New green card holder - filing status and foreign income

[imaltesers]

Could I please get some advice on how to file taxes for my situation?

• I immigrated to the US in August 2020 on a Green Card
• I have an American wife who has been living and working in the US for all of 2020
• I earned foreign income up until August 2020 and did not have any foreign or US income for the rest of 2020

Am I supposed to file jointly? If so, do I need to report my foreign income earned before immigrating in August? Even though I paid taxes for it in the foreign country?

[pk]

@imaltesers  just to be sure , let me cover the situation as I understand ---

(a) you , a foreign citizen ( which country - Malta ? )  was admitted to the USA  on August , xx, 2020

(b) you were in foreign country till  that date ( ??) and had earnings  from the foreign country

(c) you are married to  an American citizen whom  have earnings  for the year 2020

Now the question is how should you file --- Married Filing Joint or Married Filing Separate;  and  do you need to recognize the foreign earnings  prior to your entry into the USA .

First generally it is better to file Married Filing Joint -- it is more tax benign

Second,  because  you have the Green Card, you are therefore are treated as a resident for the year and subject to US tax on your world income.  The question  here is  when is the start of your  "year" --- generally it is the first full day that you were present in the USA during the tax/ calendar year.  Thus if you have had zero US presence  during 2020 before the entering on August XX, 2020, then  you are  Non-Resident Alien / Non-US person till that date and hence your  foreign earnings are not taxable by the USA.   

So for a clearer answer  we need to know all your presences in the USA during 2018, 2019 and 2020 -- please provide --yes ?

[imaltesers]

Thanks for your answer, let me make my situation clearer:

1. I am an Australian citizen but I lived and worked in Taiwan before August 2020
2. I was in Taiwan until August 2020 but I did visit the US a couple of times (more details below); I had foreign earnings only (no US earnings)
3. Yes, my wife is an American citizen and had US earnings for 2020

Here are the dates I visited the US for the years you asked for:

• August 15-28, 2018
• January 27-February 8, 2019
• July 21-August 12, 2019
• January 23 - February 25, 2020

I hope this is clear!

[pk · Accepted solution]

@imaltesers , as I mentioned earlier a person is considered  a resident for the whole year when one passes the Green Card test.  Also it states that the  year is from the first day of presence in the USA.  Thus , given your answers as to presence in the USA, I would  surmise that  you are a resident for the whole calendar year and thus  subject to world income taxation  for the year 2020.  

When you file  jointly , there are benefits   especially when you have children etc.  If you do not have  such a situation, i.e. ONLY two of you, may I suggest that  you file as Married Filing Separate-- 

(a) this will allow  your spouse to file normally and  I assume that  he/she  would use standard deduction

(b) this would  , since you have zero US earnings for the  year, to declare your foreign earnings, and then claim the foreign taxes  as  foreign tax credit.  This credit while recognized fully is allowed  only on a ratio basis --- foreign income to world income-- and in your case these being the same, you will get to deduct/credit for all the taxes paid. This would be beneficial, especially if you do not have foreign income in follow-on years.

Does this make sense or do you need more help/explanation etc. ?

[imaltesers]

That makes sense, thanks a lot for your help!

[imaltesers]

@pkI actually have a different issue now; I was about to post it in the "after you file" section but figured it would be easier if I just reply here.

I actually already filed my tax return without entering my foreign income because I thought I only counted as a resident since August, not for the whole calendar year (this was before I asked about it here). The tax return has been approved and I'm waiting for the refund to arrive.

I went through the TurboTax software again, this time including my foreign income, and the software tells me that I'm able to deduct all of my foreign income. My federal and state refund amounts did not change.

So my question now is, do I still need to file an amended return? If so, when do I do it? And how do I do it using the software? (I am using TurboTax Home and Business)

[imaltesers]

Sorry I forgot to mention that I am still married filing jointly; I didn't change it to married filing separately. Also to be clear I received a deduction, not a credit.

[pk]

@imaltesers ,

1.  yes indeed , you can  file joint and be able to take a deduction for foreign taxes paid, assuming that   (a) you itemize; (b) your total foreign tax plus any  state taxes withheld for your spouse, plus property taxes  are total less  than 10,000 ( SALT limit )  and  of course (c)  your total itemized deduction is greater than 24,800.  For  most people  it does not work and so they stay with standard deduction.

2. Note that if your AGI changes  with the foreign income, then you should file an amended return after the  the original return  has been processed  ( your refund issued is a stand-in).  Although in your particular case there is probably no way for the IRS to be aware of this --- but .....

3. If I remember right   generally 4/15  ( I don't know if this is also extended  this year) is the deadline  after which one cannot change from MFJ to MFS, even as an amended return.

4. Please also note that during 2020 if you had a foreign bank account you would come under FBAR and FATCA rules

Stay safe 

pk

[imaltesers]

@pkI made a mistake, I didn't get a deduction——I was able to exclude my foreign income from being taxed (sorry about that!).

Anyway thank you for the info!