First tax return with CR1 visa

[rmdflr 6]

Hello,

 

My wife and I are starting to look into what will need to be done for our 2020 tax return, and are basically wondering whether we can do everything ourselves with the desktop version of Turbotax, or if we're better off getting a CPA for our first year as married filing jointly.

 

Our situation:

• 2019:
  • My wife (US citizen) filed as married filing separately (adding me in her return as a non-resident alien)
  • I did not file a US tax return
• 2020:
  • Wife lived and worked in the US - got her W2 in hand
  • I lived and worked in the UK until October 2020 - I paid UK taxes as a UK resident until I left the UK (and am no longer a UK resident / tax resident)
  • I established residency in the US (with a CR1 visa) and got an SSN in October, but did not work (in the UK or the US) for the rest of the year
  • However, I also receive (and keep on receiving) a UK PhD scholarship, which is considered tax-free in the UK and does not need to be reported on a UK tax return

 

Everything is sorted out on the UK side of things. Here are the things we need to figure out:

• When I established US tax residency
  • I did not meet the substantial presence test before immigrating in October 2020
    • 0 days in 2018 + 31 days in 2019 (= 11 days for calculation) + 158 days in 2020 pre-immigration = 169 days < 183 days for substantial presence
    • 84 days in the US post-immigration
  • Based on this, I became a tax resident either:
    • On Jan 1 2020, since I was present in the US and met the substantial presence test in 2020
    • On Oct 9 2020, when I immigrated to the US
    • On Oct 22 2020, when I met the substantial presence test for the first time
• Whether or not I need to declare pre-immigration foreign income, based on when I became a tax resident
• What to do about my UK scholarship
  • Is it considered tax-free in the US as well? Do I even need to report it?
• How to deal with the fact that I had a foreign bank balance > $10k for most of the year
• Whether or not I need to report pre-immigration foreign investment income
  • I had a UK ISA and LISA with investments in index trackers - all closed prior to immigrating to the US
• Whether or not I'm eligible to get the US stimulus checks as tax credits

 

While I welcome specific advice for our situation, I'm mostly looking for recommendations as to whether we should use Turbotax or a CPA this year. And if we go with a CPA, I'd also love recommendations for a NYC-based CPA specialising in new immigrant issues.

 

Thanks very much!

 

Edited January 23, 2021 by rmdflr

[Wuozopo 4,293]

@rmdflr
 

It can be done on TurboTax Deluxe (federal + state), which can be found right now for $39.99 total.  Desktop is a great choice. You will do better if you thoroughly review until you comprehend Publication 519 on the IRS website rather than expecting Turbo to supply everything you need to know. You can choose to be treated as a resident alien for all of 2020 because you married a USC (That’s what I did first year when I arrived In October). There is also a dual status year to read about, but keeps you from filing jointly. It depends how much you want to dig in and learn and if you want to spend a lot more than 40 bucks. 
 

I will save the comments on your specifics since you weren’t looking for that right now, but Yes you qualify for stimulus unless your joint family income in 2020 excludes you.

Edited January 23, 2021 by Wuozopo

[rmdflr 6]

Thank you so much - that's very helpful! We just purchased the TurboTax version you recommended, and I'll start looking into Publication 519. I'll probably end up doing the same as you and choose to be a US tax resident for all of 2020, since I reckon we'll get more taxes back if we file jointly.

 

19 hours ago, Wuozopo said:

I will save the comments on your specifics since you weren’t looking for that right now, but Yes you qualify for stimulus unless your joint family income in 2020 excludes you.

 

Well, if you have a moment to comment on the specifics, that'd be very much appreciated as well, haha. But no worries if not - I should be able to figure it all out. Thanks for letting me know about the stimulus - that's good news!

[HRQX 4,145]

On 1/23/2021 at 10:20 AM, rmdflr said:

Based on this, I became a tax resident either:

Also look at Green Card test: https://www.irs.gov/individuals/international-taxpayers/alien-residency-green-card-test "You are a resident, for U.S. federal tax purposes, if you are a lawful permanent resident of the United States at any time during the calendar year."

On 1/23/2021 at 10:20 AM, rmdflr said:

Whether or not I'm eligible to get the US stimulus checks as tax credits

Yes, you qualify. It's called the "Recovery Rebate" credit.

[Wuozopo 4,293]

@rmdflr

 

Whether or not I need to declare pre-immigration foreign income, based on when I became a tax resident. 

Yes because a joint return requires ALL income earned anywhere in the world in 2020 to be reported.  It is self reported in US dollar equivalent. You work it out and come up with an amount of gross salary you received. No documentation goes to the IRS. TurboTax has  an income section called Less Common Income that guides you through Foreign Income.

 Your income will appear on the same line as your wife’s W2 earnings (all lumped together). When you fill out form 2555, Foreign Earned Income Exclusion, the taxes that would be charged for that income will be eliminated. TurboTax will make an entry on Schedule 1 for you and calculate your final taxes based on the excluded amount. Just remember when viewing your forms view,  it has to show up on Form 1040 Line 1, then be excluded later. Reported then excluded.

 

What to do about my UK scholarship

Topic No. 421 Scholarships, Fellowship Grants, and Other Grants https://www.irs.gov/taxtopics/tc421

 

How to deal with the fact that I had a foreign bank balance > $10k for most of the year. 

Not a tax return item, but Turbo will remind you it is due. It is reported online. See info and a link to FBAR reporting here. https://www.irs.gov/newsroom/report-of-foreign-bank-and-financial-accounts-fbar-1

 

Whether or not I need to report pre-immigration foreign investment income

• I had a UK ISA and LISA with investments in index trackers - all closed prior to immigrating to the US

You will report any interest you earned in 2020, no matter where you earned it. The balance of the investment is not taxable, only the amount it earned you during the tax year. That is not excluded income because it is considered “unearned income” meaning you didn’t earn it as salary from a job. Only your “earned income” (from a job) can be excluded with Form 2555 Foreign Earned IncomeExclusion. 

 

Whether or not I'm eligible to get the US stimulus checks as tax credits

TurboTax will guide you through the calculations. I haven’t installed mine yet to give you specifics, but the main Tax Form 1040 has a “new for 2020“ Line 30 to show your amount. There is a worksheet to go through in the formal IRS instructions, but TurboTax will create that for you. 

 

Edited January 25, 2021 by Wuozopo

[rmdflr 6]

Hi both,

 

That's great - thanks so much!

 

Based on this, since I met both the green card test and the substantial presence test in 2020, my residency started on "the first day I was present in the United States during the year I pass the substantial presence test", i.e., Jan 1st for me, which is fine anyway, since we're planning on filing jointly.

 

I have yet to go through Publication 519, so the details might change, but based on my current understanding:

• All my UK income need to be reported.
• All my UK PhD stipend needs to be reported (since it is essentially a salary, i.e., not just for books/school expenses).
• Taxes will be waived with Form 2555 for both UK income + stipend up to October 2020, when I immigrated. I assume I will have to pay tax on my UK stipend for Oct-Dec 2020, but will double-check the details for Form 2555.
• I will file FBAR separately due to having a foreign bank balance > $10k during the year.
• I will be taxed on all foreign bank interest. Although, I will double-check, since it was not technically interest or dividends, but rather investments (shares) increasing in value and being sold at a profit. I reckon that's probably liable to tax. (Edit: Looks like in my case, this will fall under long-term capital gains, based on sale value minus purchase value 😱 rather than by how much value it increased in 2020.)
• I should be eligible for the stimulus checks, since our joint income was < $150k.

That's all been incredibly helpful, and definitely saved us $$$ in CPA fees, so thanks again!

Edited January 25, 2021 by rmdflr

[Wuozopo 4,293]

2 hours ago, rmdflr said:

Based on this, since I met both the green card test and the substantial presence test in 2020, my residency started on "the first day I was present in the United States during the year I pass the substantial presence test", i.e., Jan 1st for me, which is fine anyway, since we're planning on filing jointly.

 

 You sound smart enough to get through this. The IRS has a publication and examples for almost anything. Only you know the details of your investments and scholarship so you’ll have to dig on those subjects. When you get the concept as it applies to you, then you can better answer the questions TurboTax is asking. 
 

A tip from when we did this. Their is a hierarchy of calculating tax when you have capital gains,foreign income exclusion etc. A plain old job,  no investment person can just look on the tax tables to find their tax. Not the same for you. It goes (went) something  like capital gains tax portion is calculated, then exclusions, and so on.  It puzzled my wife enough that she had to figure out why Turbo did what it did.  When people over simplify and say all your U.K. income will be erased...well that’s not completely true. Total family income will figure in to the capital gains tax  calculations of this hierarchy I mention. Turbo will get it right; my wife just needed to know why they did what they did so went old school with the instruction book and blank paper forms to check it out. 

[rmdflr 6]

6 hours ago, Wuozopo said:

 You sound smart enough to get through this. The IRS has a publication and examples for almost anything. Only you know the details of your investments and scholarship so you’ll have to dig on those subjects. When you get the concept as it applies to you, then you can better answer the questions TurboTax is asking.

Yeah that all makes sense. Thanks again for the tips - it's already all much clearer now!

 

6 hours ago, Wuozopo said:

 A tip from when we did this [...]

That's good to know! I'm not sure how deep I'll dig, to be honest. If the numbers don't feel off, I'm more than happy to let TurboTax take care of the maths, haha.

[rmdflr 6]

Hi, I've got one final follow-up question about the subtleties of Form 2555. I've familiarised myself extensively with publications 519 and 54, and essentially, I will be considered as a resident alien for all of 2020, and will be able to claim foreign income exclusion until I ended my residency in the UK, in October 2020.

 

My UK scholarship counts as foreign earned income. Here's a simplified scenario which illustrates the issues I'm facing:

• My scholarship is sent to me quarterly, in advance. So for instance, let's say, $3000 on January 1st for January, February, March -- meaning there were 4 payments of $3000 each in early January, April, July, and October
• I spent a significant amount of time in the US this year (let's say all of March, April, May), while not breaking bona fide residence in the UK until I left on, let's say, November 1st.

Under this scenario:

• Would the foreign income exclusion be $10k (i.e., 10 months in the UK at $1k per month), or $12k (the money I actually received in my bank account before I stopped being a UK resident)?
• What should I put in in Line 14 of Form 2555? I was present in the US for three months, but I would argue it wasn't "on business", although I did do some PhD work during that time. In other words, is my "income earned in U.S. on business" $0 or $3k?

Also, just to double-check, when filing jointly with foreign income exclusion, are we still eligible for the full $24,800 standard deduction?

 

Sorry - that was more than one question. Thanks for your help!

Edited February 1, 2021 by rmdflr

[Wuozopo 4,293]

@rmdflr

 

first remember everything written about Form 2555 is focused on an American working abroad. They want to determine that the American was actually legally admitted to that foreign country for work purposes. They are checking dates to make sure they weren’t back home in the US and trying to claim a tax break for which they were not eligible.

 

Your primary reason to be in the US was to visit the wife, so a tourist. You weren’t sent by your employer to a US branch to do work.  I would list the days and say zero business. Nobody knows what you did, nor will they ask you. You earned zero in the US for the intent of this section.

 

Your foreign income exclusion. Look at your checks or bank statements. If they were paid to you prior to October 9, 2020 (date of entry in your timeline) then they are foreign earned. If they were paid after POE, it is regular income. All is reported, but only prior to 9 October can be excluded with form 2555.

You are eligible to the full standard deduction on a joint return. You were resident alien for the entire tax year by IRS definition,  if you were not an RA, then you couldn’t file a joint return.

 

Things you didn’t ask. Part 2. Bonafide residence ( in UK) began on the date of your birth if you were born in the UK. You were allowed to live and work n the UK all that time since you were born there. You are a citizen. Which allows you to live and work in the UK. That’ll all you have to qualify on. You can skip that physical presence test and dates in US you are struggling with.

 

Edited February 1, 2021 by Wuozopo

[rmdflr 6]

Thanks so much, that's all very clear. Your help here and in so many other threads is much appreciated!

 

2 hours ago, Wuozopo said:

Things you didn’t ask. Part 2. Bonafide residence ( in UK) began on the date of your birth if you were born in the UK. You were allowed to live and work n the UK all that time since you were born there. You are a citizen. Which allows you to live and work in the UK. That’ll all you have to qualify on. You can skip that physical presence test and dates in US you are struggling with.

I'm actually a French citizen, but lived/studied/worked/paid taxes in the UK for 10 years prior to immigrating to the US, so that's what I figured. Line 14 of Form 2555 actually refers to bona fide residence, not to the physical presence test, but either way, I'll follow your advice and indicate that my US visits were not for business. Thanks again!

[Wuozopo 4,293]

1 hour ago, rmdflr said:

Thanks so much, that's all very clear. Your help here and in so many other threads is much appreciated!

 

I'm actually a French citizen, but lived/studied/worked/paid taxes in the UK for 10 years prior to immigrating to the US, so that's what I figured. Line 14 of Form 2555 actually refers to bona fide residence, not to the physical presence test, but either way, I'll follow your advice and indicate that my US visits were not for business. Thanks again!

Turbo tax will ask you at some point what kind of visa you had to work in the foreign country (UK). You can name a visa or EU country allowed it. Mostly you have say anything to get TurboTax to move on. Again it is geared more for Americans working abroad and the wording may not fit you exactly.

Edited February 1, 2021 by Wuozopo

[rmdflr 6]

Yeah, that's what I was planning on doing. Thanks again for your help! I've got it all figured out, now, and will submit as soon as we can do so.