2008 tax return driving me mad!

[stuck_in_manila 0]

hi all!

it's tax season once again, and yes, i'm amongst those who are lost (and confused) over the taxation system!

anyways, here goes our situation:

the wife, that's me, a resident alien (having met the 184 plus days requirement as indicated on publication 54) ; hubby, usc

the couple are planning on file under married filling jointly

the wife earned some money (3 months work) from back home (the philippines) and intended to include it in the joint filling; no income since arriving in the us

the irs staff (thru phone) advised us to use 1040 and to attach form 2555ez (to exclude foreign income)

i filled out the 1040 and 2555ez forms on my own ( i was crazy enough to argue with the hubby that there's no need to hire somebody else when i'm available 24/7 and that the us taxation system can't be too complicated!) - this statement will definitely haunt me for years to come

after filling out the form, i visited various tax-filling company (online - turbo tax, h&r etc) to compare what i did.

alas! not only did we have different numbers, but the companies gave differing numbers (insofar as tax refund and a few other numbers are concerned)

so my question is, how should the foreign income be treated to begin with?

here's how i did it: on form 1040 line 7 (wages, etc), i added my foreign earnings on my husband's earnings. the irs staff assured me that the mentioned increase will be neutralized by subtracting the same amount (by placing it on line 21 of form 1040 - the figure is extracted from line 18 of form 2555ez)

the problem is, i tried it on turbo tax.

they deducted my foreign income from my husband's wages, etc. resulting to lower gross taxable income. i believe that my foreign income should not affect our gross taxable income (since under 2555ez i've already asked for an exemption and therefore the foreign earnings shouldn't affect anything at all and is just included on the form for declaration purposes, and yes, to follow the letters of the law). am i mistaken?

gosh, i'm not an accountant nor am i a tax professional but shouldnt tax regulations be understadable by everyone?

any inputs will be greatly appreciated!

hugz all!

[dale_trisha 3]

How you did it was the right way. Also look at Pub 519 for some options about being treated as a resident for the full year.

[albkos 1]

When using turbo tax did you include the foreign wages when entering w-2 page ? From w hat I remember turbo tax asks if you earned any income outside of the US as question and you should answe yes and it will take you through the steps. Once you review your return it will prob fill out the ez form with the information.

[stuck_in_manila 0]

How you did it was the right way. Also look at Pub 519 for some options about being treated as a resident for the full year.

thankie.

but yes, i think i'm under the full-year resident category since i've spent more than half of the year (2008) here.

[stuck_in_manila 0]

When using turbo tax did you include the foreign wages when entering w-2 page ? From w hat I remember turbo tax asks if you earned any income outside of the US as question and you should answe yes and it will take you through the steps. Once you review your return it will prob fill out the ez form with the information.

hmnnn, i dont think i did.

i placed it under other income (since it's a foreign income and i essentialliy mimicked how form 1040 "treated" that sort of income.)

aside from that, i dont have w2.

my former employer used to file all our taxes. we normally get our copies after the filing deadline, which is also on the 15th of april. i tried to plead/beg/coerce the staff to send me a copy of my w2, but i've yet to hear from them. (they're just so efficient i swear, but that's another story)

[Nich-Nick 3,353]

I did TurboTax and had the same problem. It took away the foreign income without putting it in the total income first. I used the installed version of Turbo Tax Basic. If you used online, I'm not sure you will see the same things I'm going to describe.

This is what I did. Go back to the beginning where it's asking if Spouse has a W2 or if you have another W2 to enter. In blue writing just above the Done button are three other choices. Click the one that says "I should have received a W2 but didn't" That should take you to a substitute W2 form (4852) to fill out. It will have boxes to check showing it is foreign income. There's no need to fill in anything but the wages since there would have been no FICA or Medicare amounts. It will ask what attempts you made to get a real W2 from your employer. I said, "None. It is a foreign employer that doesn't not provide US tax documents."

Alternatively, in the menu bar you can click View>>Forms and there near the top is "+ Add Form"

Try to add a form 4852 and fill it in on the form. I didn't do it that way, but it ought to be another way to get to it if you don't want to go through the interview type process in TurboTax.

It is my understanding the the substitute W2 goes on top of the return before the 1040 since it's a W2. At least Turbo Tax printed it out as first.

Edited February 7, 2009 by Nich-Nick

[Nich-Nick 3,353]

I read stuck_in_manila's post again and have a little more to add:

I tried TaxCut online and got the same numbers, but it was tedious and annoying. TurboTax was better.

Here's where your numbers could be off doing it by hand. If you have other income like Social Security or Earned Income Credit, the foreign income sometimes factors in. If you have a Schedule D for dividends and capital gains, your taxes don't come straight off the tax tables. There is a worksheet to figure and the foreign income gets taken off differently. It's too complicated to explain, but if you have those kinds of things it could bump you up to higher tax total before it goes and subtracts the taxes that would have been paid on the foreign income. It's just a little different tax calculating process than if you only had wages. It does all that in the background without showing you.

And you are amazing understanding the tax things so well!

Most Americans don't have the understanding that you have gained.

Edited February 7, 2009 by Nich-Nick

[stuck_in_manila 0]

I read stuck_in_manila's post again and have a little more to add:

I tried TaxCut online and got the same numbers, but it was tedious and annoying. TurboTax was better.

Here's where your numbers could be off doing it by hand. If you have other income like Social Security or Earned Income Credit, the foreign income sometimes factors in. If you have a Schedule D for dividends and capital gains, your taxes don't come straight off the tax tables. There is a worksheet to figure and the foreign income gets taken off differently. It's too complicated to explain, but if you have those kinds of things it could bump you up to higher tax total before it goes and subtracts the taxes that would have been paid on the foreign income. It's just a little different tax calculating process than if you only had wages. It does all that in the background without showing you.

And you are amazing understanding the tax things so well!

Most Americans don't have the understanding that you have gained.

thankie. i will try your suggestions.

well, i used to work with numbers ( stock market and later on broadcast - business news) so i'm used to trying to understand compex numbers.

i think i just miss my former work that's why i insisted on doing my hubby's tax return! he he he

[RodD 0]

I read stuck_in_manila's post again and have a little more to add:

I tried TaxCut online and got the same numbers, but it was tedious and annoying. TurboTax was better.

Here's where your numbers could be off doing it by hand. If you have other income like Social Security or Earned Income Credit, the foreign income sometimes factors in. If you have a Schedule D for dividends and capital gains, your taxes don't come straight off the tax tables. There is a worksheet to figure and the foreign income gets taken off differently. It's too complicated to explain, but if you have those kinds of things it could bump you up to higher tax total before it goes and subtracts the taxes that would have been paid on the foreign income. It's just a little different tax calculating process than if you only had wages. It does all that in the background without showing you.

And you are amazing understanding the tax things so well!

Most Americans don't have the understanding that you have gained.

thankie. i will try your suggestions.

well, i used to work with numbers ( stock market and later on broadcast - business news) so i'm used to trying to understand compex numbers.

i think i just miss my former work that's why i insisted on doing my hubby's tax return! he he he

I have been struggling with the same scenario the past week with TurboTax and finally got help on their live help forum.

First let me say that since you are married to a US citizen you can be treated as a US resident for all of 2008 regardless of the number of days you are present in the US. Just attach a written letter to your tax return signed by both of you indicating you have elected for both of you to be treated as US residents for the entire year. This is required if you plan to file jointly and either of you was a non-resident alien during any part of the year. The down side is you cannot file electronically. The up side is you can file jointly and reap the tax benefits of that status.

But as you already know, you must declare all your world-wide income. TurboTax is misleading about how to do this. In the section "Less Common Income" do NOT fill out the section on "Foreign Earned Income" first because that is only the exclusion. If you have already done that, please delete it. First fill out "Miscellaneous Income, 1099-A, 1099-C. There is a check box for "Wages not already reported". If you follow the step-by-step questions, skip all of them until you come to "Foreign Earned Income". Then there will be Yes/No question about whether you are eligible for the "Foreign Income Exclusion". Click Yes and continue until you finish this section. At this point TurboTax knows about your foreign income and it is included in the total.

After that you can go back to "Less Common Income" again, this time selecting "Foreign Earned Income" and entering all the information for your foreign income exclusion. Once you are finished with that, TurboTax subtracts it from the total.

Isn't the American tax code a joy?!!! At least the tax accountants have job security!

[himher 634]

Nick-Nick, we were talking about how to trick turbotax into entering foreign earned income. As described below this is how I had to do it last year......I entered my wife's income under "misc" in turbotax and then excluded it.

I read stuck_in_manila's post again and have a little more to add:

I tried TaxCut online and got the same numbers, but it was tedious and annoying. TurboTax was better.

Here's where your numbers could be off doing it by hand. If you have other income like Social Security or Earned Income Credit, the foreign income sometimes factors in. If you have a Schedule D for dividends and capital gains, your taxes don't come straight off the tax tables. There is a worksheet to figure and the foreign income gets taken off differently. It's too complicated to explain, but if you have those kinds of things it could bump you up to higher tax total before it goes and subtracts the taxes that would have been paid on the foreign income. It's just a little different tax calculating process than if you only had wages. It does all that in the background without showing you.

And you are amazing understanding the tax things so well!

Most Americans don't have the understanding that you have gained.

thankie. i will try your suggestions.

well, i used to work with numbers ( stock market and later on broadcast - business news) so i'm used to trying to understand compex numbers.

i think i just miss my former work that's why i insisted on doing my hubby's tax return! he he he

I have been struggling with the same scenario the past week with TurboTax and finally got help on their live help forum.

First let me say that since you are married to a US citizen you can be treated as a US resident for all of 2008 regardless of the number of days you are present in the US. Just attach a written letter to your tax return signed by both of you indicating you have elected for both of you to be treated as US residents for the entire year. This is required if you plan to file jointly and either of you was a non-resident alien during any part of the year. The down side is you cannot file electronically. The up side is you can file jointly and reap the tax benefits of that status.

But as you already know, you must declare all your world-wide income. TurboTax is misleading about how to do this. In the section "Less Common Income" do NOT fill out the section on "Foreign Earned Income" first because that is only the exclusion. If you have already done that, please delete it. First fill out "Miscellaneous Income, 1099-A, 1099-C. There is a check box for "Wages not already reported". If you follow the step-by-step questions, skip all of them until you come to "Foreign Earned Income". Then there will be Yes/No question about whether you are eligible for the "Foreign Income Exclusion". Click Yes and continue until you finish this section. At this point TurboTax knows about your foreign income and it is included in the total.

After that you can go back to "Less Common Income" again, this time selecting "Foreign Earned Income" and entering all the information for your foreign income exclusion. Once you are finished with that, TurboTax subtracts it from the total.

Isn't the American tax code a joy?!!! At least the tax accountants have job security!

[motu 5]

nich-nick is right - How did you get the name? It reminds me of Nick Nick - from a 'Taxi' episode (Latka Nick Nick ... etc. etc. - hilarious).

Best thing to do is to use a spreadsheet first - so you lay it out like a tax return e.g. Income (a line for Wages (W-2 income), a line for 1099 Incomes e.g Interest etc. - whatever categories you have) list what you have and then calculate your taxes (rough) - When you use Turbo-tax or Tax-act (I like Tax-act better - I used to use Turbo tax for about 10 years but found some errors (minor) in their tax calculations - so don't use that any more) double check the results to see that they are approx. the same - if not go back and try and add categories of income or adjustments where they should be - Its a little involved the first year but after that - I just start a new spreadsheet for each year and I have an idea of my refunds/taxes due for the next year as early as right now! Note that the spreadsheet has only 14 lines and does what a multiple tax return does - my return is 4 pages long.

My spreadsheet has these lines

Wages

Interest Income

Pension

457 distributions

Total Income

HSA

Adjusted Gross Income

standard deductions

subtotal

Personal Exemptions

Taxable Income

Federal Tax

Fed WIthheld

Federal Refund/Due

Edited February 15, 2009 by motu

[NickD 202]

At the advice of friends, tried Tubotax and other so-called free programs offered at the IRS site, darn thing didn't even do the worksheets that are in the Form 1040 book.

My impression is that I don't even have a computer large enough to run any tax program that would include all 1,025 forms offered by the IRS plus the 11,000 pages of tax laws, but these programs did work okay for doing my daughters taxes with her part college job, a W-2, but still had to download the instructions do manually work out her standard deduction. Feel that old axiom holds true, you get what you pay for and not very much for free. Our tax system is way too complex and what our government puts us through is tantamount to a crime. Compounded by the fact the tax laws change every year and not written in clear understandable English, always have to call the IRS each year to get clarifications or pay a professional for advice, have a good tax attorney for this, not those well known tax preparers that advertise constantly on TV.

When my wife came here, she was working in her former country, paid taxes to that country and came here in a AOS position, was not allowed to work here, no W-2's from this country, that was history. She was not a LPR, could claim her as an exemption, but did not have to claim her foreign income. When she got her EAD and SS number, was permitted to work, got a W-2, creamed with FICA, FIT, and SIT deductions, that is when we had to file her USA income. Now if she was a lawful permanent resident and returned to her country to work, that would be a different story, we would have to show that income on our USA taxes. But she didn't do that, we married to stay together. But she was in transient to this country. At her citizen interview, her IO was very pleased to see she was earning money and paying lots of taxes, they request three years of returns, but due to USICS delays, we could submit four years of returns with W-2's and 1099's, but said only three years of returns were necessary. I just had to include that forth one to state in a subtle fashion, you are slow.

Not a tax expert by no means, do not think anyone is, but doesn't seem to me if you earned money from a foreign country and not even a LPR, you don't have to even claim that, but would call the IRS with that question. I did that first year, but that was over five years ago, the tax laws change every year.

Since we had several semi-conductor companies move to the Phillipines to take advantage of five buck a day labor, and the girls had to work their cans off to get that or get fired instantly as there was someone else to take her place, we can't be talking about that much money. I also consider that to be criminal. No, the price of those semi-conductors did not decrease in price here.

[Nich-Nick 3,353]

In the section "Less Common Income" do NOT fill out the section on "Foreign Earned Income" first because that is only the exclusion. If you have already done that, please delete it. First fill out "Miscellaneous Income, 1099-A, 1099-C. There is a check box for "Wages not already reported". If you follow the step-by-step questions, skip all of them until you come to "Foreign Earned Income". Then there will be Yes/No question about whether you are eligible for the "Foreign Income Exclusion". Click Yes and continue until you finish this section. At this point TurboTax knows about your foreign income and it is included in the total.

After that you can go back to "Less Common Income" again, this time selecting "Foreign Earned Income" and entering all the information for your foreign income exclusion. Once you are finished with that, TurboTax subtracts it from the total.

This is a very good suggestion. I found what you were describing in TurboTax and it was the easiest and best way to show the foreign income. I guess I didn't notice it or explore that category because it said 1099A, 1099C and I thought "I don't have those." TurboTax should make it easier to find where to report foreign income. Since I have already mailed my return, mine won't be done that way but the bottom line taxes worked out the same and I think IRS won't have a problem with mine.

And to motu...Nich-Nick is Nichole and Nick. Taxi....so funny!

[Craig & Julia 0]

I have been struggling with the same scenario the past week with TurboTax and finally got help on their live help forum.

First let me say that since you are married to a US citizen you can be treated as a US resident for all of 2008 regardless of the number of days you are present in the US. Just attach a written letter to your tax return signed by both of you indicating you have elected for both of you to be treated as US residents for the entire year. This is required if you plan to file jointly and either of you was a non-resident alien during any part of the year. The down side is you cannot file electronically. The up side is you can file jointly and reap the tax benefits of that status.

But as you already know, you must declare all your world-wide income. TurboTax is misleading about how to do this. In the section "Less Common Income" do NOT fill out the section on "Foreign Earned Income" first because that is only the exclusion. If you have already done that, please delete it. First fill out "Miscellaneous Income, 1099-A, 1099-C. There is a check box for "Wages not already reported". If you follow the step-by-step questions, skip all of them until you come to "Foreign Earned Income". Then there will be Yes/No question about whether you are eligible for the "Foreign Income Exclusion". Click Yes and continue until you finish this section. At this point TurboTax knows about your foreign income and it is included in the total.

After that you can go back to "Less Common Income" again, this time selecting "Foreign Earned Income" and entering all the information for your foreign income exclusion. Once you are finished with that, TurboTax subtracts it from the total.

Isn't the American tax code a joy?!!! At least the tax accountants have job security!

Nich-Nich was nice enough to paste over your instructions into another thread I started. However I'm finding before adding my wife's income my tax refund is $200 or so higher for about $3,500 in foreign income. It shows up under Less Common Income as both + and - number of the same amount yet it's still slightly increasing the net amount of taxes paid. Is this correct result or am I missing something? As the original poster said I was expecting it to completely cancel out.

Thanks

[Nich-Nick 3,353]

However I'm finding before adding my wife's income my tax refund is $200 or so higher for about $3,500 in foreign income. It shows up under Less Common Income as both + and - number of the same amount yet it's still slightly increasing the net amount of taxes paid. Is this correct result or am I missing something? As the original poster said I was expecting it to completely cancel out.

Thanks

Maybe not missing something. A month ago I could have told you better but I filed and already got my refund. If your had simple earnings and W2 income, then it would pretty much add it in and take it off.

Without getting too technical. Do you have Schedule D earnings? Qualified dividends, capital gains, etc? If so the total income incuding hers plays into that as I recall. If your taxes are not calculated on the basic tax tables, but rather on the Qualified Dividends and Capital Gains Tax Worksheet, then there could be a slight increase due to the worldwide income.

So it's possible that your refund is $200 higher by deleting your wifes income (on a joint return), but if you also delete the filing joint status and go back to married filing separately, you will find your refund is even less. So you have to judge which is best for you but compared them as you would be required to file.--

Married filing separately with only your income, OR

Married filing joint with another $3500 her income

The filing joint still worked out better for me. If you have more questions about the capital gains and dividend things, I can explain further if you PM me, but I didn't elaborate here because I didn't want to give too much information if you didn't need it.