hungryhorace

Any income earned since 14-03-05 will need to be declared.

hungryhorace

My accountant did not list income earned outside of the US when I filed a dual status return last year. There is no requirement to, unless you are filing a joint return with a person who has been resident in the US for tax purposes for the whole year (as my USC wife was).

Conclusion: You will _not_ be taxed on income earned before 5 March '14. Let Deloitte sort this out for you

Ash14297

How did you find Deloitte, were they good? I'm waiting to here back from them about setting up a consultation. Unfortunately I don't think I can legally chose how I file since I do not meet all of the following criteria:

If you are a dual-status alien, you can choose to be treated as a U.S. resident for the entire year if all of the following apply;

• You were a nonresident alien at the beginning of the year
• You are a resident alien or US citizen at the end of the year
• You are married to a U.S. Citizen or resident alien at the end of the year
• Your spouse joins you in making the choice

hoffage123

I am glad you brought this up as I have to file also and I entered the country on March 26th. I am not sure I can afford a CPA though, so will probably file on my own.

kodokan

They were fine - nice people, competent, professional, etc. But just to manage your expectations, in case like me you're expecting something resembling advice and guidance, it's just a tax preparation service, outsourced to India (at least, it was in 2011 when we did it). What it consists of is an initial 'consultation', which is more them giving you a standardized speech about how tax works in the US, especially for the first year; if you've read the IRS docs, very little of it will be news to you. And then you doing all the donkey work of typing everything relating to your taxes into their personal organizer software, which they convert into a tax return and e-file for you.

Essentially it's Turbotax, with more telephone/ email support and handholding. They're preparing your taxes, not advising you on them.

Michael

As far as itemizing, that may not be a big deal for you since you live in California (a high income tax state) and state income tax withheld during 2014, taxes on the car registration fee, donations, and other things are itemized deductions and that may possibly exceed the standard deduction especially if you are single. If you didn't file form 2555 and take foreign tax credits (form 1116) on income earned outside the US, then you could have a tax treatment that was better than someone that was a resident for the full year. All taxable income after deductions and exemptions determine your marginal tax brackets (see marginal tax brackets in following link below the tax calculator) and each part of your world wide income is taxed in those marginal tax brackets and then tax credits are taken.

1040 Tax Calculator

If foreign income was not included, then your highest marginal tax bracket may possibly be at the 25% tax bracket instead of the 28% tax bracket giving you a tax treatment that is better than a USC. As far as a refund, if your itemized deductions are greater than the standard deduction, a larger refund will be owed but only if foreign taxes paid on the earned income or income taxed as normal income was at your highest marginal tax bracket. For long term capital gains and qualified dividends, the US taxes that at a maximum 15% for total incomes below $450K (20% above that amount) so if you normally pay at least 15% on that income, foreign tax credits should offsets any US taxes owed.

The US tax system is designed to make it difficult for someone to find loopholes through offshore investments or by temporarily working in a low or tax free country for short periods of time at a high salary and then working back to the US at a low salary. A good tax accountant could make that possible and the person could get very good tax treatment if the foreign income was not included on the US tax return (example a hedge fund manager works in the Cayman Islands for 3 months and makes $1 million dollars and also works as a hedge fund manager in the US for 9 months and makes $100,000 every year). We all know what the tax account is doing and that is taking advantage of tax loopholes.

Ash14297

I'm glad I brought this up too!!

H&R block have just advised me they can help with Dual Status tax returns so I imagine that will be a lot cheaper than a CPA. However, I'm not sure I would trust them doing it since it already sounds complicated!

Pulaski

Since March 2005?

Ash14297

Thanks for all of the information!

I'm actually really worried about having to itemize now. What things should I have kept as evidence? I did not realize that I would have to itemize so I didn't keep anything. What things can be itemized? It really seems as if I'm going to fall very short of the standard deduction which means I'm going to be paying a lot more tax than I should compared to if I was allowed to take the standard deduction

Michael

Itemized Deductions (Schedule A)

Forget about the medical and dental deduction since there is a high threshold before deductions can be taken for medical expenses.

Also use schedule C to report your rental income/loss. For depreciation, foreign property is 1/40th the original cost when acquired per year of the structure (not including land) so therefore the structure would be depreciated 100% over 40 years using straight line deprecisation.

Profit or Loss From Business (Schedule C)

Pulaski

In all honesty, not much for most people, other than mortgage interest and charitable donations. Medical expenses have to exceed IIRC, 7% of your income to be deductible, then only the amount above 7% is deductible. Other things like professional subscriptions have a threshold level before you an deduct them.

If you don't have a mortgage I think it is unlikely you will need to itemize.

hungryhorace

He can't not itemise though, as you're not able to claim the standard deduction when filing dual status. Unfortunately, like you say, unless you have a mortgage and are a home owner (property taxes) there's not usually much point of itemising.

Ash14297

So in that case then, it is very unlikely to get much of a deduction which in turn means next to nothing for a refund?

I don't understand why someone that is married and both end up being non-resident and resident within the same year get to choose how they file IF they both agree with the decision but people filing as single have no choice?!

Michael

California income tax brackets hit 9.3% at $99,548 for married filing jointly and $49,774 for married filing separately after deductions and exemptions so it is possible to hit the standard deduction with state income taxes alone if incomes are high enough.

Michael

The same rule applies to both single and married. The big difference is that when married, income whether from one or both spouses are treated basically as if each had earned half of the income whether one or both work. This gives married couples a large tax advantage when only one spouse is working or one spouse makes significantly more than the other souse. Just look at the marginal tax brackets compared to married filing jointly compared to single and you'll see what I mean.

In other words, a single person making $100,000 may pay double the taxes than a married couple making $100,000 even if only one spouse made all the income.