Foreign Tax Credit (Form 1116)

[P055UM 281]

I am wondering if anybody in the community has any experience filing for a foreign tax credit via form 1116. I am open to seeking out a local tax professional too, but experiences of members here are always very valuable.

 

My situation is as follows:

* Moved to US on K-1 this year, AoS pending

* Non resident alien according to Green Card and Substantial Presence tests, but open to electing to be resident and filing jointly if this obtains a tax benefit

* Foreign income exceeds (pro-rated) Foreign Earned Income Exemption (FEIE)

* Marginal tax rate from home country exceeds calculated US marginal tax rate

 

Based on my reading, I could either apply for Foreign Tax Credit (FTC) for taxes paid abroad before moving to the US, or alternatively use FEIE on the bulk of my income and foreign tax credit on the remainder. Given my specific situation, in that I was paid more at the beginning of the year than the end, I think using just the FTC gives me more to carry forward to next year.

 

My main questions: 

1) IRS rules state that nonresident aliens cannot take FTC. I assume this doesn't apply if we elect to treat myself as a resident alien and file jointly?

2) Does anybody have experience going FTC rather than FEIE? And if so, any tips to share?

3) Am I missing anything really obvious here?

 

Again, will also be looking for local CPA input.

 

Thanks a lot!

 

[Wuozopo 4,293]

@AW1704

 

 

1 hour ago, AW1704 said:

My main questions: 

1) IRS rules state that nonresident aliens cannot take FTC. I assume this doesn't apply if we elect to treat myself as a resident alien and file jointly?

2) Does anybody have experience going FTC rather than FEIE? And if so, any tips to share?

3) Am I missing anything really obvious here?

 

 1. Correct. If you make the election, you can skip all the NRA rules and file jointly as a RA.

 

2. Sorry no. I used FEIE because it was easy and we had no clue how to fill out the 1116. I brought zero tax records with me. Didn’t know where to begin to figure out the UK I had paid. But with the high tax rate in the UK, FTC is probably your best deal since you exceeded the maximum FEI. You must have paid a hefty sum in taxes. 
 

3. I think your post shows you have an excellent grip on the plan and have been reading IRS publications, which is rare.

 

1 hour ago, AW1704 said:

My situation is as follows:

* Moved to US on K-1 this year, AoS pending

You moved last year on August 8, 2021 (Thanks for having a timeline.)

 

Some thoughts:  You will benefit by filing jointly with a SSN over an ITIN to get your share of the 2021 Economic Impact payment if eligible on income.  Since it’s going to be close to have a SSN by April 18 (filing deadline), you could file an

  extension until October and then have until October to get your SSN. The amount could be $1400. Family income is considered. 
 

And that brings up— what is counted as joint income for qualifying for your $1400. It’s line 11 (Adjusted gross income) on your Form 1040 and needs to be less than $150k to get the full amount.  If you use the the FEIE, Then your income exclusion  is subtracted out on line 10 so won’t be counted in the qualifier on line 11. But If you use the FTC, your foreign income and your spouses’s will all count to see if you qualify on income for the $1400 bonus from the government. I always work things several ways to see which of the various options results in more money in our pocket. Filing separately will not be as good so I wouldn’t bother with that. 
 

PS. I also arrived in October on a K1 way back when, used the FEIE, filed jointly making the resident alien election, and got a government stimulus bonus from George “dubya” Bush that had been handed out before we even started the K1 process.

Edited January 12, 2022 by Wuozopo

[P055UM 281]

1 hour ago, Wuozopo said:

@AW1704

 

 

 1. Correct. If you make the election, you can skip all the NRA rules and file jointly as a RA.

 

2. Sorry no. I used FEIE because it was easy and we had no clue how to fill out the 1116. I brought zero tax records with me. Didn’t know where to begin to figure out the UK I had paid. But with the high tax rate in the UK, FTC is probably your best deal since you exceeded the maximum FEI. You must have paid a hefty sum in taxes. 
 

3. I think your post shows you have an excellent grip on the plan and have been reading IRS publications, which is rare.

 

You moved last year on August 8, 2021 (Thanks for having a timeline.)

 

Some thoughts:  You will benefit by filing jointly with a SSN over an ITIN to get your share of the 2021 Economic Impact payment if eligible on income.  Since it’s going to be close to have a SSN by April 18 (filing deadline), you could file an

  extension until October and then have until October to get your SSN. The amount could be $1400. Family income is considered. 
 

And that brings up— what is counted as joint income for qualifying for your $1400. It’s line 11 (Adjusted gross income) on your Form 1040 and needs to be less than $150k to get the full amount.  If you use the the FEIE, Then your income exclusion  is subtracted out on line 10 so won’t be counted in the qualifier on line 11. But If you use the FTC, your foreign income and your spouses’s will all count to see if you qualify on income for the $1400 bonus from the government. I always work things several ways to see which of the various options results in more money in our pocket. Filing separately will not be as good so I wouldn’t bother with that. 
 

PS. I also arrived in October on a K1 way back when, used the FEIE, filed jointly making the resident alien election, and got a government stimulus bonus from George “dubya” Bush that had been handed out before we even started the K1 process.

Thanks for the reply! It is so useful to be able to understand what others have done previously. I have spent some time gaming the scenarios out this afternoon and I definitely have a clearer picture than when I started. I actually already have my SSN - mostly so I could keep driving and for credit and stuff but ease of filing taxes is also a bonus.

 

To be completely honest, I had totally not caught on about having a chance at any stimulus payments, so thanks a lot for that tip! I'll have to dig around to see what I can do about that.

 

Really appreciate the input mate, that is what makes this community great.

[P055UM 281]

Any thought about whether there is an "immigration benefit" of filing jointly? Let's say due to the particulars of our financial circumstances there is no financial benefit to filing jointly, or perhaps there is even a small cost, say a couple hundred dollars. In that circumstance, is it okay to not file? Or is that going to look really weird come a time when we need to prove evidence of bona fide marriage/comingling of finances etc etc.?

 

Seems like it should be perfectly fine to explain that there was no requirement to file, and doing so would've opened us up to a tax liability, so it was sensible to not file. But I suppose it is sacrificing a key piece of evidence that others cite as useful for AoS.

[travusb 69]

1 hour ago, AW1704 said:

Any thought about whether there is an "immigration benefit" of filing jointly? Let's say due to the particulars of our financial circumstances there is no financial benefit to filing jointly, or perhaps there is even a small cost, say a couple hundred dollars. In that circumstance, is it okay to not file? Or is that going to look really weird come a time when we need to prove evidence of bona fide marriage/comingling of finances etc etc.?

 

Seems like it should be perfectly fine to explain that there was no requirement to file, and doing so would've opened us up to a tax liability, so it was sensible to not file. But I suppose it is sacrificing a key piece of evidence that others cite as useful for AoS.

I don't know your situation but I would assume that filing jointly would reduce your tax burden, unless maybe your significant other made enough to put you in a different tax bracket with the bigger deduction. If for some reason it doesn't I don't see why filing MFS would be detrimental to the immigration process.

A joint tax return isn't something that I would say proves you're in a bona fide marriage. Just proves that you'd like a tax break.

 

If your significant other made any income in the US they will still need to file taxes. I'm not sure if they would need to if they didn't make any US income.

Either way you have to file as married just choice if you want that to be married filing jointly or married filing separately. 

 

I'm by no means a tax expert so if your taxes are aren't simple like my situation maybe getting an accountant to look them over is the best option.

[Wuozopo 4,293]

1 hour ago, AW1704 said:

Any thought about whether there is an "immigration benefit" of filing jointly? Let's say due to the particulars of our financial circumstances there is no financial benefit to filing jointly, or perhaps there is even a small cost, say a couple hundred dollars. In that circumstance, is it okay to not file? Or is that going to look really weird come a time when we need to prove evidence of bona fide marriage/comingling of finances etc etc.?

 

Seems like it should be perfectly fine to explain that there was no requirement to file, and doing so would've opened us up to a tax liability, so it was sensible to not file. But I suppose it is sacrificing a key piece of evidence that others cite as useful for AoS.

When you file separately. You still have to include your spouse’s name on the form. So your tax return indicates you are married and to whom. See the very top of the 1040 right under where you check filing status—

“If you checked the MFS box, enter the name of your spouse”.

 

https://www.irs.gov/pub/irs-pdf/f1040.pdf

 

 

 

[P055UM 281]

14 minutes ago, Wuozopo said:

When you file separately. You still have to include your spouse’s name on the form. So your tax return indicates you are married and to whom. See the very top of the 1040 right under where you check filing status—

“If you checked the MFS box, enter the name of your spouse”.

 

https://www.irs.gov/pub/irs-pdf/f1040.pdf

 

 

 

In other words, regardless of whether we go the MFS (and me not filing) or the MFJ route, either tax return will include my name, and is therefore something that could be furnished as evidence at an AoS interview?

[travusb 69]

2 minutes ago, AW1704 said:

In other words, regardless of whether we go the MFS (and me not filing) or the MFJ route, either tax return will include my name, and is therefore something that could be furnished as evidence at an AoS interview?

I wouldn't even include it in your evidence since it has to be done because your married.

Having a joint bank account would be much better evidence in my opinion.

[P055UM 281]

27 minutes ago, travusb said:

I don't know your situation but I would assume that filing jointly would reduce your tax burden, unless maybe your significant other made enough to put you in a different tax bracket with the bigger deduction. If for some reason it doesn't I don't see why filing MFS would be detrimental to the immigration process.

A joint tax return isn't something that I would say proves you're in a bona fide marriage. Just proves that you'd like a tax break.

 

If your significant other made any income in the US they will still need to file taxes. I'm not sure if they would need to if they didn't make any US income.

Either way you have to file as married just choice if you want that to be married filing jointly or married filing separately. 

 

I'm by no means a tax expert so if your taxes are aren't simple like my situation maybe getting an accountant to look them over is the best option.

It was a sort of weird year income-wise. Gaming the scenarios out has been pretty amusing 😄

3 minutes ago, travusb said:

I wouldn't even include it in your evidence since it has to be done because your married.

Having a joint bank account would be much better evidence in my opinion.

That's good to know. We have bank account and credit card, lease car etc etc.

[travusb 69]

1 minute ago, AW1704 said:

We have bank account and credit card, lease car etc etc.

I think that's more than enough to show a shared financial life.

[Wuozopo 4,293]

23 minutes ago, AW1704 said:

In other words, regardless of whether we go the MFS (and me not filing) or the MFJ route, either tax return will include my name, and is therefore something that could be furnished as evidence at an AoS interview?

Yes. They see your spouse has claimed to be married and has name you, the immigrant, as that spouse. Just another little piece of evidence, not that it shows specific co-mingling.  The tax return would be in the I-864 packet anyway.

 

For my AOS, we did not consider doing anything that would cost us financially or would be a hassle just to create a piece of evidence. For example, we didn’t hire a lawyer to do the legal work to make me a joint owner of my wife’s house to please the USCIS for AOS or removing conditions.  For AOS, we applied so quickly (about a week after I entered the country) that we had nothing to send with AOS to prove marriage but the marriage certificate.  Then our interview was waived so no chance to show we had gotten joint bank accounts and some of the better evidence.
 

You do your taxes the best way for you. 
 

Did you actually fill out two complete tax returns to compare MFJ and MFS. There’s so many things that go into calculating tax besides the income from a job. 

[P055UM 281]

3 minutes ago, Wuozopo said:

Yes. They see your spouse has claimed to be married and has name you, the immigrant, as that spouse. Just another little piece of evidence, not that it shows specific co-mingling.  The tax return would be in the I-864 packet anyway.

 

For my AOS, we did not consider doing anything that would cost us financially or would be a hassle just to create a piece of evidence. For example, we didn’t hire a lawyer to do the legal work to make me a joint owner of my wife’s house to please the USCIS for AOS or removing conditions.  For AOS, we applied so quickly (about a week after I entered the country) that we had nothing to send with AOS to prove marriage but the marriage certificate.  Then our interview was waived so no chance to show we had gotten joint bank accounts and some of the better evidence.
 

You do your taxes the best way for you.

Thanks! That is useful to know! 

 

3 minutes ago, Wuozopo said:

Did you actually fill out two complete tax returns to compare MFJ and MFS. There’s so many things that go into calculating tax besides the income from a job. 

I sure did. I am an accountant by training so I am ashamed to admit that I actually quite enjoyed doing it.