Confusing

[Suss&Camm 2,213]

Just now, Izor said:

Hahah that is what i did, thank you! i feel a little less frustrated now

and GLAD that i am done with forms for now.

Btw, do you think it is possible to do all the calculations through Turbo tax, print the 1040 and then mail it? would save some headache too.

Yes, I think so.. I haven't used TurboTax but I know others have said you can do it that way. I found it the easiest to do the calculations by hand so 1. I know what I'm doing and 2. I'll know it's right... I would trust TurboTax if it was more standard circumstances.... but I'm probably paranoid

[Izor 79]

Just now, Suss&Camm said:

Yes, I think so.. I haven't used TurboTax but I know others have said you can do it that way. I found it the easiest to do the calculations by hand so 1. I know what I'm doing and 2. I'll know it's right... I would trust TurboTax if it was more standard circumstances.... but I'm probably paranoid

Haha okay, thank you so much for all your help, lifesaver!!

[Suss&Camm 2,213]

Just now, Izor said:

Haha okay, thank you so much for all your help, lifesaver!!

yw  

might as well use all the research I did for something good right!

[Wuozopo 4,293]

On March 6, 2017 at 8:45 PM, Izor said:

I moved from Sweden to US in April last year, i did work in Sweden up until that month.

 

We got married in June, got my green card in October, we bought a house in December and i started working that month aswell.

 

We are planning on using Turbotax, as i understood, i only have to report my Swedish income but not tax on it since it was under $100.000?

I was planning on filing as a resident for tax purposes and we are filing jointly. Is including the form 2555 all i have to do?

 

We are expecting significant money since we have lots of deductions to make from the house buying etc, so i really do not want to mess anything up. 

YES you can use TurboTax. 

Yes you can e-file and do not require any statement electing to be treated as a resident alien for tax purposes. You are a resident with a greencard.

 

The $100k exclusion you heard about is the maximum that could be excluded if you lived/worked the entire year in Sweden. You didn't. You left there in April so only approximately one-third of the year. Therefore you are only allowed one-third of the maximum $100k exclusion or about $33k. That is all in rounded numbers as an example. Turbotax  will calculate it to the dollar for you using the exact number of days you were abroad and the actual figure of $101,300.

 

In TurboTax, way at the bottom of all the various types of income, you will find Less Common Income. That is where you will be asked about foreign income. That process will guide you through seeing if you are eligible for the exclusion and will fill out the Form 2555. You are eligible, but the trick is giving the correct answers to TurboTax to get it to move on.  

 

You are eligible based on being a bonafide resident of Sweden and allowed to work in Sweden.   The forms are written more with Americans in mind so confuse many. Americans need have a visa or some kind of authorization to live and work in Sweden to qualify as a bonafide resident. Of course you were allowed to because you are a Swedish citizen. When TurboTax asks for dates, you have been a bonafide resident of Sweden since your birth date (if you were born a Swedish national). 

 

Next thing people mess up on is when any mention is made of a foreign country. I know immigrants tend to see foreign country and think of the USA. The foreign country you are being asked about is Sweden. 

 

TurboTax will also ask something about did you have a visa to work in the foreign country. This is not a K1 fiancé visa question about the US. No you did not have a visa, nor were you required to have a visa in order to work in Sweden. You didn't need one. You were a citizen of Sweden.

 

Those  type questions are designed to rule out Americans who may have been on a long holiday in Sweden and think they might get to somehow exclude some of their income. No they can't unless they had some kind of approved residency/work visa from Sweden or were there for a long time (physical presence test). Thus a two month tourist trip by an American would be ruled ineligible. 

 

You will know your information was filled out properly if your form 1040 Line 7 includes the sum of:

1) your spouse's income

2) your US income

3) your Swedish income.

AND you see on line 21 a negative number with a minus sign subtracting out your Swedish income. The long blank on that line 21 will be filled out by TurboTax saying "Form 2555" to indicate that negative number came from the foreign earned income exclusion.

 

You are not required to submit any document from Sweden with your return actually proving your foreign earnings. It is kind of on an honor system basis. If you have some actual proof, just file it away with all the 2016 tax stuff. 

 

A final note-

Many believe their foreign income is simply erased. Not exactly. Your taxes are calculated with all the income. Then the tax is calculated on what  the excluded would have generated by itself.  There is actually an internal worksheet that is something like this example:

A) Tax on all income  $10,000

B) Tax on excluded income $2,000

A minus B is $8,000 and your total tax. 

It's not quite as advantageous as if you got to erase your foreign as never existing, but better than paying taxes on all of it. 

TurboTax will do all that calculating for you, but I point it out so you understand  the concept that happens in the background. 

 

 

[Suss&Camm 2,213]

4 hours ago, Wuozopo said:

YES you can use TurboTax. 

Yes you can e-file and do not require any statement electing to be treated as a resident alien for tax purposes. You are a resident with a greencard.

If they are filing jointly, yes they do need an election statement and they can't e-file. He wasn't a resident for the whole year and this is a requirement to file jointly.

 

4 hours ago, Wuozopo said:

 

The $100k exclusion you heard about is the maximum that could be excluded if you lived/worked the entire year in Sweden. You didn't. You left there in April so only approximately one-third of the year. Therefore you are only allowed one-third of the maximum $100k exclusion or about $33k. That is all in rounded numbers as an example. Turbotax  will calculate it to the dollar for you using the exact number of days you were abroad and the actual figure of $101,300.

We already established this., but good important

 

4 hours ago, Wuozopo said:

 

In TurboTax, way at the bottom of all the various types of income, you will find Less Common Income. That is where you will be asked about foreign income. That process will guide you through seeing if you are eligible for the exclusion and will fill out the Form 2555. You are eligible, but the trick is giving the correct answers to TurboTax to get it to move on.  

He is eligible to exclude this income again, only if he was a resident at the time of earning it, for which the election statement is needed. His residency starting date is determined by the following:

https://www.irs.gov/individuals/international-taxpayers/residency-starting-and-ending-dates

"If you meet both the green card test and the substantial presence test in the same year, your residency starting date is the earlier of:

The first day you are present in the United States during the year you pass the substantial presence test, or

The first day you are present in the U.S. as a Lawful Permanent Resident (green card holder)"

 

and as stated here https://www.irs.gov/individuals/international-taxpayers/alien-residency-green-card-test

"an alien who has been present in the United States at any time during a calendar year as a Lawful Permanent Resident may choose to be treated as a resident alien for the entire calendar year."

which means adding an election statement.

 

4 hours ago, Wuozopo said:

You are eligible based on being a bonafide resident of Sweden and allowed to work in Sweden.   The forms are written more with Americans in mind so confuse many. Americans need have a visa or some kind of authorization to live and work in Sweden to qualify as a bonafide resident. Of course you were allowed to because you are a Swedish citizen. When TurboTax asks for dates, you have been a bonafide resident of Sweden since your birth date (if you were born a Swedish national). 

I second this

 

4 hours ago, Wuozopo said:

Next thing people mess up on is when any mention is made of a foreign country. I know immigrants tend to see foreign country and think of the USA. The foreign country you are being asked about is Sweden. 

 

TurboTax will also ask something about did you have a visa to work in the foreign country. This is not a K1 fiancé visa question about the US. No you did not have a visa, nor were you required to have a visa in order to work in Sweden. You didn't need one. You were a citizen of Sweden.

 

Those  type questions are designed to rule out Americans who may have been on a long holiday in Sweden and think they might get to somehow exclude some of their income. No they can't unless they had some kind of approved residency/work visa from Sweden or were there for a long time (physical presence test). Thus a two month tourist trip by an American would be ruled ineligible. 

 

You will know your information was filled out properly if your form 1040 Line 7 includes the sum of:

1) your spouse's income

2) your US income

3) your Swedish income.

AND you see on line 21 a negative number with a minus sign subtracting out your Swedish income. The long blank on that line 21 will be filled out by TurboTax saying "Form 2555" to indicate that negative number came from the foreign earned income exclusion.

 

You are not required to submit any document from Sweden with your return actually proving your foreign earnings. It is kind of on an honor system basis. If you have some actual proof, just file it away with all the 2016 tax stuff. 

 

A final note-

Many believe their foreign income is simply erased. Not exactly. Your taxes are calculated with all the income. Then the tax is calculated on what  the excluded would have generated by itself.  There is actually an internal worksheet that is something like this example:

A) Tax on all income  $10,000

B) Tax on excluded income $2,000

A minus B is $8,000 and your total tax. 

It's not quite as advantageous as if you got to erase your foreign as never existing, but better than paying taxes on all of it. 

TurboTax will do all that calculating for you, but I point it out so you understand  the concept that happens in the background. 

 

 

I agree on all the rest  it's exactly how I did it, but by hand hahahah it still ended up benefiting us, despite the higher tax bracket.

[Wuozopo 4,293]

2 hours ago, Suss&Camm said:

 

He is eligible to exclude this income again, only if he was a resident at the time of earning it, for which the election statement is needed. His residency starting date is determined by the following:

https://www.irs.gov/individuals/international-taxpayers/residency-starting-and-ending-dates

"If you meet both the green card test and the substantial presence test in the same year, your residency starting date is the earlier of:

The first day you are present in the United States during the year you pass the substantial presence test, or

The first day you are present in the U.S. as a Lawful Permanent Resident (green card holder)"

 

and as stated here https://www.irs.gov/individuals/international-taxpayers/alien-residency-green-card-test

"an alien who has been present in the United States at any time during a calendar year as a Lawful Permanent Resident may choose to be treated as a resident alien for the entire calendar year."

which means adding an election statement.

 

I think you are commingling  two topics maybe. Not sure. But this is really a general post to others who may read this and not pointed at you or how you filed. It may help somebody lurking. 

 

Topic 1) Are you a resident alien or non-resident alien in the US for the purpose of filing your taxes? 

A non-resident files a different form (1040NR) and can't be on a joint return and has a different taxation rate for starters. So you have to establish that before you begin. 

Green Card Test 

You are a resident for tax purposes if you are a lawful permanent resident of the United States at any time during calendar year 2016.  (Pub 519 Chapter 1) 

Any CR1 who arrived during 2016 is eligible to file as a resident. They do have an option to be dual status if for some reason it is a tax advantage to them. 

 

In general, if K1s came during the latter months of the year, they have no hope of getting a greencard by year's end. And they arrived too late to establish enough days physical presence as well. Those are the ones who really need to take advantage of the election to be considered a resident alien for tax purposes,  a perk to those who married a USC and does require the statement. TurboTax has no accommodations for including an "e-statement", so yes it has to be a mailed paper return. And then there's the spouses still in foreign countries who have never stepped foot in the US who can also file jointly with their USC spouse as a resident alien if they get an ITIN, make the written election,  and paper file.

 

Topic 2) Do you qualify to receive a foreign earned income exclusion?

So you have established how you will file as a resident alien. Now to do something about your worldwide income which is required to be reported if you file a joint return with your American spouse. There are two tests for that.

Bonafide resident (of the foreign country) or physically present long enough (in the foreign country) at the time you earned the money you want to exclude. The residence and physical presence for Form 2555 has nothing to do with your US residence or greencard or days present. For example I was born in England and am a UK citizen. My bonafide residence and physical presence in the foreign country United Kingdom both began on the date of my birth and ended for income exclusion purposes on my POE date. That's exactly what I put on form 2555EZ. Those days in the UK during the tax year determined what percentage of the maximum exclusion I got to take.  

 

 

[Suss&Camm 2,213]

As you say, since others read this,  let's clarify. This is what I was doing.  I was only using myself as an example for the 2555 and how it was filled, concurring with your conclusion on that.  However, THE REST IS INCORRECT:

From the IRS internal manual

3.38.147.10  (01-01-2017)
Dual-Status Taxpayer - General Information

 

1. A dual-status taxpayer is both a resident alien and nonresident alien during the same tax year.(True for OP)

2. A dual-status taxpayer is required to submit two separate tax forms: a Form 1040and Form 1040NR or Form 1040NR-EZ.

3. Where the taxpayer resides on the last day of the year determines which form the taxpayer uses. If they reside in the U.S. on the last day of the year, Form 1040 is the return and Form 1040NR or Form 1040NR-EZ is the statement. If they do not reside in the U.S. on the last day of the year, Form 1040NR or Form 1040-EZ is the return and Form 1040 is the statement.

4. Form 1040 covers the part of the year that the taxpayer is a resident and includes worldwide income.

5. Form 1040NR or Form 1040NR-EZ covers the part of the year that the taxpayer is a nonresident and includes only U.S. source income and certain foreign source income treated as effectively connected with a U.S. trade or business.

6. Dual-Status taxpayers must use itemized deductions.

   Exception:

   Only students and business apprentices from India are eligible to claim the standard deduction under Article 21(2) of the United States - India Treaty.

7. Dual-Status taxpayers may claim their own exemption and are allowed exemptions for spouse and dependents for the part of the year they were a resident alien. The amount they claim for these exemptions is limited to their taxable income before exemptions for the part of the year they were resident aliens.

8. Dual-Status taxpayers are not eligible for Education Tax Credits (Form 8863) , Earned Income Credit (Schedule EIC), or the Credit for the Elderly or Disabled (Schedule R).

9. Dual-Status taxpayers cannot file as married filing jointly (FS2) or head of household (FS4).

   Exception:

   Under IRC Section 6013(g) and (h), a nonresident alien married to a U.S. citizen or resident alien can elect to be taxed at the married filing joint tax rate if that person files as married filing joint and reports all worldwide income. Dual-Status restrictions do not apply; process the return as a Form 1040. To make this election the taxpayers must attach a statement to the joint return declaring that they qualify under either IRC Section 6013(g) or IRC Section 6013(h) to file a joint return as U. S. residents for the entire tax year.

10. Dual-Status taxpayers with a valid Form 2555 or Form 2555-EZ, Foreign Earned Income Exclusion, Housing Deduction, and/or Housing Exclusion may exclude income on Form 1040 whether it is the controlling document or statement. Income earned during the Form 1040NR or Form 1040NR-EZ period may not be excluded with Form 2555 and Form 2555-EZ. All income should be brought forward to the controlling document and the tax figured on Form 2555 tax worksheet, regardless if the controlling document is Form 1040 and Form 1040NR or form 1040 NR-EZ .

11. Tax Rates – A taxpayer who is married and a nonresident alien of the United States for all or part of the tax year and does not choose to file jointly under IRC Section 6013(g) or (h), must compute tax as married filing separately on income effectively connected with a U.S. trade or business.

 

https://www.irs.gov/irm/part3/irm_03-038-147r-cont01.html

 

In summary:

OP is a dual-status tax person since he is both a resident and a non-resident during the year. If he will choose this he cannot file jointly and would have to file both 1040 and 1040NR for the different parts of the year. The 1040 alone, includes world-wide income, not the 1040NR. Income earned during the 1040 NR may not be excluded using the 2555. 

He can choose to be a tax resident for the entire year, by attaching a statement. In doing so he may now 

1. File jointly 

2. Report worldwide income for the entire year

3. Exclude this income using 2555 (assuming he otherwise qualifies)

Edited March 11, 2017 by Suss&Camm

[patriot10 11]

What if both partners were non resident during say 7 months of the year, a couple who filed DCF and moved to the US , say in July.

Their status is non resident from Jan to July and resident from August to December.

Can they file married filing jointly?

 

 

(1040NR needs to be filed ONLY if you are a non resident but with US based income or any income out of US sources)

 

NOTE: foreign earned income that can be excluded on form 2555 can only be EARNED income...ie wages, self employed income etc. Income derived from dividends, bank interest etc CANNOT be excluded on this form)

 

 

Edited March 11, 2017 by patriot10

[Suss&Camm 2,213]

1 hour ago, patriot10 said:

What if both partners were non resident during say 7 months of the year, a couple who filed DCF and moved to the US , say in July.

Their status is non resident from Jan to July and resident from August to December.

Can they file married filing jointly?

Unsure, I haven't seen it mentioned. 

 

Quote

(1040NR needs to be filed ONLY if you are a non resident but with US based income or any income out of US sources)

Yes, there has to be U.S based income during the time in order to be required to file it. That's why it's noted in their manual above. Here is a section on it:

"Resident Alien at End of Year

You must file Form 1040, U.S. Individual Income Tax Return, if you are a dual-status taxpayer who becomes a resident during the year and who is a U.S. resident on the last day of the tax year. Write "Dual-Status Return" across the top of the return. Attach a statement to your return to show the income for the part of the year you are a nonresident. You can use Form 1040NR, U.S. Nonresident Alien Income Tax Return or Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents as the statement, but be sure to mark "Dual-Status Statement" across the top."

 

The rules for a dual-status tax payer about filing jointly and not being eligible to exclude using 2555 still applies ofc

 

Quote

NOTE: foreign earned income that can be excluded on form 2555 can only be EARNED income...ie wages, self employed income etc. Income derived from dividends, bank interest etc CANNOT be excluded on this form)

Yes.

Edited March 11, 2017 by Suss&Camm

[Wuozopo 4,293]

1 hour ago, patriot10 said:

What if both partners were non resident during say 7 months of the year, a couple who filed DCF and moved to the US , say in July.

Their status is non resident from Jan to July and resident from August to December.

Can they file married filing jointly?

 

 

Presumably one spouse is a US citizen in order to do DCF. That spouse is never a NRA. 

They don't mean where you are currently living (out of the US) when they speak of nonresident. File jointly as the spouse of a USC if you want to on a regular 1040.

 

The USC spouse has an obligation to file a US tax return anytime he/she earns enough income to meet the filing threshold, no matter where in the world it is earned or if associated with a US source or not.

Edited March 11, 2017 by Wuozopo

[patriot10 11]

You're quite right there Wuozopo.

 

I should have clarified further.

 

US citizen living with spouse in another country for a few years. The US Citizen was not working , hence no income, no returns. Spouse was the sole bread winner in the family. In the country they were living in, there was no concept of married filing jointly etc.(ie everyone files there own return).

 

One fine day, couple decides to move to the US. The US Citizen, non earning and hence not paying taxes becomes the petitioner . Eventually, after following the various processes, the visa is approved and the couple go the United States, say mid July.

In the USA, they have this system of married filing jointly.

The couple takes jobs etc and earns a bit during the year or even if only one spouse gets a job and the other doesnt, they do have the option of filing jointly and hence saving on taxes.

 

The question now is ,

Both spouses were non resident till july and august onwards both are resident.

Going by the Dual resident allowance,

the couple should be able to file married filing jointly for period August to December.

 

neither are liable to file 1040NR as none had any US based income during the time they were non resident (jan-july)

 

 

 

 

[Wuozopo 4,293]

16 minutes ago, patriot10 said:

The question now is ,

Both spouses were non resident till july and august onwards both are resident.

Going by the Dual resident allowance,

the couple should be able to file married filing jointly for period August to December.

 

neither are liable to file 1040NR as none had any US based income during the time they were non resident (jan-july)

Both spouses did not live in the US till July. For tax purposes, the USC is not called nonresident alien ever and would never file a 1040 NR. For the immigrant spouse, it doesn't really matter what immigration status or when obtained because the IRS allows him to "elect" to be treated as a resident alien for tax purposes for the entire year because he is married to a US citizen. His days present and greencard test don't really matter because he could simply choose to be resident alien for tax purposes. It is a choice made for the entire tax year Jan-Dec. If you make that election, then any nonresident alien rules are thrown out and they file jointly on a regular 1040.  When they choose to file jointly in this way, all income earned from Jan-Dec is reported, no matter where in the world it was earned. Their tax return would have to include

USC's foreign income Jan-July (none in this case)

Immigrant spouse's foreign income Jan-July (yes there was some)

USC's US income Aug-Dec (maybe)

Immigrant spouse's US income Aug-Dec (maybe)

Any interest, dividends, capital gains or other investment earnings etc

 

So yes, they may file a joint return. But if neither happens to find a US job or earns a tiny amount by year's end, the joint return may not be the best tax strategy. It will have to be looked at when you know how much income is earned and perhaps try out different ways of filing.

[patriot10 11]

Thanks for the reply, much appreciated.

Makes complete sense and yes, of course, the USC is expected to pay taxes for the entire year.

Situation is, that the 

USC will have no income until and unless a job is taken once back in the US.

Meanwhile, 

the immigrant spouse before immigrating may have a lot of stuff going on, including sales of mutual funds etc to raise money before immigrating all of which will be duly taxed in immigrants original country.

 

So, since USC did not earn anything, she may not file taxes at all, unless she makes something in the US.

The immigrant would like to file only after he becomes a legal alien.

 

BUT, the immigrant may stilll have income from dividends and interest and if all goes well, earned income in the US after immigrating.

 

Hence, after immigrating, to get more deductions, married filing jointly will obviously be more suitable.

 

OR,

USC does not file as income.

immigrant has no choice but to file married filing singly for the months after entering the US but missing out on the extra deductions to be had by filing married filing jointly.

 

[Wuozopo 4,293]

2 hours ago, patriot10 said:

the USC is expected to pay taxes for the entire year.

 

2 hours ago, patriot10 said:

The immigrant would like to file only after he becomes a legal alien.

 

2 hours ago, patriot10 said:

immigrant has no choice but to file married filing singly for the months after entering

Let's clear up terminology just to make sure we are on the same page. The USC is not necessarily expected to pay taxes. She is required to file a tax return if she has enough income to report.  

 

The a tax return is for an entire calendar year. There is no file after becoming legal. You probably mean report only the income earned in the US after becoming an LPR, but your return is for Jan1-Dec 31.

 

The filing status is called Married Filing Separately. 

 

You may not save as much as you think with a joint return. Where the Foreign Earned Income Exclusion is most beneficial is when the USC has a high income. The adding of a spouse gives her an extra standard deduction of $6300 and an extra exemption of $4050 which is not money handed back. It simply reduces her taxable income. If she has no income, then reducing $0 by an extra $10350 does nothing. Can't get lower than zero. If she was a high income earner, it might drop her into a lower tax bracket or something beneficial.

 

Meanwhile, if you file jointly you will have to report your salary earned abroad, but the foreign earned  income exclusion does help with that.  However you will also have to report capital gains from the sale of your investments. Those are not covered by the exclusion. They are considered unearned income and likely taxable. (Those kinds of things can change each year.) Plus in determining the rate at which they are taxed will include all of the joint income including your foreign without considering the exclusion.  That is just for calculating any tax on the gains. Your exclusion will get factored in later before your final tax bill is determined. 

 

When you have final numbers, you are going to have to work out a tax return for both ways.

A married Filing Joint 

A married filing separately for each of you (or just yourself if she doesn't earn)

The you look at Line 44 TAX to see which filing gives you as a family less tax. 

 

It it is impossible to guess until you know your exact salaries, US and abroad, plus your investment gains and how long you held those investments before selling. Only then can your crunch the numbers and decide the best way to file. 

 

And there are other ways to file as well as the ones I mentioned but this is giving me a headache and is premature until you have some actual numbers.

Edited March 12, 2017 by Wuozopo

[Izor 79]

Ok been trying to catch up here, thought i had it all figured out, but got confused all over again haha.

 

First, i am a female, not male

 

Second, i am all set to file a paper version jointly with my hubby, i have the 2555Ez, the letter, but we have not filled out the 1040 yet. According to Wuozopo , that is not needed, Turbotax works? never really clarified that, one said it is possible, another said that it is not. 

 

Third. Do i have to fill out the 1040NR or form NR/EZ aswell? i thought i had all the needed forms already. So annoyingly confusing

 

On 3/11/2017 at 7:27 AM, Suss&Camm said:

"Resident Alien at End of Year

You must file Form 1040, U.S. Individual Income Tax Return, if you are a dual-status taxpayer who becomes a resident during the year and who is a U.S. resident on the last day of the tax year. Write "Dual-Status Return" across the top of the return. Attach a statement to your return to show the income for the part of the year you are a nonresident. You can use Form 1040NR, U.S. Nonresident Alien Income Tax Return or Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents as the statement, but be sure to mark "Dual-Status Statement" across the top."

 

The rules for a dual-status tax payer about filing jointly and not being eligible to exclude using 2555 still applies ofc

 

Yes.