Am I qualified for Form 2555s Pending Green Card?

[Topshop30]

Hi,

I'm married to a US citizen since Sept 2024 and waiting for my green card. We're filing MFJ and elected US Resident Alien for tax purposes.

I have foreign wages up until July 2024, before moving to the US. When I complete the Form 1116 inserting the foreign income and taxes paid, we are asked to fill Form 2555 (foreign income exclusion). Would this apply to my status?

Also there's no official date when my Tax Home was established in my country (mm/dd/yr). I've been working for over 30 years. How do we treat this, if at all?

Appreciate your response.

Thanks 

Pauline 

[SusanY1]

For the date your tax home was established, you can use  your date of birth.  If you lived abroad at least 330 days of a 365 day period OR you were a "bona fide resident" of the other country, you likely qualify for the Foreign Earned Income Exclusion. 

However, you will also need to adjust the income and tax on Form 1116 if you are combining the exclusion with tax credits.  You cannot take tax credits on the portion of income that is excluded.  

 

[Topshop30]

Hi SusanY1,

I'm a citizen of Malaysia therefore my tax home is established since before I migrated to the US. This will be my first time filing US taxes with my husband. 

I have inserted my gross income earned on Form 1116 as well as my taxes paid. The system computed that I have a tax credit for use either for 2023 or onward years. FYI being my first time filling in US, I do not have any prior tax credits to offset our 2024 income.

On Form 2555s, I'll complete the parts which are applicable and leave out sections not relevant, correct?

Thanks

Pauline  

[SusanY1]

Correct, you will only complete the parts that are applicable to you on the form 2555.  I would suggest that you file using the "bona fide resident" test rather than the "physical presence". 

After you complete 2555, you will need to recompute your foreign tax credits (1116) to remove the income that is excluded by form 2555, as you can't take credits and exclusion on the same income.  

[Topshop30]

Assuming I input my income $27k into Form 2555 as an FEIE, do I need to delete or keep Form 1116 where my home country's gross income and taxes paid were registered? I paid $4191 in tax. 

Must I keep form 1116 if opting for Exclusion? What information do I insert in the worksheet if so? 

Essentially if I deleted Form 1116, the tax computations will be based purely on husband's income with a standard deduction for MFJ, is that right?

Husband is on the 12% tax bracket currently. 

Looking at my situation, which option do you think would be more optimal, FEIE or FTC? Can we offset the full amount of FTC at next tax filing? 

Appreciate your response.

Thanks 

Pauline 

[DaveF1006]

You have the option to take the credit or the exclusion. If you decide to take the exclusion, Form 1116 is not reported in your return so it is not necessary to keep it unless you change your mind.

If your income is excluded, then all taxable income reported will be your husband's income with a standard deduction for MFJ as you mention. 

Without looking at your return, it is difficult for me to ascertain which would be better.  You might try working both scenarios in your return to see which one is optimal. Based on the information you have given me, let's analyze. 

1. Say if your taxable income is $27,000 and your husband's is $40,000, your total income for the year is $67,000.  Here is how the credit is determined.  The foreign tax is $4191, foreign income is $27,000, and total income is $67,000.
2. The formula is ($4191)(27,000/67000)= $1688. Here you may claim $1688 as a credit and the remainder of $2503 is carried over to the next year to offset future foreign income.  The carryover is extended for ten years until used. If there is no future foreign income. Then it remains until it expires after the 10th year. 
3. The foreign tax credit is non-refundable. If you don't have $1688 in tax liability, the credit may be limited even more.

Now if you take the exclusion and using your husband's income, then your taxable income is $40,000-29,200=$10,800. The tax liability would be $1080 since the tax rate is 10%. This tax liability would be further lessened by withholding and other credits that may apply.

If you take the tax credit, then your taxable income is $67,000-29,200=$37,800. The tax rate is 12% and the tax is $4516. Here $1688 is applied and your tax liability becomes $4516-1688=$2828.  Based on these two comparisons, the foreign income exclusion may be more beneficial.  

If you are asking if you can claim the full amount of this year's credit next year, the answer is no.  If you opt to take the Foreign Income Exclusion this year, you can't reclaim the credit in later years.

[Topshop30]

Not sure how to select Bona Fide Resident over Physical Presence test. It did ask if I was in the foreign country for over 330 days and the date range as well as if I was a citizen of that country. I had to answer both of those.

For income Exclusion, only Form 2555 appeared so that took care of my portion with no errors.

How do  I attach the FBAR declaration with our submission online please?

Thanks very much!

Pauline 

[DaveF1006]

To file your FBAR report, I would file this here. It doesn't need to filed with your tax return as long as it is reported.  TurboTax does have a option to file this with the return and this offered as you begin filing your return.  There's a charge for this and this is why I suggest filing directly through  the Financial Crimes Network as I suggest above.