Tax question

[AshMarty 360]

I am curious if someone might be able to answer this question. I have always filed my taxes myself in the past but will use someone to make sure we are doing everything correctly this year (mainly because of my student loan payments). 

 

My husband came on a K1 visa in June and we married in June 2017. He just got a job at the end of November so wasn't working most of the year in the US. He did however have a job in Australia before he moved. We just gathered his tax records for the year from Australia that were filed overseas.

 

My question is: I have income based payments for my student loans. Will his Australian income be reflected in our total household income this year if he already filed in Australia? We will likely have to file MFS, if this is the case but I am not sure how foreign income is calculated in taxes at this point. 

 

Thanks in advance. 

Edited January 16, 2018 by AshMarty

[Russ&Caro 1,549]

Using a tax professional this first year when he has foreign income is probably not a bad idea. Make sure you ask the professional a lot of questions about foreign income because they should know this cold. It's my understanding that the foreign income is exempted (that might not be the exact word) from being taxed in the US, up to a certain amount. I think the ceiling is something like $100,000. However, you should note that even though there is a large exempted amount, you still need to declare it all on your taxes. If his income is under $100k, then it's probably more advantageous for you to file your taxes as MFJ. Again, your tax professional should calculate it both ways, MFJ and MFS, to show you which one is more advantageous. Good luck.

[AshMarty 360]

1 minute ago, Russ&Caro said:

Using a tax professional this first year when he has foreign income is probably not a bad idea. Make sure you ask the professional a lot of questions about foreign income because they should know this cold. It's my understanding that the foreign income is exempted (that might not be the exact word) from being taxed in the US, up to a certain amount. I think the ceiling is something like $100,000. However, you should note that even though there is a large exempted amount, you still need to declare it all on your taxes. If his income is under $100k, then it's probably more advantageous for you to file your taxes as MFJ. Again, your tax professional should calculate it both ways, MFJ and MFS, to show you which one is more advantageous. Good luck.

That is good to know. I was asking a lot of questions yesterday via email with our potiential CPA but will be meeting with them in the upcoming weeks. I let her know we would be interesting in looking at the joint and separate filings. 

 

I was hoping we could file joint this year because he wasn't able to work much since his EAD took so long, which means it wouldn't greatly affect my student loan payments ( I was pretty excited about this actually) but in future years we will have to likely file separate until they are paid off. 

 

Thanks for the information! 

[kris&me 572]

you were not a USC making money outside the US therefor not taxed and the exemption is not needed

your income after marriage in the US will be what you are liable for 

[Russ&Caro 1,549]

The sticky thread at the top of this forum is very informative. Here's the concluding paragraph of the first post in that thread:

The question of what choice to make depends on which method produces less tax. Generally speaking, MFJ where foreign income is present (or not), should compute to be the most favorable option. With foreign income present, you can apply the more common foreign earned income (FEI) exclusion or foreign earned income (FEI) tax credit so that you do not pay tax twice on the foreign income. (The 2015 FEI exclusion is up to $100,800.)

 

So the income your spouse earned abroad can be excluded (not exempted) as a tax credit.

Edited January 16, 2018 by Russ&Caro

[AshMarty 360]

10 hours ago, Dee elle said:

Not necessarily.. IRS has two different tests for tax residency.. different to USCIS residency... having a Green Card granted at some time during the year OR being physically present in the US for more than 183 days... from the OP information, he would be a tax resident for 2017, as he arrived prior to July 1 2017.

2 options..  file MFJ which requires electing to be taxed as  US tax resident for the whole year... and so overseas income earned at any time from Jan 1 through Dec 31 must be declared....

                     File as a dual status , which must be filed as MFS and uses 1040 and 1040NR for the separate parts of the year..

 

The IRS sinkhole is deeper and blacker than the USCIS sinkhole

Thanks for the information! I read through some things and it was making more sense.

 

I was confused since he doesn't have his GC yet but obviously has been here over 6 months about the physical presence test (because it looked like it was an accumulation of days over 3 years, not just one but that didn't make sense to me.) 

 

My husband lived and worked in the US for 8 years prior to this but he moved back to Australia about 2.5 years ago when his company in the US was sold. He has filed taxes with a CPA in the past but never had a dual income and obviously never established permanent legal residency before since he was on a work visa in the past. 

 

Thanks for all the input! 

[Italian_in_NYC 259]

If you file MFS, then have your spouse file dual status and declare on the 1040 (the part of the dual status while he/she was a US Person) all the income from all sources. If these payments came in before that date, no need to declare them.

Also check the US-Australia income tax treaty. This item may be covered (file form 8833 to take a treaty position).

Don't forget any potential information return (8938, 5471, 8865, 8621, etc) and the FBAR (if needed).

[MariaR323 199]

Tip: Keep in mind what you gain/lose when filing MFS - this will help you make the best decision.

 

Filing separate can disqualify or limit certain tax credits/deductions, for example: earned income tax credit (EITC) & student loan interest. Also, both of you must claim the standard deduction or both must use itemized deductions.

[AshMarty 360]

19 hours ago, MariaR323 said:

Tip: Keep in mind what you gain/lose when filing MFS - this will help you make the best decision.

 

Filing separate can disqualify or limit certain tax credits/deductions, for example: earned income tax credit (EITC) & student loan interest. Also, both of you must claim the standard deduction or both must use itemized deductions.

I make to much to claim student loan interest when I filed before married. A co-worker already made me aware that I can't invest in my current ROTH if I plan to file separate. Basically my only deduction every year is my house. 

 

The biggest question is will my income based student loan payments increase so much that is out weighs the tax benefits of filing jointly ( most of my co-workers have to file separately for this reason). I am in the Public Service Loan Forgiveness program that requires me to maintain income based payments on my student loans for 10 years ,while maintaining my full time position at a non profit pediatric hospital in order to qualify for the forgiveness. I am 7 years in so I don't want to mess it up at this point.

Edited January 18, 2018 by AshMarty

[MariaR323 199]

2 hours ago, AshMarty said:

I make to much to claim student loan interest when I filed before married. A co-worker already made me aware that I can't invest in my current ROTH if I plan to file separate. Basically my only deduction every year is my house. 

 

The biggest question is will my income based student loan payments increase so much that is out weighs the tax benefits of filing jointly ( most of my co-workers have to file separately for this reason). I am in the Public Service Loan Forgiveness program that requires me to maintain income based payments on my student loans for 10 years ,while maintaining my full time position at a non profit pediatric hospital in order to qualify for the forgiveness. I am 7 years in so I don't want to mess it up at this point.

I see... yes, have your tax preparer run the numbers so you can see what is the most favorable tax filing status for you.