TurboTax help for Joint filing- 2012

[Nich-Nick 3,353]

This is a walk through for doing a joint return using TurboTax Basic 2012. I have not looked at other versions like Deluxe or Home and Business or the online method this year. Maybe the screens are the same, maybe not.

This is geared toward people who married in 2012 and the foreign spouse moved to the US in 2012. If you do not have a greencard yet, the IRS will allow the foreign spouse to be treated as a resident alien for tax purposes for the entire year by electing to be treated that way. It is a perk allowed to those who married US citizens. There are many discussions about if you are physically present in the US for 183 days, you don’t have to make that written election. I go by this from the IRS:

First Year of Residency

If you are a U.S. resident for the calendar year,

but you were not a U.S. resident at any time during the preceding calendar year

, you are a U.S. resident only for the part of the calendar year that begins on the residency starting date. You are a nonresident alien for the part of the year before that date.

Reference: IRS Publication 519, Chapter 1

I think it’s easier for most here to be a resident alien for the entire year, rather than a dual status alien. When you make the election, then worldwide income must be reported, meaning any money the foreign spouse earned abroad. Most will qualify for the foreign income exclusion, so don’t panic and think you are going to pay taxes twice. I personally don’t trust H&R Block to get it right. They aren’t trained on immigrant issues, especially the oddities of K1s. They have steered many people wrong. If you file a joint return, you do declare worldwide income. If you don’t want to do that, then the USC does “married filing separately” and the non-greencard holder new spouse who earned no US income files nothing.

Here's an example of a statement you both will sign and date:

Statement: Nonresident Spouse Treated as a Resident

We declare that on the last day of tax year 2012:

•Mary Jo Smith is a U.S. citizen

•Sam John Smith is a nonresident alien

•Mary Jo Smith and Sam John Smith are married.

We choose to be treated as U.S. residents for the entire tax year.

___[sign here]_______________________________ 2/4/2013

Mary Jo Smith SSN: 123-45-6789

410 Happy St.

Jackson, WY 83001

___[sign here]_______________________________ 2/4/2012

Sam John Smith SSN: 987-65-4321

410 Happy St.

Jackson, WY 83001

- - - - - - - - - - - -

Okay, back to TurboTax

Begin and fill out your names, address,etc. I’m going to call the people USC for the American and FC for the Foreign Citizen spouse. TurboTax will use your names when you fill it in.

Some questions that you will come across

Asking your state of residence. That is mostly for TurboTax to know if you are going to be filing a State Income Tax return.

For the FC—

Were you a resident of [state] for the entire year? Say YES for this

Did you make money in another state? Say NO

Again, it’s trying to figure out if you need to pay taxes in another state and doesn’t affect your federal return.

Both USC and FC—

Do you have children or support another person? Just want to say here that your spouse doesn’t count here as a person you are supporting and your spouse is never called a dependent in IRS language. If you have no kids, then your answer will probably be NO.

Then work on USCs W2 information. Do not enter W2 information for FC unless they worked in the US and got a W2. Ignore their foreign income for now. Keep clicking “continue”, working your way through each section on income saying yes or no as appropriate about your interest, dividends,rents and royalties, retirement, business items…each of us have different things.

Next. Next. Next until you finally hit the section called LESS COMMON INCOME. You will see Foreign income and exclusion in the list so say yes at the bottom. It will take you through Alimony, jury pay and finally----

Did you make any money outside the US? Yes

What form was Foreign Income Reported On? A statement from my foreign employer

Enter your foreign earned wages. Put in converted to US $

Did FC’s income come from any of these sources? NO

Confirm FC’s wages. Probably no adjustment needed.

Employer provided goods. Skip

Enter Amount employer paid you cash for. Skip if none apply.

Whose foreign income would you like to exclude. Tick the name.

Did FC live and work outside the US? Yes

Was FC a citizen? No

Was FC a resident alien? YES, because to the IRS, you are a resident alien for the whole of 2011 because of the statement you wrote electing to be treated that way.

Income tax treaty? YES (you'd have to look that up, but NO won't allow the exemption) Treaties are covered here http://www.irs.gov/publications/p901/ar02.html#en_US_publink1000219371

Do either of these situations apply to you? FC is required to pay foreign taxes.

Choose how to qualify for this exclusion. Bonafide resident test

Date started living in foreign country? Probably date of your birth

Date stopped living there? Entry to US date if already here.

Enter info about US travel. Self-explanatory

Deductions related to Foreign Earned Income. Shouldn’t be any. You weren’t moved because of work so can’t take moving expenses for example.

Foreign address. Enter it.

Separate family address. No doesn’t apply to this situation. For Americans transferred overseas and wife stayed home maybe.

Housing. None. Skip.

Country of citizenship. Type in.

Employer information. Type in. Tick no US address. Fill in foreign address.

Type of company (at the bottom of the page). Pick one.

Did FC take a foreign exclusion before? NO

Did FC's family live with him? NO. It doesn't really apply except to American's living abroad for work who get exclusions for expenses.

The next two aren't so important. Again more for American’s living abroad.Just pick something for-

Did family live with you?

Describe your housing.

Does FC have an employment contract. NO. That questtion is for Americans abroad.

Type of visa? Don't tick any of the four. You don't have a visa TO the foreign country in this question. The United States is not a foreign country on this IRS form. The visa to the US you got is not the visa in this question. For Americans working abroad.

Does your visa limit the time you can work outside US? Tick nothing on this.

Next screen should say Congratulations, you qualify.

Now you can look at your Form 1040. If you did this properly,

Line 7 should be both incomes added together

Line 21 will show the exclusion with a minus sign in front of it.

NOTE: This is general information. Each of you arrived at different times of the year or married in 2012 but haven't arrived, earned a little or a lot, have babies or not, earned wages or were self employed. This can't be an all inclusive tax guide but hopefully will help many of you in fairly plain language.

If you do the statement, you can't efile this year. I called the IRS and confirmed this twice. I always ask twice because they don't always have the same answers.

Edited January 31, 2013 by Nich-Nick

[newacct 688]

Note that the First-Year Choice and Treating Nonresident Spouse as Resident are different things.

[rin and john 71]

1359595528[/url]' post='5951222']

If you do the statement, you can't efile this year. I called the IRS and confirmed this twice. I always ask twice because they don't always have the same answers.

I think some of the confusion regarding e-filing in other threads has centered around self-filing versus using a tax preparer. Any tax preparer with more than 10 clients must e-file.

http://www.irs.gov/Filing/Filing-Options

In cases where "paperwork" is still required, the tax preparer, would submit form 8453 or something similar.

http://www.irs.gov/pub/irs-pdf/f8453.pdf I had to submit this form when filing form 8332 (claiming a child as a dependent when the non-custodial parent) even though the rest of my Return was e- filed.

In any case, you are correct that e-filing would be impossible if self filing and needing to make the statement to declare a foreign spouse as a resident for tax purposes.

[Nich-Nick 3,353]

I think some of the confusion regarding e-filing in other threads has centered around self-filing versus using a tax preparer. Any tax preparer with more than 10 clients must e-file.

http://www.irs.gov/Filing/Filing-Options

In cases where "paperwork" is still required, the tax preparer, would submit form 8453 or something similar.

http://www.irs.gov/pub/irs-pdf/f8453.pdf I had to submit this form when filing form 8332 (claiming a child as a dependent when the non-custodial parent) even though the rest of my Return was e- filed.

In any case, you are correct that e-filing would be impossible if self filing and needing to make the statement to declare a foreign spouse as a resident for tax purposes.

Thanks John. And the purpose of this thread is for those that want to do their own instead of going to a tax preparation service. It's pretty narrow being for a specific software and people who want to make the election by writing the statement.

[letterbyletter 0]

Next screen should say Congratulations, you qualify.

Now you can look at your Form 1040. If you did this properly,

Line 7 should be both incomes added together

Line 21 will show the exclusion with a minus sign in front of it.

NOTE: This is general information. Each of you arrived at different times of the year or married in 2012 but haven't arrived, earned a little or a lot, have babies or not, earned wages or were self employed. This can't be an all inclusive tax guide but hopefully will help many of you in fairly plain language.

If you do the statement, you can't efile this year. I called the IRS and confirmed this twice. I always ask twice because they don't always have the same answers.

Hi there - I'm new to this forum but came on to get info about how to file my first return with my husband from the UK. Your walk-through was incredibly helpful, and helped to clarify the 'choosing' to be treated as a resident alien.

But like LoRenee on the thread utterly-confused-about-tax, I'm also losing about $600 in my refund after I enter my husband's worldwide income (UK) even though it shows that he/we qualify for the foreign income exclusion for the full amount of his 2012 earnings.

I don't quite understand why this is happening. Any thoughts?

[Nich-Nick 3,353]

Hi there - I'm new to this forum but came on to get info about how to file my first return with my husband from the UK. Your walk-through was incredibly helpful, and helped to clarify the 'choosing' to be treated as a resident alien.

But like LoRenee on the thread utterly-confused-about-tax, I'm also losing about $600 in my refund after I enter my husband's worldwide income (UK) even though it shows that he/we qualify for the foreign income exclusion for the full amount of his 2012 earnings.

I don't quite understand why this is happening. Any thoughts?

I didn't quite understand LoRenee's question before, but now I do. I think several of us were thinking her married filing separately tax return gave her $500 more than her joint return. Actually what you are seeing is that TurboTax thing at the top showing your refund. So you enter your things and it goes up or down as you progress through your income or deductions. That is very misleading because as Yogi Berra said, "it ain't over 'til it's over."

It's looking good and then you enter the foreign income and exclusion and Bam! Your refund is $600 less.

I'm not sure I can explain this well, but will try. If it is just the USCs income and nothing special like capitals gains then your tax amount come straight off the tax tables. Get to line 43 and go find the tax for that amount on the tax tables.

With foreign income it isn't as simple as put it in and take it all away and forget about it. Instead of getting your tax from the tax tables, it is calculated on the Foreign Earned Tax Worksheet. Same thing happens when you have capital gains and a schedule D. Tricky IRS.

So in TurboTax menu click View> Forms. On the left will be a list of forms. Find Foreign Earned Tax Worksheet. It's abbreviated like FgnEI or similar. Click that and your worksheet will come up. That shows how your tax is figured.

Basically they take your taxable income after all is entered and allowances/deductions and exclusions are subtracted. Line 43 Taxable income.

Then the worksheet adds back in the foreign income for a total and gets the tax amount for that off the tax tables.

Next it figures what the tax would be on just the foreign income alone.

To get your final tax it's

Taxable Income (Line 43) + foreign income = Tax

Then they "discount" that number by whatever the tax on the foreign income alone would be.

Do you follow how I explained it? You don't really get to exclude all your foreign income from existence, but you get to exclude the tax it would have added to your bill.

Unfortunately, that's your tax if filing jointly and you're thinking "if I didn't claim that foreign income"....but you have to if you want to file jointly this year. The alternative to not claiming it is the USC files married filing separately. I believe LoRenee calculated her tax would be $1000 more married separate over joint with foreign.

[letterbyletter 0]

Unfortunately, that's your tax if filing jointly and you're thinking "if I didn't claim that foreign income"....but you have to if you want to file jointly this year. The alternative to not claiming it is the USC files married filing separately. I believe LoRenee calculated her tax would be $1000 more married separate over joint with foreign.

Thanks so much for all of this! I did follow your very thorough explanation for the most part (though my head was swimming a bit in the middle!).

I might give the married filing separately a try just to see how it would work/effect the refund (given my UK spouse worked four months of 2012 in the UK and has been unemployed here in the US since he arrived in the middle of the year)--but not sure if it will be worth it.

Cheers!

[Nich-Nick 3,353]

Thanks so much for all of this! I did follow your very thorough explanation for the most part (though my head was swimming a bit in the middle!).

I might give the married filing separately a try just to see how it would work/effect the refund (given my UK spouse worked four months of 2012 in the UK and has been unemployed here in the US since he arrived in the middle of the year)--but not sure if it will be worth it.

Cheers!

Yes, you should always try it both ways.

Here's the tax tables for those who have never seen them. It's how we did taxes before TurboTax, computers, and even small calculators were invented. http://www.irs.gov/pub/irs-pdf/i1040tt.pdf

You will notice that tax for filing joint is lower than filing separately for any given income. The higher the taxable income, the bigger the gap.

At $25,000 the difference is $435

At $75,000 the difference is $4081

There are so many levels of income, both US and foreign, plus income from investments, alimony received, tips, social security... And deductions for IRAs, student loan interest, alimony paid... You can see that there is no way to make a blanket statement that joint is always better than separately. You have to put your numbers in and see how it shakes out.

Edited February 1, 2013 by Nich-Nick

[newacct 688]

Yes, you should always try it both ways.

Here's the tax tables for those who have never seen them. It's how we did taxes before TurboTax, computers, and even small calculators were invented. http://www.irs.gov/pub/irs-pdf/i1040tt.pdf

You will notice that tax for filing joint is lower than filing separately for any given income. The higher the taxable income, the bigger the gap.

At $25,000 the difference is $435

At $75,000 the difference is $4081

There are so many levels of income, both US and foreign, plus income from investments, alimony received, tips, social security... And deductions for IRAs, student loan interest, alimony paid... You can see that there is no way to make a blanket statement that joint is always better than separately. You have to put your numbers in and see how it shakes out.

Well, the rates are actually pretty simple -- see the tax bracket table. You will see that the boundaries for each tax bracket in Married Filing Separately are always exactly half the boundaries for the corresponding tax bracket in Married Filing Jointly. What this means is that if you two have a combined income as Married Filing Jointly, and if you split the income up exactly in half and each of you do Married Filing Separately, the tax will be the same. If the income is not split up exactly in half, so that one spouse has more income and the other has less, and you do Married Filing Separately, it will be more tax due to the progressive nature of our tax system. There are also a lot of other downsides of Married Filing Separately, like lower IRA income limits, etc.

[letterbyletter 0]

Date started living in foreign country? Probably date of your birth

Date stopped living there? Entry to US date if already here.

Enter info about US travel. Self-explanatory

A Few last questions - I promise!

-In the 2555 for US travel - should I also make an entry for my husband (FC) last entrance to the US? He arrived 05/15 and hasn't left as he's being processed. I've entered a previous trip which he entered and left in Feb.

-When I paper file with the statement - where should the statement go (I know the IRS can be picky about the order of a paper file).

-And when filing paper, I know I"ll need to include copy B of my W2. Should I also include the statement from husband's UK employer which states his 2012 earnings in GBP?

Thanks so much.

Edited February 2, 2013 by letterbyletter

[Nich-Nick 3,353]

A Few last questions - I promise!

-In the 2555 for US travel - should I also make an entry for my husband (FC) last entrance to the US? He arrived 05/15 and hasn't left as he's being processed. I've entered a previous trip which he entered and left in Feb.

-When I paper file with the statement - where should the statement go (I know the IRS can be picky about the order of a paper file).

-And when filing paper, I know I"ll need to include copy B of my W2. Should I also include the statement from husband's UK employer which states his 2012 earnings in GBP?

Thanks so much.

I can tell you what I did since there's no specific IRS instructions.

POE entry- did not list.

Order of Forms- I put my statement behind the 1040.

Proof of UK earnings- they don't ask for that. We had nothing and my husband estimated by looking at his online bank statements. I made a note of the GBP amount and the conversion rate I used...just scrawled out on a piece of paper. I saved it with my records in case I would have to defend it later in a random audit. Remember it's earnings he received in 2012 only, not the UK tax year April to April.

About the conversion rate. Convert using the rate at the time earned. Oanda.com has historical exchange rates.

Edited February 2, 2013 by Nich-Nick

[Donna & Paul 4]

Type of visa? Don't tick any of the four. You don't have a visa TO the foreign country in this question. The United States is not a foreign country on this IRS form. The visa to the US you got is not the visa in this question. For Americans working abroad.

Does your visa limit the time you can work outside US? Tick nothing on this.

Next screen should say Congratulations, you qualify.

Now you can look at your Form 1040. If you did this properly,

Line 7 should be both incomes added together

Line 21 will show the exclusion with a minus sign in front of it.

NOTE: This is general information. Each of you arrived at different times of the year or married in 2012 but haven't arrived, earned a little or a lot, have babies or not, earned wages or were self employed. This can't be an all inclusive tax guide but hopefully will help many of you in fairly plain language.

If you do the statement, you can't efile this year. I called the IRS and confirmed this twice. I always ask twice because they don't always have the same answers.

Okay I went through all of this and I've checked and double checked that I answered all the questions the way that you have them listed here. When I get to the review it tells me I have an error and wants me to tick

"Did your visa limit the length of your stay or employment in a foreign country?"

Any ideas?

[Nich-Nick 3,353]

Okay I went through all of this and I've checked and double checked that I answered all the questions the way that you have them listed here. When I get to the review it tells me I have an error and wants me to tick

"Did your visa limit the length of your stay or employment in a foreign country?"

Any ideas?

Yes, that seems to be trying to fill in #15 on the form 2555. In the question and answer dialog you can answer the type of visa with the 4th choice "Other" then fill in the pop up line with "None." Your visa is "unlimited". Try that. or just go to 15 on form 2555 and on type of visa, type None.

I don't think it changes your return, but sometimes it's just getting TurboTax to move on when you go through the interview.

Do you know how to get back to the interview?

Menu bar-federal taxes. There is a place that says we are going to walk you through this but you pick Explore On My Own

Then scroll past all the topics to the bottom where it says "Less Common Income"

Then click Edit or Review by the Foreign Income (I closed the program but it's a blue button that takes you back through that section.)

[Donna & Paul 4]

Actually that was my thought. Just to click "unlimited" and then type "None" in the "type of visa" box. I just wanted to make sure there wasn't something I'd done wrong to get that error. I've been using TurboTax for several years to file my own taxes but this was something new for me. Thanks for the step-by-step on this.

[Nich-Nick 3,353]

Actually that was my thought. Just to click "unlimited" and then type "None" in the "type of visa" box. I just wanted to make sure there wasn't something I'd done wrong to get that error. I've been using TurboTax for several years to file my own taxes but this was something new for me. Thanks for the step-by-step on this.

When I went through it this year to check for changes, I didn't run the error check so you bring up a good point. I didn't fill out everything like full addresses, social security numbers, etc...only some made up money amounts and the interview on the foreign part. I just ran it and had many errors but most were for the details I left out like "you didn't put a last name for your spouse...."

My test file is very weird for speed--

Employer: jdjdjdndnd

Address: jdjdjdndnd jdjdjdndnd jd

City: dmcixxms

Country: United Kingdom

Foreign income: 22,345.67

Only specific when needed.