Another VJer confused about filing for Tax

[NxN 10]

Hi All,

So, I know lots of people are asking lots of questions about taxes, and I have been reading them this morning, along with the IRS and TurboTax website and I feel more confused than ever.

My details....

Moved to US on K1 Visa in August 2015, got married in September 2015.

Filed for AOS/EAD in November 2015, received my EAD in Jan 2016.

Worked in the UK from Jan 2015 until I moved here.

So far, not done any work in the US (but due to start shortly)

Do I have to file anything for 2015 earnings, as they were all earned in the UK before I came here?

Or can my spouse simply file MFS for her earnings?

Thanks in advance guys,

[Jwfisher2006 3]

Since you were married to a USC in tax year 2015, you and your spouse may file jointly. In order to file jointly, you'll need to include a statement signed by both of you saying that you wish to be considered a resident alien in tax year 2015 for tax purposes only. You would then need to report your earnings on WORLDWIDE income. However, you can file for the foreign earned income exclusion that will exclude the first $90,000 - ish (don't have the document in front of me) of the foreign income from taxes. In other words, you'll have to report it but won't pay any tax on the UK income if it's below a certain threshold.

The easy way out is for your spouse to file MFS, but you would miss out on about $6300 of a tax deduction. They could under certain circumstances claim you as an additional exemption in this case but it's not as good as the MFJ deduction.

I'm doing the MFJ this year as well. Using tax software to prepare the forms, but filing by paper since the statement must be included.

[NxN 10]

Thank you for the info, out of curiosity, what software are you using?

[Jwfisher2006 3]

I've always used H&R block online software. I'm sure TurboTax is similar though.

[thespoons 33]

We used turbotax, no problem paid about $70.

Edited February 3, 2016 by thespoons

[CanadianYinzer 31]

Since you were married to a USC in tax year 2015, you and your spouse may file jointly. In order to file jointly, you'll need to include a statement signed by both of you saying that you wish to be considered a resident alien in tax year 2015 for tax purposes only. You would then need to report your earnings on WORLDWIDE income. However, you can file for the foreign earned income exclusion that will exclude the first $90,000 - ish (don't have the document in front of me) of the foreign income from taxes. In other words, you'll have to report it but won't pay any tax on the UK income if it's below a certain threshold.

The easy way out is for your spouse to file MFS, but you would miss out on about $6300 of a tax deduction. They could under certain circumstances claim you as an additional exemption in this case but it's not as good as the MFJ deduction.

I'm doing the MFJ this year as well. Using tax software to prepare the forms, but filing by paper since the statement must be included.

Thank you so much for this!

So my husband, who moved here in Sept 2015 but only worked in Canada in 2015, would have to file in Canada as normal first to show how much he paid in taxes, then I would MFJ with his foreign earned income exclusion?

Edited February 3, 2016 by CanadianYinzer

[Jwfisher2006 3]

In theory yes. I am having an issue with the FEIE though on both H&R Block and TurboTax. H&R Block is using it to reduce my taxable income giving me a massive refund (which I don't think is right) and TurboTax is taxing the bejeezus out of me almost like it's not considering the exclusion. Anyone else have thoughts?

[Sean and Kristina 24]

In theory yes. I am having an issue with the FEIE though on both H&R Block and TurboTax. H&R Block is using it to reduce my taxable income giving me a massive refund (which I don't think is right) and TurboTax is taxing the bejeezus out of me almost like it's not considering the exclusion. Anyone else have thoughts?

I did a preliminary run on our taxes on TaxSlayer.com and when I included my husband's foreign income it actually increased our refund...odd. I'm not done investigating, though.

[Jwfisher2006 3]

Yeah, I'm going to do a quick rough calculation by hand seeing what it should be following the worksheet...Because between two software programs, I get a huge swing in the amount.

[Jwfisher2006 3]

So my hand calculation yielded a third insanely different number. I thought this would be easy...

I think I need a CPA...

[CanadianYinzer 31]

After calling around 30 tax accountants, I finally found someone local to me that has done this before.

All he told me at the moment was for my husband to file as normal in Canada, then when he gets his return to come see him to do my taxes.

I asked him if me filing MFJ with his foreign earned income was correct and he said, "yes, partly"

So I don't have any concrete filing details yet to share.

[MariaR323 199]

In order for your U.S. tax return to be completed accurately, you do need to have your Canada tax return completed so that you can use accurate numbers for the foreign income, which in turn is used for either the foreign income exclusion or foreign income tax credit. The more common one used is the exclusion.

In theory, I will use an example:

Single couple, A and B. U.S. "A" and foreigner "B". Each in 2015 have taxes withheld at their "single" rate. Couple marries in Nov 2015. The following has happened:

- All year you paid taxes as "single"

- You are now considered married and this is in effect for the entire tax year 2015

- You file tax return for 2015 as MFJ (including foreign income and electing to choose B-foreign spouse as U.S. resident for entire year 2015

- Foreign income is eligible to be excluded

In a sense what is happening is you are calculating your tax rate at the MORE BENEFICIAL MFJ rate vs. the single rate you (U.S. citizen) were being taxed on throughout the year. So yes, this would normally yield a higher return.

[Jwfisher2006 3]

I just figured out that the FEIE is not as much an "exclusion" as I had thought. After hours of researching the different ins and outs, apparently there are cases where the FEIE can INCREASE your taxes owed. I'll try to give a concise example.

US Citizen (USC)

Spouse foreign income

USC income: $50,000

Spouse foreign income: $50,000

So given this example the AGI would be $50,000 if the 2555 were filed. However, you would not simply find the tax owed on that $50k and be done. What actually happens is you have to take the total income ($100k) and figure the tax on that. Then figure the tax owed on just the foreign income. The difference between that is the additional tax owed. In other words, they credit you for the $50k foreign income taxes owed, but then you have to pay the higher tax rate on your taxable income as if you had made $100k.

My head hurts from this so I got a consult with a CPA next week to run the three different options for me (MFS - Spouse Exemption, MFJ - Foreign Tax Credit or MFJ - FEIE) and make sure it gets done correctly. One thing I have discovered is that no two software packages result in the same numbers and my rough hand calculations are drastically different from that too.

[MariaR323 199]

Yes, it is called Foreign Earned Income Exclusion (emphasis on the "Exclusion") for historical reasons but it isn't literally just a "wipe-out" of the foreign income.

Not one single tax return is going to be the same, everybody has a different "financial picture". Here on the boards, unless someone is very candid and gives every single detail of their "financial picture", nobody can really say exactly what "sounds" better to do OR not.

Generally speaking, filing MFJ is almost always most beneficial rather than MFS. Which is why it is better to run the numbers using the different filing statuses and options available to you.

Edited February 3, 2016 by MariaR323

[Nich-Nick 3,354]

If you will look at the actual Form 1040 on Line 44, it says--

44 Tax (see instructions)

That is because depending on your source of income, there are other ways taxes are calculated. You have to go to the 1040 instructions to understand it.

Instruction book https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Page 41 is the beginning for Line 44 TAX instructions.

Topics are--

Tax Table or Tax Computation Worksheet Income over or under 100k, what to do, but keep reading...

Form 8615 if you have a kid with a lot of income

Schedule D Tax Worksheet. if you had investments on Schedule D, you gotta use this instead. but if you also had a Form 2555, it trumps Schedule D so keep reading....

Qualified Dividends and Capital Gain Tax Worksheet.

Schedule J if you are a farmer or fisherman

Foreign Earned Income Tax Work­ sheet. If you claimed the foreign earned income exclusion, housing exclusion, or housing deduction on Form 2555 or 2555-EZ, you must figure your tax using the Foreign Earned Income Tax Work- sheet.

Then the various worksheets start after that. Have a look at the Foreign Income Exclusion worksheet. It is as JWfisher described.

But of you don't want to know all this, then tax software will do it all for you based on your exact return and magically use the right method to populate Line 44 with your TAX.

Tax software is only as good as you are knowing how to answer the questions as well.

For those who had unusual swings based on your Foreign Income Exclusion, let me point out some common mistakes.

Your foreign income has to appear on Line 7 added to your spouse's income. So let's say USC made $30,000 and Foreign spouse made $20,000 abroad (converted to $$)

Line 7 has to say $50,000 ($30k+$20k)

If it doesn't then you have missed a step and it will look like you are getting a HUGE refund.

Now look at your Form 1040 Line 21. The example couple would have:

Line 21. Other income. List type and amount.....Form 2555.[filled in by software].... 21. -20 000

That is MINUS $20,000. That is where your exclusion pops in.

So check the form that you INCLUDED the foreign income (Line 7) and also EXCLUDED it (Line 21)

Many people exclude it just fine but never included it first. I think H&R software is a little vague on how to include it. If I remember correctly, they have you create a substitute W2 to get it in there. (I have not looked at 2015 edition to confirm they still use this method.) That is one of the reasons I thought H&R was not as good as Turbo when I compared both installed software editions last year. If I hadn't know it had to go on Line 7 and looked for a way to get it in, I would have missed it.

With TurboTax, you will find Foreign Income in the section they call Less Common Income at the end of all the possible incomes. Look for it after, employed with W2, contractor with 1099, Pensions, IRA distributions, Interest, Dividends. If you have Foreign Income, just keep going until it says something like "Now we'll ask you about some less common incomes". There are 4-5 listed first which you probably never heard of, but keep going and you will find the Foreign Income section to list it and exclude it.

Edited February 4, 2016 by Nich-Nick