2011 TurboTax w/ Foreign Income to report

[Nich-Nick 3,354]

This is geared toward K1s who arrived and married in 2011. Hopefully you got your SSN to make filing jointly easier. Even if you don't have a greencard yet, you can elect to be treated as a resident alien for tax purposes by including a statement with your return. Otherwise a non-resident alien can not file jointly with their USC spouse (without the statement). To file jointly, worldwide income must be included...meaning any money the foreign spouse earned abroad. Don't worry, you report it but then get to exclude it on form 2555 or 2555EZ. For average people, it works out to be all excluded. If you married somebody rich and famous, then around $96,000 is the max exclusion.

So here's the TurboTax walk-through. I used TurboTax Basic desktop installed version ($29). Can't say if the free online looks exactly like this or not.

To get there click on the menu bar “Wages & Income”.

Scroll down to last section “Less Common Income”.

Find Foreign Earned Income and Exclusion. Click Start over on the right.

The pages/questions come up:

Did you make any money outside the US? Yes

What form was Foreign Income Reported On? A statement from my foreign employer

Enter your foreign earned wages. Put in converted to US $

Did [name]’s income come from any of these sources? NO

Confirm [name]’s wages. Probably no adjustment needed.

Employer provided goods. Skip

Enter Amount employer paid you cash for. Skip if none apply.

Whose foreign income would you like to exclude. Tick the name.

Did [name] live and work outside the US? Yes

Was [name] a citizen? No

Was [name] a resident alien? YES, because to the IRS, you are a resident alien for the whole of 2011 because of the statement you wrote electing to be treated that way.

Income tax treaty? YES (you'd have to look that up, but NO won't allow the exemption) Treaties are covered here http://www.irs.gov/publications/p901/ar02.html#en_US_publink1000219371

Do either of these situations apply to you? [Name] is required to pay foreign taxes.

Choose how to qualify for this exclusion. Bonafide resident test

Date started living in foreign country? Probably date of your birth

Date stopped living there? Entry to US date if already here.

Enter info about US travel. Self-explanatory

Deductions related to Foreign Earned Income. Shouldn’t be any. You weren’t moved because of work so can’t take moving expenses for example.

Foreign address. Enter it.

Separate family address. No doesn’t apply to this situation. For Americans transferred overseas and wife stayed home maybe.

Housing. None. Skip.

Country of citizenship. Type in.

Employer information. Type in. Tick no US address. Fill in foreign address.

Type of company (at the bottom of the page). Pick one.

Did [name] take a foreign exclusion before? NO

Did [name]'s family live with him? NO. It doesn't really apply except to American's living abroad for work.

Skip or say no to the next few pages about housing. Again more for American’s living abroad.

Does [name] have an employment contract. NO. For Americans abroad.

Type of visa? Don't tick any of the four. You don't have a visa TO the foreign country in this question. Your visa is to the US and has nothing to do with the visa in this question. For Americans working abroad.

Does your visa limit the time you can work outside US? Tick nothing on this.

Edited February 27, 2012 by Nich-Nick

[Nich-Nick 3,354]

Here's an example of a statement you both will sign and date:

Statement: Nonresident Spouse Treated as a Resident

We declare that on the last day of tax year 2011:

•Mary Jo Smith is a U.S. citizen

•Sam John Smith is a nonresident alien

•Mary Jo Smith and Sam John Smith are married.

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

___[sign here]_______________________________ 2/4/2012

Mary Jo Smith SSN: 123-45-6789

410 Happy St.

Jackson, WY 83001

___[sign here]_______________________________ 2/4/2012

Sam John Smith SSN: 987-65-4321

410 Happy St.

Jackson, WY 83001

[Lainie B 465]

Thanks Nich-nick. This is extremely helpful.

I used turbotax on the weekend using information you provided in earlier posts and got through it OK. I just had a couple of things to add:

I don't think the free version allows you to declare foreign income (it didn't when I tried it over the weekend) so I think people with foreign income will most likely have to fork out for the basic version.

For your last two options:

Type of visa?

Does your visa limit the time you can work outside US?

I originally left these blank but Trubotax identified these as errors at the end, so I filled in "citizen" for visa and "unlimited" for visa limit. Maybe I could have skipped over these anyway. Oh well the IRS can sort it out now.

[Nich-Nick 3,354]

Thanks Nich-nick. This is extremely helpful.

I used turbotax on the weekend using information you provided in earlier posts and got through it OK. I just had a couple of things to add:

I don't think the free version allows you to declare foreign income (it didn't when I tried it over the weekend) so I think people with foreign income will most likely have to fork out for the basic version.

The screens are very different for 2011 version so that why I wrote a new one. (finally checked it out this weekend)

So now I've just logged in to free online TurboTax to try it. I skipped all the personal info section by clicking straight to Federal Taxes in the menu.

Then Fed tax screen comes up >continue

Easy Guide or Explore on my own >Explore on my own

That puts you in my instructions at:

Scroll down to last section “Less Common Income”.

Find Foreign Earned Income and Exclusion. Click Start over on the right.

All the questions were the same as the desktop version and it does deal with foreign income.

For your last two options:

Type of visa?

Does your visa limit the time you can work outside US?

I originally left these blank but Trubotax identified these as errors at the end, so I filled in "citizen" for visa and "unlimited" for visa limit. Maybe I could have skipped over these anyway. Oh well the IRS can sort it out now.

To respond to this I went back to my mock-up desktop return I did to see the order of the screens/questions for 2011. I quit after getting to the last screen. So this time I went through the error check and it did have 2 problems.

1. Where was your tax home (on form 2555). I typed in United Kingdom

2. Asked about the type of visa and to confirm my NO to if the visa was limited. I typed in "none" for visa type and confirmed that the visa wasn't limited.

Then error check ran again error free.

Sometimes it's just tricking TurboTax to move forward because of the way they have it programmed. They won't let you move forward if a box is empty. I'm sure the IRS will be okay with your return. When I was doing the mock-up I didn't want to fill in all the details for a foreign employer so the name/address, etc looks like:

djdfwjudf ffjf

26222 2mjdjdjd

ddhgf fjhfhf

TurboTax had no problem with that

Maybe that's where I failed to put in United Kingdom.

[Lainie B 465]

Hmm, then I think Turbotax was being less than honest with me. It asked me if we had foreign income, I said "yes" then it told me I'd have to purchase the Basic edition because the free version didn't deal with foreign income. Oh well. I'm just glad to get it done.

[Nich-Nick 3,354]

Hmm, then I think Turbotax was being less than honest with me. It asked me if we had foreign income, I said "yes" then it told me I'd have to purchase the Basic edition because the free version didn't deal with foreign income. Oh well. I'm just glad to get it done.

That's weird because I just started from scratch like I was a brand new person on "Try it for free". It worked going into foreign income the way I described

I bet it was the part about foreign investments or bank accounts where you got that mesage. TurboTax does have some issues with that. We do and it's a new IRS form 8938 this year to report holdings over $100,000 if married. They have fixed the desktop version with updates just a week or so ago but say they can't fix the online version. I've been following that drama in forums(TurboTax and others). Spoke to IRS tax law department, then TurboTax an hour and a half. The form wasn't finalized until January. The instructions are a bit vague and people are debating it. And I think TurboTax is scrambling to fix their programming to deal with it on short notice . My efile was rejected 4 times over form 8938. They still have issues on the new form they haven't owned up to yet.

[Lainie B 465]

That's weird because I just started from scratch like I was a brand new person on "Try it for free". It worked going into foreign income the way I described

I bet it was the part about foreign investments or bank accounts where you got that mesage. TurboTax does have some issues with that. We do and it's a new IRS form 8938 this year to report holdings over $100,000 if married. They have fixed the desktop version with updates just a week or so ago but say they can't fix the online version. I've been following that drama in forums(TurboTax and others). Spoke to IRS tax law department, then TurboTax an hour and a half. The form wasn't finalized until January. The instructions are a bit vague and people are debating it. And I think TurboTax is scrambling to fix their programming to deal with it on short notice . My efile was rejected 4 times over form 8938. They still have issues on the new form they haven't owned up to yet.

That was probably why - I had bank account interest as well.

[Lainie B 465]

That's weird because I just started from scratch like I was a brand new person on "Try it for free". It worked going into foreign income the way I described

I bet it was the part about foreign investments or bank accounts where you got that mesage. TurboTax does have some issues with that. We do and it's a new IRS form 8938 this year to report holdings over $100,000 if married. They have fixed the desktop version with updates just a week or so ago but say they can't fix the online version. I've been following that drama in forums(TurboTax and others). Spoke to IRS tax law department, then TurboTax an hour and a half. The form wasn't finalized until January. The instructions are a bit vague and people are debating it. And I think TurboTax is scrambling to fix their programming to deal with it on short notice . My efile was rejected 4 times over form 8938. They still have issues on the new form they haven't owned up to yet.

I filled in the TD form but Turbotax told me I did not have to fill in form 8938 and I am not sure why. I think I should have filled this form in.

[Nich-Nick 3,354]

I filled in the TD form but Turbotax told me I did not have to fill in form 8938 and I am not sure why. I think I should have filled this form in.

The TDF 92-22.1 aka the FBAR has been around for a long time. We fill it in every year. It's not due until June 30 and isn't part of the tax return but TurboTax kindly reminds you of the form. You print and mail it to the US Treasury Dept. We report a basic bank account still in the UK. It doesn't draw interest but they want to know where it is and how much is in it.

The new one 8938 aka FATCA is trying to find Americans hiding taxable money in offshore accounts...well I think that's mainly who they are after. It is part of the tax return, unlike the FBAR. People have all kinds of questions about what counts for this form. But it only has to be done for certain threshhold amounts. If you're filing jointly and live in the US, then the threshhold is investments over $100,000. Most think a pension fund sitting in the UK goes on this form, even if you don't get money from it yet. Some question if homes/property abroad count. It's all so new that people and TurboTax are a bit lost still. I suspect after this first year it will all shake out and become a little clearer. The guy at IRS Tax Law Dept agreed with me. Meanwhile tax preparation software needs to get all their coding perfect for e-filing. If their coding and IRS acceptance coding doesn't matchup...REJECT. Lots of glitches that didn't get worked out because the IRS was so late finalizing the form.

[rick313 5]

Here's an example of a statement you both will sign and date:

Statement: Nonresident Spouse Treated as a Resident

We declare that on the last day of tax year 2011:

•Mary Jo Smith is a U.S. citizen

•Sam John Smith is a nonresident alien

•Mary Jo Smith and Sam John Smith are married.

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

___[sign here]_______________________________ 2/4/2012

Mary Jo Smith SSN: 123-45-6789

410 Happy St.

Jackson, WY 83001

___[sign here]_______________________________ 2/4/2012

Sam John Smith SSN: 987-65-4321

410 Happy St.

Jackson, WY 83001

Wow! Very helpful for you to share this walk through! One question, do you know is there any way to submit such a statement with TurboTax? Or I assume the only way to do it is the paper version? I'd rather do TT to speed up the process but if we have to use regular old paper filing, so be it.

[Nich-Nick 3,354]

Wow! Very helpful for you to share this walk through! One question, do you know is there any way to submit such a statement with TurboTax? Or I assume the only way to do it is the paper version? I'd rather do TT to speed up the process but if we have to use regular old paper filing, so be it.

I called the IRS and asked that question a few weeks ago since it was discussed somewhere on here. The IRS lady said NO. I asked in a couple of more ways rephrasing, "so there is no means to file electronically and mail in the statement?" NO.

IRS, like VJ, will get you a different answer depending on who you talk to so call them yourself and see what kind of answer you get. I did not e-file the year we claimed the exclusion. After the first year, you can e-file. Quite frankly an e-file might go through and the IRS would not follow up asking for your required statement. They don't check on people as much as we assume. I'm just telling the most by-the-law way I know, which is paper file with a signed statement.

[rick313 5]

I called the IRS and asked that question a few weeks ago since it was discussed somewhere on here. The IRS lady said NO. I asked in a couple of more ways rephrasing, "so there is no means to file electronically and mail in the statement?" NO.

IRS, like VJ, will get you a different answer depending on who you talk to so call them yourself and see what kind of answer you get. I did not e-file the year we claimed the exclusion. After the first year, you can e-file. Quite frankly an e-file might go through and the IRS would not follow up asking for your required statement. They don't check on people as much as we assume. I'm just telling the most by-the-law way I know, which is paper file with a signed statement.

Ah, thanks. If I give them a ring I'll let everyone know what I find out. But the consensus does seem to be that one has to paper file in this situation.

[lubnajavid 20]

im guessing you are not forgetting the part where the overseas spouse needs a SSN or ITIN?

if they dont have a SSN they need an ITIN - file the W-7 with your supporting documents and the tax return BY MAIL - not allowed to e-file.

And of course you have to leave SSN blank in the 1040

[HikerMark 5]

Just to add my 2 cents worth.

Don't always assume that the election to be treated as a US resident for the whole of the year is the best thing to do. It will depend on several factors such as how much and what type of foreign income you have, when you arrived in the US during the tax year and the tax position of the US Citizen such as whether they itemize or not. The earned income exclusion only excludes foreign earned income. Other foreign income will always be taxed in full subject to any double tax treaty and credit for foreign tax paid.

As a double check work out the taxes both ways, one with the election and one without to see which is the best.

The first US return is a pain but it does get a little easier after that.

Edited March 18, 2012 by HikerMark

[rick313 5]

Just to add my 2 cents worth.

Don't always assume that the election to be treated as a US resident for the whole of the year is the best thing to do. It will depend on several factors such as how much and what type of foreign income you have, when you arrived in the US during the tax year and the tax position of the US Citizen such as whether they itemize or not. The earned income exclusion only excludes foreign earned income. Other foreign income will always be taxed in full subject to any double tax treaty and credit for foreign tax paid.

As a double check work out the taxes both ways, one with the election and one without to see which is the best.

The first US return is a pain but it does get a little easier after that.

Good points Hiker Mark. I ran the numbers pretty carefully and for us, filing jointly was the best result. In fact, I was pleasantly surprised to see that I was due a significantly larger refund than I had anticipated this year. Good luck to you all with taxes. Thank God those are over for me this year.