Yet another tax thread...Yeah!!

[Usui Takumi 1,562]

I'm going to a professional this year to double check but I'd like to hear opinions on this. My wife arrived in the US in October 2008. So under tax laws she can be included on a joint return even if she doesn't meet the presence test. What i've been stewing over is if she'll be eligible to include the 2555 exclusion form rather then 1116 credit. From rough estimates form 2555 will give us a refund of over $4000. While 1116 will be just over $2500.

[Bobby+Umit 161]

I'm going to a professional this year to double check but I'd like to hear opinions on this. My wife arrived in the US in October 2008. So under tax laws she can be included on a joint return even if she doesn't meet the presence test. What i've been stewing over is if she'll be eligible to include the 2555 exclusion form rather then 1116 credit. From rough estimates form 2555 will give us a refund of over $4000. While 1116 will be just over $2500.

I'm not up on the tax laws - but you can call the IRS for free for questions like this, and you do not need to tell them who you are.

[Nich-Nick 3,354]

I think the 1116 is more for earnings on investments where the foreign payor withheld tax on something like a stock dividend. It's the way to get credit for tax already paid on that dividend, so you don't pay tax on it again to the US since dividends are part of your total taxable income.

If she has wages to report, I believe the 2555 is the way to go. Make sure her wages are showing up as entered and not just excluded. Some of the tax software is a bit vague about where to enter her wages. There are several of us, who first time through had the exclusion show up, but looking at the numbers, the foreign income wasn't actually in there as a +number to go along with the excuded -number. On my 1040 the foreign wages are showing in line 7 lumped with the USCs wages and excluded in line 21 with a minus number.

Some people have had tax professionals not understand this uncommon situation, so it's good that you are getting informed and doing some research on your own.

[Mint518 0]

I'm going to a professional this year to double check but I'd like to hear opinions on this. My wife arrived in the US in October 2008. So under tax laws she can be included on a joint return even if she doesn't meet the presence test. What i've been stewing over is if she'll be eligible to include the 2555 exclusion form rather then 1116 credit.

When did you two get married? If you were married as of December 31, 2008, you are correct and can file joint return.

Regarding tax treatment of foreign source income, as Nich-Nick noted it depends on the nature of the income. You might first want to check whether the income is regarded as "foreign earned income" and satisfy other requirements for "foreign earned income exclusion" (see here), if it does, use Form 2555 (or 2555EZ). If not, use Form 1116 to claim foreign tax credit (see here).

[Usui Takumi 1,562]

I guess what I was getting caught up on was the logic behind it. Here we are saying that the spouse is a resident for tax purposes and then we turn around and file a form that says that the spouse had their tax home in the UK which sounds conflicting. But if you read form 2555EZ a resident alien can use it which is what my spouse is by technicality. So I guess if the professional comes back says no, i'll look elsewhere.