First year filing taxes after K1

[K + M 47]

Hi VJ.  

 

Our Scenario:

 

My wife (from UK) entered with K1 may 2019, we got married june 2019.  We applied for AOS October 2019, she is currently waiting on EAD/AP.  She was working in 2019 back in the UK before she came over here.  From everything I have read so far we report her worldwide income - so what she made in the UK Jan 1st - departure date, and my W-2 income for 2019.  We also send in a letter stating how would like her treated as Resident Alien so she can file as MFJ.  What exactly do we state in the letter, or is there a certain form we fill in for her to be classified as RA?  From what I know form wise, I need my W-2, but other than that are there any specific forms for her so she can report her income?  First time having to file taxes (Ever) so really a tax newbie here, but really trying my best to get this right.  We want to file as MFJ, and want to make sure doing everything correctly, and would really appreciate some guidance from others who have done this before.  

[K + M 47]

Also 1 thing to add to this, I am not exactly certain the number of allowances to state (I am submitting a new w-4 form for my employer to make sure I am getting the correct taxes withheld each paycheck.)  We are married, no kids.  I am confused if the allowances for this scenario would be 1 or 2.

 

Thank you in advance for taking a look at both of the posts and helping, it is much appreciated.

[Zoeeeeeee 797]

@Wuozopo / Mrs Wuozopo,

 

With your knowledge of tax, I feel like this is a question for you...

[Wuozopo 4,293]

13 hours ago, Kerri and Myles said:

  We also send in a letter stating how would like her treated as Resident Alien so she can file as MFJ.  What exactly do we state in the letter, or is there a certain form we fill in for her to be classified as RA? 

Publication 519 tells you on page 9 what should be included. It’s up to you to compose it.

How To Make the Choice
Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following information.
• A declaration that one spouse was a non- resident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year, and that you choose to be treated as U.S. residents for the entire tax year.
• The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)
 

 

Ours was like this

———————

Statement: Nonresident Spouse Treated as a Resident

We declare that on the last day of tax year 2019:
• Mary A. Jones was a U.S. citizen
• John J. Jones was a nonresident alien
• Mary A. Jones and John J. Jones are married.

We choose to be treated as U.S. residents for the entire tax year.

__________________________________ 2/4/2020
Mary A. Jones  SSN 123-45-6789

123 Main St.
Smalltown, TX 77771

__________________________________ 2/4/2020
John J. Jones  SSN 987-65-4321

123 Main St.
Smalltown, TX 77771
 

——————

[K + M 47]

42 minutes ago, Wuozopo said:

Publication 519 tells you on page 9 what should be included. It’s up to you to compose it.

How To Make the Choice
Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following information.
• A declaration that one spouse was a non- resident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year, and that you choose to be treated as U.S. residents for the entire tax year.
• The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)
 

 

Ours was like this

———————

Statement: Nonresident Spouse Treated as a Resident

We declare that on the last day of tax year 2019:
• Mary A. Jones was a U.S. citizen
• John J. Jones was a nonresident alien
• Mary A. Jones and John J. Jones are married.

We choose to be treated as U.S. residents for the entire tax year.

__________________________________ 2/4/2020
Mary A. Jones  SSN 123-45-6789

123 Main St.
Smalltown, TX 77771

__________________________________ 2/4/2020
John J. Jones  SSN 987-65-4321

123 Main St.
Smalltown, TX 77771
 

——————

Thank you so much for the reply, I will definitely use that format as help, and I will look into publication 519.

 

Where exactly would I report the worldwide income for my wife?  We are working on getting the exact numbers for her from last year when she worked and should have those soon, would we just take that amount she made to my tax guy?  Or would we have to fill in a specific form with her income on it?  What I have so far is my W-2, getting her income for the last year, and will make that letter stating want to be treated as U.S. Residents/RA for the entire tax year 2019.  

[Wuozopo 4,293]

13 hours ago, Kerri and Myles said:

From what I know form wise, I need my W-2, but other than that are there any specific forms for her so she can report her income?

All of this is copied from the instructions for Form 1040. This is for a paper return you mail.

Attach the first copy or Copy B of Form(s) W-2 to Form 1040. 
Assemble any schedules and forms behind Form 1040 or 1040-SR in order of the “Attachment Sequence No.” shown in the upper-right corner of the schedule or form.
If you have supporting statements, arrange them in the same order as the schedules or forms they support and attach them last. File your return, schedules, and other attachments on standard size paper. Cutting the paper may cause problems in processing your return.

———————

Mail your return and attachments to:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215
USA

Deadline: Postmarked by Wednesday, April 15, 2020

 

NOTE: the Austin address is because of the foreign income exclusion. Otherwise the return would go to some center more regional to your state.

 

There is no attachment like a W2 for the foreign income. You just report it converted to US dollars. I would save anything that you have showing that income in a file for your records.

 

Here’s a suggestion for you since you’re starting out, that my wife has done for years. Once the taxes are done (paper or efile) she prints a copy of the return and gathers any bits and pieces associated with that return and puts them in a large white envelope. She marks is on the long side “2019 TAXES” and puts It in the file cabinet. Or get a file box. Adulting 😂.

You may not have anything more than a spare W2 and something about the foreign income this year. As your financial situation grows, you will get 1099s from the bank for interest paid you, or dividend statements from investment accounts, or something from your health insurer. Those things don’t get sent to the IRS, so just stash them all in the white envelope to keep them together in case you do need them for an audit or whatever.

[K + M 47]

3 minutes ago, Wuozopo said:

All of this is copied from the instructions for Form 1040. This is for a paper return you mail.

Attach the first copy or Copy B of Form(s) W-2 to Form 1040. 
Assemble any schedules and forms behind Form 1040 or 1040-SR in order of the “Attachment Sequence No.” shown in the upper-right corner of the schedule or form.
If you have supporting statements, arrange them in the same order as the schedules or forms they support and attach them last. File your return, schedules, and other attachments on standard size paper. Cutting the paper may cause problems in processing your return.

———————

Mail your return and attachments to:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215
USA

Deadline: Postmarked by Wednesday, April 15, 2020

 

NOTE: the Austin address is because of the foreign income exclusion. Otherwise the return would go to some center more regional to your state.

 

There is no attachment like a W2 for the foreign income. You just report it converted to US dollars. I would save anything that you have showing that income in a file for your records.

 

Here’s a suggestion for you since you’re starting out, that my wife has done for years. Once the taxes are done (paper or efile) she prints a copy of the return and gathers any bits and pieces associated with that return and puts them in a large white envelope. She marks is on the long side “2019 TAXES” and puts It in the file cabinet. Or get a file box. Adulting 😂.

You may not have anything more than a spare W2 and something about the foreign income this year. As your financial situation grows, you will get 1099s from the bank for interest paid you, or dividend statements from investment accounts, or something from your health insurer. Those things don’t get sent to the IRS, so just stash them all in the white envelope to keep them together in case you do need them for an audit or whatever.

Should we use a tax guy or just fill out using such as  on TurboTax and print them out ourselves and send it in?  Also you said - this is me being a complete tax newbie so I will ask - report it converted to US dollars, where exactly do we report it?

[Wuozopo 4,293]

If you have a tax guy, then he should know about taking the foreign earned income exclusion and what IRS forms are needed in your return to take the exclusion. 

[K + M 47]

2 minutes ago, Wuozopo said:

If you have a tax guy, then he should know about taking the foreign earned income exclusion and what IRS forms are needed in your return to take the exclusion. 

In all of your experience what would you suggest?  I am worried that a tax guy might mess something up.  What exactly is meant by exclusion?  Did my wife have to make a certain amount in 2019 tax year to affect the taxes or is any amount she made in need of being reported and all will effect taxes?  From what I have seen you fill out form 2055 for foreign earned income but I might be wrong.

[Wuozopo 4,293]

1 hour ago, Kerri and Myles said:

In all of your experience what would you suggest?  I am worried that a tax guy might mess something up.  What exactly is meant by exclusion?  Did my wife have to make a certain amount in 2019 tax year to affect the taxes or is any amount she made in need of being reported and all will effect taxes?  From what I have seen you fill out form 2055 for foreign earned income but I might be wrong.

The IRS says if you want to file a joint return, then you must report worldwide income earned by both people. That means US earned and UK earned. 
 

Form 2555 is where you calculate the exclusion 

Instructions https://www.irs.gov/pub/irs-pdf/i2555.pdf

Form https://www.irs.gov/pub/irs-pdf/f2555.pdf

 

It’s a long form covering many things but the part you will have filled in is pretty minimal. It is only calculating how much of her income is eligible to exclude. It’s going to be all of it unless she was earning well over $100k.

 

If you feel like tackling taxes and learning the process,  then buy a TurboTax cd or download from Amazon is what we do. Once you learn taxes, it gets easier. And this first year with foreign income is more complicated than next year because there’s the extra form.  Next year will have no foreign income and you may be able to use a free tax program online and efile as well. If you live in a state with a state income tax, then you need TurboTax Deluxe Federal with State, around.$39. Seven states have no state income tax and can purchase the Federal software only, around $29. That’s the program I am familiar with and can help with. There are other software programs as well but can’t help with.

 

 

 

 

 

Edited January 31, 2020 by Wuozopo

[panamerican 36]

1 hour ago, Kerri and Myles said:

In all of your experience what would you suggest?  I am worried that a tax guy might mess something up.  What exactly is meant by exclusion?  Did my wife have to make a certain amount in 2019 tax year to affect the taxes or is any amount she made in need of being reported and all will effect taxes?  From what I have seen you fill out form 2055 for foreign earned income but I might be wrong.

You should look at the thread in which I just made a reply about my tax situation which sounds similar to yours.

 

We were able to do everything online with H&R Block with tax pro review. Our tax pro understood our situation and knew how to elect to file as resident alien for my wife, complete form 2555 to exclude my wife's foreign income, and submit the special election statement. You can use my statement as a guide. The total cost was a little over $150 to have it done correctly.

 

Of course, I am not a tax professional in any way and am still learning about these special circumstances as I go. My taxes have been very simple in the past as a USC.

 

 

[K + M 47]

3 hours ago, panamerican said:

You should look at the thread in which I just made a reply about my tax situation which sounds similar to yours.

 

We were able to do everything online with H&R Block with tax pro review. Our tax pro understood our situation and knew how to elect to file as resident alien for my wife, complete form 2555 to exclude my wife's foreign income, and submit the special election statement. You can use my statement as a guide. The total cost was a little over $150 to have it done correctly.

 

Of course, I am not a tax professional in any way and am still learning about these special circumstances as I go. My taxes have been very simple in the past as a USC.

 

 

I will definitely look into your post, question I want to ask and it may be a silly one but it has me puzzled.  What exactly does it mean when you say "exclude my wife's foreign income"?  Does that mean we are essentially reporting the foreign income so it doesn't get taxed, meaning it is excluded?  It is the term exclude here that is confusing me.  Why are we reporting it if we are excluding it?

Edited January 31, 2020 by Kerri and Myles

[panamerican 36]

32 minutes ago, Kerri and Myles said:

I will definitely look into your post, question I want to ask and it may be a silly one but it has me puzzled.  What exactly does it mean when you say "exclude my wife's foreign income"?  Does that mean we are essentially reporting the foreign income so it doesn't get taxed, meaning it is excluded?  It is the term exclude here that is confusing me.  Why are we reporting it if we are excluding it?

I will explain this in the way that I understand it. Anyone feel free to correct me as I am not a tax expert.

 

We chose to claim her as a resident for all year in 2019 so I could do both standard deductions ($12,200 x 2) against my salary. Otherwise, we would not get that benefit. In order to claim her as a resident for the whole year, all worldwide income needs to be claimed. In my situation, Panama and the United States do not have a tax treaty meaning the IRS would try to tax her on the foreign income again regardless of how much Panama has already taxed her. However, there is an exemption for her because Panama is her "tax home" meaning she spent at least 330 days in Panama over any 12-month period (she was born there, so this is definitely a yes) which allows her foreign 2019 income to be excluded up to something like $105,000. Since she only made $7,440 last year, this was all excluded from being taxed by the IRS.

 

Basically we were just being honest. I could have said she made $0 last year and they wouldn't know and it would be the same outcome, but obviously it's important to be truthful in our immigration pursuits, even though this is IRS and not USCIS/DHS.

[K + M 47]

4 hours ago, panamerican said:

I will explain this in the way that I understand it. Anyone feel free to correct me as I am not a tax expert.

 

We chose to claim her as a resident for all year in 2019 so I could do both standard deductions ($12,200 x 2) against my salary. Otherwise, we would not get that benefit. In order to claim her as a resident for the whole year, all worldwide income needs to be claimed. In my situation, Panama and the United States do not have a tax treaty meaning the IRS would try to tax her on the foreign income again regardless of how much Panama has already taxed her. However, there is an exemption for her because Panama is her "tax home" meaning she spent at least 330 days in Panama over any 12-month period (she was born there, so this is definitely a yes) which allows her foreign 2019 income to be excluded up to something like $105,000. Since she only made $7,440 last year, this was all excluded from being taxed by the IRS.

 

Basically we were just being honest. I could have said she made $0 last year and they wouldn't know and it would be the same outcome, but obviously it's important to be truthful in our immigration pursuits, even though this is IRS and not USCIS/DHS.

what exactly is meant by the bolded section? I am confused by this.

 

And that makes sense to me now what "excluded" means, and correct me if I am wrong it is excluding income that has already been taxed so it doesn't get taxed again by the IRS, and that is the point of calculating foreign earned income a.k.a form 2055?

Edited January 31, 2020 by Kerri and Myles

[Wuozopo 4,293]

5 hours ago, Kerri and Myles said:

I will definitely look into your post, question I want to ask and it may be a silly one but it has me puzzled.  What exactly does it mean when you say "exclude my wife's foreign income"?  Does that mean we are essentially reporting the foreign income so it doesn't get taxed, meaning it is excluded?  It is the term exclude here that is confusing me.  Why are we reporting it if we are excluding it?

That is a question most do not understand. The total of the foreign income is not simply erased like most presume. Unless you were going through the instructions manually, you wouldn’t ever notice how the tax is calculated. Tax programs just do their magic and never tell you why. 
 

From the IRS instruction book for the 1040 found here https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

On page 31 it says

Foreign Earned Income Tax Worksheet.

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

 

You can find the worksheet on the next page of the instructions, p. 32. 
 

That means you do not simply use your taxable income line (11b on the 1040) and figure the tax on that amount like most do. You have to use the worksheet to figure the tax. You can look at the worksheet and fill in your numbers or just listen to my abbreviated summary of what the worksheet does.

 

1. Combine the taxable income (11b) plus the foreign income and look up the tax for that total on the tax tables.
2. Look up the tax that the foreign alone would generate.
3. Subtract: #1 minus #2 equals Tax.

So what you are really excluding is the tax that foreign income would cost you if the US taxed you on it. It often comes out as more tax than just erasing the whole foreign income as if it never existed. 
BUT it is still better than your alternative if the USC filed Married Filing Separately.  By adding the spouse and foreign income, the USC gets an extra $12,200 Standard deduction off their taxable income which accounts for the better deal. 
Separately the filer takes $12,200 off their taxable income

Joinly, the filers take $24,400 off the taxable income.
 

Did you follow that? 😊

 

 

 

Edited January 31, 2020 by Wuozopo