@ZaiKajou Having read through your post and the very helpful response by my colleague @Critter-3 , below are the additional steps you would need to take to get the best tax outcome:
(a) your spouse whom is living in Canada ( yes? ) would still be classed as Non-Resident Alien , even with ITIN and therefore her/his foreign income is beyond the ambit of US.
(b) When you prepare your Married Fling Jointly ( MFJ ) you would need to add a statement / request signed by both of you to request that she/he would like to be treated as a Resident for Tax purposes for the tax year in question. This would mean that you have to file by mail ( I do not believe that you can add this as an attachment to the efile ). This requirement is only for the first year that she/he wants to expose her/his foreign income to US taxes and it remains valid till changed.
(c) As part of the entries that @Critter-3 outlined above , you will have to fill out the form 2555 -- Foreign Earned Income Exclusion ( FEIE) -- this is generally better than foreign tax credit / deduction ( form 1116). However form 2555 will require you to
1. satisfy one of two tests to qualify --- Physical Presence Test ( 330 full days present abroad in any continuous 12 month test period) or Bone-fide Resident ( this requires IRS approval )
2. Spouse has a tax home abroad
(d) The above path will have to be followed even for the amendment of 2021.
TurboTax will walk you through all this and if you run into any issues and/or need clarification/ help one of will definitely walk you through .
Does all this make sense ?
