Questions about filing tax return

[LND2017 3]

Hi VJers,

 

I left my job in UK and started to work in US early June, just realised my tax situation was a bit complicated, much appreciated if you could help with a few questions.

1. I got married last year, my husband has been a US resident alien (not a citizen) since 2016, and deferred filing tax return for 2017 to wait for my coming, as we understood that we could file jointly, and my income in UK, as already taxed in UK, would not be double taxed in US, that could save him some tax, is it right?

2. I had an ISA account last year, do I need to file tax for the interest earned from that account? If yes, should I file it as income (in W-2), or in 1099-INT?

3. I closed my UK bank account this month, do I need to put it in my FBAR for 2017?

4. I had income in UK in the first five months of 2018, and I claimed tax return for April and May, as these are considered belonging to a new UK tax year. How should I file my US tax return for 2018?

 

Thanks a lot in advance!

 

 

[Wuozopo 4,293]

4 hours ago, LND2017 said:

2. I had an ISA account last year, do I need to file tax for the interest earned from that account? If yes, should I file it as income (in W-2), or in 1099-INT?

 If you are filing joint on year 2017 tax return, then worldwide income is reported for Jan-Dec. Earnings (2017) from a UK job are reported as earned income/wages/  Line 7.  UK interest is unearned income/ interest on a US tax return. You will not actually get the forms 1099-INTor W2, but I think you are asking if you report in the same place on the tax return as those who received those forms in the US. 

 

5 hours ago, LND2017 said:

I got married last year, my husband has been a US resident alien (not a citizen) since 2016, and deferred filing tax return for 2017 to wait for my coming, as we understood that we could file jointly, and my income in UK, as already taxed in UK, would not be double taxed in US, that could save him some tax, is it right?

Saving tax depends on many things. You work it out with you and without you and see which options are best. You may file jointly if you both elect for you to be treated as a resident alien for tax purposes and include a statement with the return.  See the IRS for specifics on being allowed to file jointly https://www.irs.gov/individuals/international-taxpayers/nonresident-alien-spouse

 

5 hours ago, LND2017 said:

3. I closed my UK bank account this month, do I need to put it in my FBAR for 2017?

FBAR is for "taxpayers" so if you are on a 2017 US tax return, then I would say yes to 2017 FBAR if your foreign accounts exceed $10k.  Yes to 2018, even though the UK account will be closed by the end of 2018. 

 

5 hours ago, LND2017 said:

. I had income in UK in the first five months of 2018, and I claimed tax return for April and May, as these are considered belonging to a new UK tax year. How should I file my US tax return for 2018?

You have to report your UK earnings on your US tax return. There's options to figure out what works best for you to reduce taxes considering the totality of your joint income. There's Foreign Earned Income Exclusion (IRS Form 2555) to reduce your tax liability by the amount that your reported UK income generated in taxes. 

 -or-  you can take a foreign tax credit straight off your total tax calculated. Obviously you can't claim back any more foreign tax than you paid, so if you got refunded something from the UK, then you only claim the net amount you actually paid the UK.

 

You can not double dip and exclude foreign Earned income and take a tax credit for the exact same income. You either exclude the income from US taxation and skip the foreign tax credit -or- claim the income fully and be taxed by the US on it and take a credit for the tax already paid to the UK. You really need to work out two different tax returns and see which gives you the best advantage. Either is a legal option.

 

[LND2017 3]

@Wuozopo Thanks so much for your detailed answers! You always understand the questions in this forum, sometimes even more clearly than people asked (like I did for my question 2 above:)

 

We wanted to file jointly as we understood this would give my husband more deduction. Though my ISA interest would be taxed in this case, that's not a big amount compared to the deduction. 

 

[Wuozopo 4,293]

8 hours ago, LND2017 said:

@Wuozopo Thanks so much for your detailed answers! You always understand the questions in this forum, sometimes even more clearly than people asked (like I did for my question 2 above:)

 

We wanted to file jointly as we understood this would give my husband more deduction. Though my ISA interest would be taxed in this case, that's not a big amount compared to the deduction. 

 

 

Right, giving your husband that extra exemption for you ($4050) and extra standard deduction ($6350) is usually a boost because it lowers his taxable income by more than $10k. Less income, less tax. If you take the income exclusion, your wages reported on line 7 are subtracted back out on line 21. That line 21 would read for example:

Form 2555 (on the dotted line) and -$21,000  in the right column (a minus number representing your exclusion). Generally we regular folk get to exclude everything we earned because the maximum allowed exceeds $100k. If you made that much, you wouldn't be on a DIY forum asking and learning. 😂

 

No way to get around counting your interest in the taxable income pot, but in today's economy, it's probably not a huge amount.  The $10k+ he gets to take out of the income pot for having a spouse (whose income is reported but not taxed) is most often a really good deal.

 

I did foreign income exclusion my immigration year, but foreign tax credit is an option.

 

2018 it all changes with the new tax code. The $4050 exemption per person is out. A higher standard deduction is in.  We managed to cram as much as we could into 2017 and itemize deductions one last time. I don't think that will be happening again. It will be straight standard deduction for us. 

Edited July 4, 2018 by Wuozopo

[LND2017 3]

4 hours ago, Wuozopo said:

 

Right, giving your husband that extra exemption for you ($4050) and extra standard deduction ($6350) is usually a boost because it lowers his taxable income by more than $10k. Less income, less tax. If you take the income exclusion, your wages reported on line 7 are subtracted back out on line 21. That line 21 would read for example:

Form 2555 (on the dotted line) and -$21,000  in the right column (a minus number representing your exclusion). Generally we regular folk get to exclude everything we earned because the maximum allowed exceeds $100k. If you made that much, you wouldn't be on a DIY forum asking and learning. 😂

 

No way to get around counting your interest in the taxable income pot, but in today's economy, it's probably not a huge amount.  The $10k+ he gets to take out of the income pot for having a spouse (whose income is reported but not taxed) is most often a really good deal.

 

I did foreign income exclusion my immigration year, but foreign tax credit is an option.

 

2018 it all changes with the new tax code. The $4050 exemption per person is out. A higher standard deduction is in.  We managed to cram as much as we could into 2017 and itemize deductions one last time. I don't think that will be happening again. It will be straight standard deduction for us. 

Indeed! My income in UK was just salary, $100k would be too decent to be true for me:P

I studied the tax instructions a little today, and found out I could have income exclusion for 2017, but not for 2018, as I cannot pass the bona fide residence test in 2018. I assume foreign tax credit is my only option to bring down my tax for UK income. I learned this from you, thank you again Wuozopo, you are so helpful!

[Wuozopo 4,293]

9 minutes ago, LND2017 said:

Indeed! My income in UK was just salary, $100k would be too decent to be true for me:P

I studied the tax instructions a little today, and found out I could have income exclusion for 2017, but not for 2018, as I cannot pass the bona fide residence test in 2018. I assume foreign tax credit is my only option to bring down my tax for UK income. I learned this from you, thank you again Wuozopo, you are so helpful!

If you left the UK in June 2018, then you were a bonafide resident of the UK from January to June. You can exclude what you earned from Jan to June 2018.  If you are born British and lived there always then you were a bonafide resident of the foreign country (UK) since your birth. The IRS writes their stuff more toward Americans who go abroad to work. They want to make sure the American is not just on holiday abroad trying to exclude some taxable income. The person has to be bonafide resident ...maybe with a visa to that country or authorization from that country to live and work there. Well you I assume have U.K. citizenship and a U.K. passport, so that's about as bonafide as it gets. When you leave and take up residence in the US, the tax treaty says you pay the US from that point, even if you continued to receive salary from a U.K. company. You pay taxes to the place where you sleep each night, so to speak.

 

You also meet the physical test if you were physically present ( living there) and the "resident since" date might also be your birth date. You only have to meet one test.

[LND2017 3]

 

10 hours ago, Wuozopo said:

If you left the UK in June 2018, then you were a bonafide resident of the UK from January to June. You can exclude what you earned from Jan to June 2018.  If you are born British and lived there always then you were a bonafide resident of the foreign country (UK) since your birth. The IRS writes their stuff more toward Americans who go abroad to work. They want to make sure the American is not just on holiday abroad trying to exclude some taxable income. The person has to be bonafide resident ...maybe with a visa to that country or authorization from that country to live and work there. Well you I assume have U.K. citizenship and a U.K. passport, so that's about as bonafide as it gets. When you leave and take up residence in the US, the tax treaty says you pay the US from that point, even if you continued to receive salary from a U.K. company. You pay taxes to the place where you sleep each night, so to speak.

 

You also meet the physical test if you were physically present ( living there) and the "resident since" date might also be your birth date. You only have to meet one test.

OK, I was confused again .

I did a test using IRS’s Interactive Tax Assistant https://www.irs.gov/help/ita/can-i-exclude-income-earned-in-a-foreign-country 

 

At one point, I was here:

 

"

Bona Fide Resident Entire Tax Year

Note: You do not automatically acquire bona fide resident status merely by living in a foreign country(s) for 1 year. If you go to a foreign country for a particular job for a specified period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for 1 tax year or longer. However, you might qualify for the foreign earned income exclusion if you meet the physical presence test.
 

Did you reside in a foreign country or countries for an uninterrupted period that includes an entire tax year?

"

 

The answer is no for 2018, so I was directed to the physical presence test, and that was where I might misunderstand and therefore considered myself not eligible for foreign income exclusion.

 

"

Physical Presence Test

Note: For the question below there are four rules you should know when figuring the 12-month period.

1) Your 12-month period can begin with any day of the month. It ends the day before the same calendar day, 12 months later.

2) Your 12-month period must be made up of consecutive months. Any 12-month period can be used if the 330 days in a foreign country fall within that period.

3) You do not have to begin your 12-month period with your first full day in a foreign country or end it with the day you leave. You can choose the 12-month period that gives you the greatest exclusion.

4) In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another.
 

Were you physically present in a foreign country or countries for at least 330 full days during a period of 12 consecutive months starting or ending on any day within 2017?

"

 

I didn't pay enough attention to the instructions above. Reminded by your comment that my resident since date might be my birth date and your explanation of the purpose of this residence test, I realised this period does not have to start on the first day of the calendar year... As you said, I am still eligible for foreign income exclusion for the first five months of 2018. So the question for me falls back on what to do about the April and May UK income, as I have claimed tax return for them in UK, and you've already answered that! Thanks!

 

US tax laws are so convoluted... 

 

 

Edited July 5, 2018 by LND2017

[Wuozopo 4,293]

17 minutes ago, LND2017 said:

US tax laws are so convoluted..

Indeed they are. But the IRS also doesn't have the resources to carefully check each return.  They don't know what you earned in the U.K., when, or what got refunded. You pretty much self report with no documentation to back it up. Figure out what you got paid for 2018.  It's gross income/salary. Taxes you paid or got refunded don't matter for Income Exclusion if you choose that route. That is only about your income.

 

I actually had no clue as to my exact earnings and made up something approximate. They don't go ask your employer. I also got a couple of thousand in HMRC refund covering even previous years when they processed my P 85. I had overpaid more than the current year. 

[LND2017 3]

@Wuozopo Got it. Thanks for all the useful teachings! With your scope of knowledge, I believe you can earn a living by providing US immigration consultancy !

Edited July 6, 2018 by LND2017