More tax issues...

[lovegirl 0]

Okay, I will try and make this simple.

I did not file taxes for 2006, basically because i got it all wrong. so here are the circumstances.

-I am an American citizen, my husband is British with a conditional resident greencard.

-we were married and lived in the U.S. for all of 2006

-I worked and my husband didn't for all of 2006

-however, he did earn interest on money in his British account.

I am thinking i should file a 1040A as married filing jointly (he does have a social security number)

BUT.... what other forms are needed and what evidence? I know as employees we send in our W-2's along with any other (bank) information, but would my husband need to send proof of his income[interest]?

I am confused as to the forms and foreign exclusions.

Any advice or guidance will be greatly appreciated, in the mean time i will continue to try and comprehend the info on the irs site!

Thanks-Megan

[gwenneh 7]

Yes, he needs to send proof of his interest income HOWEVER since this is foreign earned income it is exempt as long as it's below the threshhold. So what you need is a statement from the financial institution in question stating the amount of interest earned during the tax year, then the form 2555 to declare that income exempt.

Any income earned in the UK is exempt as long as it was below the threshhold ($~88k). Convert it to USD, declare it on your 1040A in the relevant spot for interest income, and fill out the 2555 so it will be exempt.

[Lansbury 19]

Yes, he needs to send proof of his interest income HOWEVER since this is foreign earned income it is exempt as long as it's below the threshhold. So what you need is a statement from the financial institution in question stating the amount of interest earned during the tax year, then the form 2555 to declare that income exempt.

Any income earned in the UK is exempt as long as it was below the threshhold ($~88k). Convert it to USD, declare it on your 1040A in the relevant spot for interest income, and fill out the 2555 so it will be exempt.

Is that correct I was under the impression that foreign earned income exemption only applied if you lived outside the US. If you are a US resident you claim the income tax paid overseas against US tax.

We are just arranging an appointment with the accountant for ours for this year to make sure we claim the tax paid on my UK pension the best way, so as to try an avoid State income tax on it as well.

[Converse34 1]

Yes, he needs to send proof of his interest income HOWEVER since this is foreign earned income it is exempt as long as it's below the threshhold. So what you need is a statement from the financial institution in question stating the amount of interest earned during the tax year, then the form 2555 to declare that income exempt.

Any income earned in the UK is exempt as long as it was below the threshhold ($~88k). Convert it to USD, declare it on your 1040A in the relevant spot for interest income, and fill out the 2555 so it will be exempt.

Is that correct I was under the impression that foreign earned income exemption only applied if you lived outside the US. If you are a US resident you claim the income tax paid overseas against US tax.

We are just arranging an appointment with the accountant for ours for this year to make sure we claim the tax paid on my UK pension the best way, so as to try an avoid State income tax on it as well.

I would never declare interest earned in a foreign account (not that I would ever have more than $88k earned in interest). But there is no way the US government would ever track it, besides, as I remember in the UK, when I earned my 4p of interested on my current account, there was always the 1p tax deduction

[gwenneh 7]

It depends on where your tax home is, which doesn't necessarily coincide with your residence.

[gwen75 0]

hi, i too am a bit confused about it all

so, as long as he made less than $88K last year in the UK, he is exempt from paying taxes but we still have to report his income when filing?

also, do i declare myself head of household since he didnt work here last year?

[gwenneh 7]

Yes.

I don't think you're eligible for HoH status (per the IRS):

Generally, to qualify for head of household status, you must be unmarried and you must have paid more than half the cost of maintaining as your home a household that was the main home for a qualifying person for more than half the year. You may also qualify for head of household status if you, though married, file a separate return, your spouse was not a member of your household during the last six months of the tax year, and you provided more than half the cost of maintaining as your home a household that was the main home for more than one half of your tax year of a qualifying person.

[Lansbury 19]

It depends on where your tax home is, which doesn't necessarily coincide with your residence.

From the IRS web site

The foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction are based on foreign earned income. For this purpose, foreign earned income is income you receive for services you perform in a foreign country during a period your tax home is in a foreign country and during which you meet either the bona fide residence test or the physical presence test.

Therefore if you live in the US you cannot claim this exclusion, as you are not resident where you earned that income.

In 2006 when we moved to the US we resided in the UK for 323 days and our accountant calculated our foreign earned income exemption as 323/365ths of the limit for that year.

You don't pay tax on money earned in the UK if UK tax has been paid on it under the reciprocal tax agreement between the UK and US. There a couple of ways it can be claimed against US tax or deducted from US tax owed, but which is the best in a particular circumstance I'm not sure.

[jlivings99 0]

Want to clear up a few misstatements on the posts here.

1. The exclusion everyone is mentioning is for "earned income" so only applies to wages (and related living allowances, etc.). So interest income is not excluded under this provision. To use the exclusion on a dual status year (resident in UK and resident in US during the year) gets complicated and involves allocation. Read rules carefully, consider using tax prep software or consult a tax accountant (depends on how many $s are at stake).

2. If you elect to be married filing joint then both husband & wife are also electing to be taxed on worldwide income which includes interest income. However, you might be able to get credit for taxes paid to another country. (But if you have left the UK you can stop them taking out taxes on interest ... there is a form you file)

3. Not reporting income ... it is illegal ... yes small amounts are unlikely to be found out but ... remember USCIS might want your tax returns someday.

I am a CPA who teaches tax as a university professor and I am finding it challenging to figure it all out.