jodesia

2555 or 1116?

Hi there,

My husband and I are sitting doing our taxes and are just a little confused with what to do with our UK earnings.

My husband (US citizen) moved from the UK to the US in July 2012, after living there for 12 years. He has been working since late July. For the last 3 years, he has been a stay-at-home dad and has therefore had no earnings. He completed a 2555 for each year he was in the UK, including those years when he didn't really need to file.

My daughter and I moved to USA in October once my visa was issued. We arrived on the 28th Oct. I had been the sole income for the family up until that point. I finished work earlier in October and therefore received no further payments/wages once I entered the US. My wages were less than $45K. I have not worked since entering the US. We have no investments, property or anything of significance left in the UK (we really cut ties when we left!). So all I really need to declare/have excluded is my wages.

So back to my question. Should I be filing a 2555 for the UK earnings I made prior to becoming a resident alien? Or should I be filing a 1116? From what I have read, the 1116 applies only to the money earned abroad that exceeds the exclusion.

Our plan is to file jointly as we only have one income and currently my daughter and I are both dependents of my US husband.

PAYE seems so straightforward and friendly by comparison.

Many thanks in advance.

Steve_

Neither, you file dual-status because you didn't become resident until October. Your UK earnings are totally excluded from being reported as you didn't live in the US and were not resident for tax purposes at that point.

If you had no reportable US-source income prior to moving to the US, it is essentially a pro-rated 1040 for the period you were in the US.

You file separately.

From the sounds of it you may be below the reporting limit anyway, but it may be a good idea to file a protective return so the IRS are aware of your existence, especially as they may get tax slips like 1099s from your bank, etc.

Ooh, a dual-status protective return, not something that happens every day...

A protective return is basically a zero return, but it has the advantage that you can file an adjustment later on if you realize you screwed something up or if you realize you are owed a tax refund for some reason.

Read the section on dual-status returns in IRS publication 519. http://www.irs.gov/pub/irs-pdf/p519.pdf

JAJ

Filing a tax return also establishes the statute of limitations for that year.

jodesia

So... I file 2 different 1040s? - one for NR and one for the 2 months I was resident?
My husband files a regular 1040... can I be listed as one of his dependents?

If we filed jointly, could we not submit a 2555 for my earnings in the UK? By filing jointly, I assume residence for the whole tax year and therefore could I not be treated as a resident working abroad for the first 10 months of the year?? The only reason I ask about the joint filing is that our deductions are greater.

Sorry for the questions. I called the IRS yesterday. The cut me off the line after being on hold for 2 hours and 5 mins... I called back and was on hold for another hour or so until they cut me off again. I will try and call them again on Monday.

Steve_

Regular IRS helpline can't help, call 267 941 1000 to ask about dual-status returns.

You can't file jointly, because you've got to file dual-status (says this in publication 519). You can't file a 2555, you were a non-resident alien prior to becoming resident in the US, so it isn't relevant.

Read this: http://www.irs.gov/uac/Six-Important...d-Exemptions-1

Theoretically, but if you had no reportable US-source income for the first part of the year and you've had no income in the second part of the year (i.e. you are below the reporting limit, which you've pro-rated) then in fact you don't need to file a tax return at all.

I'm not entirely sure what the procedure is for a protective dual-status return, not commonly done. I suspect you just get a 1040 EZ, write "protective dual-status" across the top on each page, put your name, address and SSN on it, put zero on it and sign it. Also page 5 of 1040NR and send it to the service centre in Austin.

For some strange reason they've taken the illustrations out of the 2012 version of 519, the previous edition shows you how to do a dual-status return: http://www.irs.gov/pub/irs-prior/p519--2011.pdf page 35 onwards.

JAJ

I thought it's always possible to file jointly as long as an election is made to treat the non-resident spouse as U.S. resident for the entire year? (although this cannot be reversed in subsequent years, so should be considered carefully)

However, it would be recommend to discuss with a competent tax CPA and run the numbers for both scenarios before making an election either way.

Jscl

Yep, you can't file a joint "dual status" return, but like JAJ said, you can file jointly if the resident spouse elects to treat the non-resident spouse as resident - but then you would have to take any available foreign tax credits for your non-US income.

As you said your husband has been working since July it might work out better for you to file jointly and take the deduction and credits that are available to joint filers that aren't available to separate filers (remember you'd both have to file separately (if above the filing threshold, which is just $3,800 for separate filers) if one of you chose to). But really you need someone to prepare both types of returns (joint and two separates) and see which benefits you most as a family. Or try to prepare them yourselves - it might be quite simple if your income is from just a few sources.

It's a pain, but next year will be much easier.

Steve_

Well, yes, but then she has to pay US tax on her UK income and claim a foreign tax credit on 1116 which would probably be unwise. And in this case her husband was non-resident as well so it's not applicable as he's filing a 2555. He'd have to claim to be resident for the whole year too.

Technically speaking she doesn't need to file anything at all, doesn't even have any foreign assets so no FBAR or 8938.

Jscl

SHE doesn't need to file, but HE (being a US citizen) does and has to consider worldwide income. So assuming their joint worldwide income for the year is more than about $19K (for married filing jointly) or his income for the year is more than $3800 (for married filing separately) he's going to have to deal with foreign tax credits anyway.

So the issue is still whether it's worth them both filing jointly (in which case both consider worldwide income, but possibly pay less tax overall) or he files separately and doesn't include her (UK) income. But he's a US citizen and married, so he has to file (unless low income) MFJ or MFS.

I don't know how long you've been married, but if he's been filing a particular (married) way in previous years, it might be sensible to continue in the same way for this year.

Steve_

He hasn't got any foreign tax credits, he wasn't employed abroad, she said that in her OP.

The simplest method is what I said originally.

markwm

Why not just hire an accountant who understands all of the ins-and-outs of the process. I used Pete Newton and he was very good. Yes it costs a bit but better than screwing it up. You can always do it yourself in future years once you understand what you need to do. Money well spent I would say.