Tax on income before green card?

[Redro 4,611]

 

 

19 minutes ago, Wuozopo said:

Well that was my thought that his income isn’t tax free, but that’s between him, the UK, and Colombia right now.

 

That would be like owing money to the cable company, but paying Macy’s that money instead. His earnings thus far in 2021 are not taxable by the IRS.

 

IF he chooses to file 2021 Married Filing Jointly with his wife, he will report all his earnings then can use Form 2555 to deduct the tax his earnings (while resident abroad) generates.  
 

Some additional info you might not know based on your first comment earlier. Form 2555 doesn’t completely erase one’s foreign income  up to $108,700.  FIrst of all, the maximum is only if you lived/worked in another country 365 days of the tax year. If you only resided abroad half the year, then your limit is only half of the $108,700 or $54,350. The form calculates your exclusion based on number of days lived abroad. Secondly, on a joint return, the tax is calculated on all the income..his, hers, foreign. Then the tax is calculated on just the foreign income. Whatever  tax that foreign income would have generated gets deducted from the tax all of it would have generated. TurboTax does all that calculating for you in the background so it’s not that difficult if you’re a DIY person. 

I'm very aware of the 2555. You either qualify via the bonafide residence test or the physical presence test.

With the physical presence you can use any 365 (or 366 if its a leap year) days as long as it starts or ends in the tax year you're filing for... 

I'm also aware that the $100K+ amount is dependent on your days in your tax residence home (if qualifying via physical residence) BUT 32+ days inside the States makes your 2555 claim invalid (at least that was the rule in the past). 

If OP files the 2555 (and files MFJ), they'll probably have to play around with the days to minimize tax obligations. 

I'm just curious about UK tax obligations and if there will be any penalties for not paying tax on 7 months of income. 

 

 

 

Edited October 15, 2021 by Kor2USA

[Wuozopo 4,293]

1 minute ago, Kor2USA said:

 

I'm very aware of the 2555. You either qualify via the bonafide residence test or the physical presence test.

With the physical presence you can use any 365 (or 366 if its a leap year) days as long as it starts or ends in the tax year you're filing for... 

 

 Gotcha👍 Apologies for repeating something you are well versed on. A lot of people don’t understand the tax is not figured by “erasing” the foreign income and using the tax tables, but rather it’s figured on an IRS worksheet. 
 

10 minutes ago, Kor2USA said:

I'm also aware that the $100K+ amount is dependent on your days in your tax residence home (if qualifying via physical residence) BUT 32+ days inside the States makes your 2555 claim invalid. 

If OP files the 2555 (and files MFJ), they'll probably have to play around with the days to minimize tax obligations. 

Not following the plot here. Use of the Foreign Earned Income Exclusion is not dependent on when your POE is. You can reside in the US  40 days…100days..200+ days…and still use Form 2555 to exclude the income earned before POE. I resided in the UK 273 days, US 93 days, and used the Foreign Earned Income Exclusion my first year. It was a leap year. 
 

35 minutes ago, Kor2USA said:

I'm just curious about UK tax obligations and if there will be any penalties for not paying tax on 7 months of income. 

Only if they find out about his earnings. Is his American company reporting his wages to the UK?  Self-employed in the UK are supposed to do a “self-assessment” return. So what if he doesn’t? That’s between him and his conscience and not my concern. 

[Redro 4,611]

1 minute ago, Wuozopo said:

 

Not following the plot here. Use of the Foreign Earned Income Exclusion is not dependent on when your POE is. You can reside in the US  40 days…100days..200+ days…and still use Form 2555 to exclude the income earned before POE. I resided in the UK 273 days, US 93 days, and used the Foreign Earned Income Exclusion my first year. It was a leap year. 
 

 

I'm only aware of the 2555 requirements for a US citizen, not new residents. Generally, if a US citizen moves to another country mid-year, they'll file for an extension (October) and claim 335+ days in a foreign country starting from they day they arrived in said foreign country. For the physical presence test, you're able to play around with dates and  the year doesn't have to be Jan 1 - Dec 31 2020 but rather  you'll be able to claim physical presence for 4 April 2019- 5 April 2020 OR  4 April 2020- 3 April 2021 (if filing for tax year 2020).

I'll stop explaining as it appears it is not relevant to OP's question. 

[Wuozopo 4,293]

2 hours ago, Kor2USA said:

I'm only aware of the 2555 requirements for a US citizen, not new residents. 

I'll stop explaining as it appears it is not relevant to OP's question. 

 For the OP (I think) and myself, we are British citizens and qualify to use form 2555 based on bonafide residence in the UK. We are authorized to live and work in the UK based on our British citizenship. We don’t need a special visa or authorization to work in the UK. We aren’t Americans that have to prove we are authorized by the UK as residents, or else spent enough days in the UK to gain the physical presence there.