H Bomb

OK, I will try and keep this brief (but I am fairly certain it won't be).

My wife and I went to see a tax accountant this evening to prepare our tax returns.

We were under the impression we could file as resident joint, but according to the accountants calculations we failed to meet the substantial presence test (we thought we passed, but hadn't properly checked, lesson learned there!).
We did some calculations whilst there, but the key factor was he said you could not count both your arrival and departure date from the US, which after we got home we have checked on the IRS website and we now know that is incorrect information and you can indeed count both.

We figured it was going to be close, so said to him we would go away and double check the dates we traveled to the US (although we did go ahead and prepare a non-resident married filing in case we did indeed fail the test).

Turns out my wife hits 183.5 - pass!
However, I only hit 181.167 - fail

How close can you get!

We had a feeling this could be the outcome as my wife had a work trip to the US in 2013 whereas I didn't.

The accountant said if the situation arose where my wife passed and I didn't, we could still file as resident joint but when we file I should include a letter to state I wish to be counted a a resident.
Q. Does anyone know if this is correct?
He seemed certain of this, however he also seemed certain of the criteria of the substantial presence test :/. I have searched Google, looked in the IRS documents, but cannot find anything specifically relating to this.

Just to add context - my wife in on an L1 and I am on an L2 but haven't worked since we arrived in July.

This next bit isn't for you guys to answer, but just our next steps. If anything doesn't make sense or we should do something different please let me know!

Next thing is to work out if resident joint is better than non-resident married (although we will obviously get the accountant to run the numbers) - as I believe it means we lose the standard deduction (and our actual deductions are less than the standard) and it means pulling together the information for our UK property July-Dec last year (which isn't that much hassle I am just being lazy - will have to do it for the UK self assessment, so may as well do it now).

We are working on the assumption that the fact I haven't worked since we arrived in July will make it beneficial to file as resident joint, despite losing the standard deduction.

Time will tell on that, assuming we can file as resident despite me failing the substantial presence test!

md95065

Yes.

Nonresident Spouse Treated as a Resident

H Bomb

Thank you - just what I was looking for!

H Bomb

Are you able to elaborate on this?

CAUTION! If you file a joint return under this provision, the special instructions and restrictions for dual-status taxpayers do not apply to you.

Does that just mean losing the standard deduction?

Pulaski

No you actually gain the standard deduction, which is not available to dual status filers.

It means you're filing as if you were a normal US citizen/ permanent resident/ visa holder, and so you are submitting all your income during the year to US taxes, whereas on a dual status return you are only taxed on the income after you relocated to the US.

H Bomb

Thanks Pulaski - I think I have just worked that out too.

So if we declare to be residents we lose the right to file dual status, we file for the full year and then have to declare gross UK PAYE income up to the point we moved here, and then income from our rented UK house from when we moved here. On the plus side we get the standard deduction back.

How does this then work with Foreign Tax credits as obviously we don't want to be double taxed? Will the accountant just input numbers to net out anything we were paid in the UK so we have no tax liability here?

If we need to supply the numbers we don't know what to put as:
- PAYE Jan-mid July. We own a house in the UK that we are renting so have to complete a self assessment and don't need to complete P85s. We know we are due tax refunds Apr-mid July from the UK, but won't find out how much until we complete our self assessment.
- Rental income mid July-Dec. How do we estimate how much tax we will pay on the rental for mid July to December when we are unsure how much of a refund we will get from our PAYE earnings.

This whole tax thing seemed a lot simpler yesterday when we looked at filing non-resident, but still sure filing as joint resident is the best way!

HartleyHare

We were in a very similar situation in 2013. We arrived in June and passed the substantial presence test. My OH is the L1 holder and I am a non-working L2. We also let out our house in the UK.

Firstly, our tax return was around 50 pages! This figure doesn't include the State Return.

Our CPA calculated our foreign tax credits from a "dummy" HMRC tax return that we supplied (along with supporting documents P60, wage slips, rental income etc.). BTW - I didn't have an income in the UK either.

As we didn't actually submit the HMRC self-assessment, until after we had completed the US return, we did not know how much refund we were due. Although our CPA would have been able to calculate this and may have taken it into account. I think we finally received the rebate in November. For the current (2014) return I will give our CPA the details of the rebate and I guess he will know which form to include it on.

I had worked out a guesstimate of how much tax could be owed from the income generated by our house, which came in at around $2K. However, our foreign tax credits wiped this out and we actually ended up getting a small rebate

I don't really know if any of this helps you at all

H Bomb

That does help HartleyHare. Going to start pulling those numbers together in preparation for our next meeting with the accountant.

Cook_County

Many people would file a 7701(b)(4) election with a 6013 election piggybacked on top. The accountant you saw is not the right one as he does not know the law.

Ideally you'd run the returns several ways, MFS, MJF, dual-status, full-year resident, treaty-based, closer-connection exception, etc to decide which is the optimum.

H Bomb

I agree running it different ways, but as my wife meets the substantial presence test and I do not, we need to elect to file as residents which means you have to file as full year residents does it not?
Surely we are only left with the option of filing as joint full year residents (or my wife could just file single, but that would not work out better)?
Or am I missing the point?