2 stuff.

At the end of the day, I may need to consult an expat tax accountant. What fun ;-)