Thanks for the additional information. That helps explain a lot.
For your situation then, with an ITIN number valid for 2016, you could file your 2016 US tax return as MFS under Option # 1 (as outlined in the original reply), or you could file jointly under Option # 2 (again, as outlined previously). With filing Option # 1, you could exclude all of her Japanese (foreign) income; but with Option # 2 you would need to include it by filing as MFJ. So, you essentially get a choice here, courtesy of the IRS, as to what you want to do. One way has you including your wife's foreign income, and the other way does not. You might want to lean toward Option # 1, because it is easier to do, and you don't have to report or pay tax on your wife's Japanese income. That said, there's really no right or wrong answer here, because it is a true taxpayer option.
In other matters, as a US government or military worker stationed overseas, you're not eligible for the foreign earned income exclusion available to those in the private sector, but there in no choice that can be made there. It is simply a fact that you'll have to pay regular US income taxes on your wages.
One final point that we haven't address is that if you or your wife maintained a financial asset account (including bank or brokerage) in Japan, then you may have a federal disclosure reporting requirement.
Specifically, there are two separate disclosure forms that may be required; each also has different reporting rules. One is known as IRS Form 8938, and can be attached to the Form 1040 tax return. The other is FinCen Form 114, which can only be filed via the internet. The following Internal Revenue Service webpage describes them in some detail, and provides their dollar value reporting levels:
<a rel="nofollow" target="_blank" href="
https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements">https://www.irs.gov/bu...>
Form 8938 is included in TurboTax; FinCen Form 114 is not, and you may need to access that reporting webpage separately, if your foreign financial assets total over the limit(s). Note that you can get to the FinCen reporting internet site through the above IRS link.
Hopefully all this information will be useful to you. And yes, we absolutely do appreciate that international tax issues, especially, can be quite difficult. So it may take some time to absorb everything. Please read over the facts here carefully, and also please feel free to explore the posted links for additional information.
Thank you again, and welcome home.
