Probably elementary stuff (sorry!)

Hi,

I'd be very grateful for some advice. A few details first:

My wife is a US citizen, I'm a US/UK citizen. We left the US in mid July, travelled for 2 months, and then job searched in London for 3 months.

I started.working in London in December and my wife started in early February.

I've been working on our taxes and it's throwing up more questions than answers! So the Q's are:

- Should we file married/jointly like we always have?

- What can we do about not having been working outside the US for 330 days? Do we have to pay tax on all of our UK income thus far? The exclusion form just didn't seem to work for our situation.

- What happens with the ACA mandate - is there a form to prove that we have been out of the country since July? (Except for when she went back in Dec to wait for her visa).

Basically, there seems to be a lot more to this than when I first looked
. Should we request an extension, and how do we do that?

I'm sure these have all been covered before - apologies for that, but like I said, any help that can be supplied to this tax buffoon would be much appreciated.

Craig

Hopefully someone will be along to give better advice but from my limited knowledge,

There is an automatic extension for non-residents to June 16, so I would file for a further extension while you sort things out. You will be taxed in the US on all your worldwide income for US tax year 2016.

Since you are both US citizens you are both  liable to tax on your worldwide income regardless of where you live, so I would file MFJ.

Don't know about the ACA in your case (we'll be in that situation when we file next year).

Was your stay in the U.S. last December less than 35 days or not? If so, the simplest solution would be to request an extension and file once you have a 330-day count outside the U.S. established - and then you can use that to qualify for both the FEIE and ACA exemption. If the stay was over the 35 day allowance then it's more complicated.

Since both you and your wife are USCs, you're probably going to be better off filing jointly (filing separately is often done when the spouse is not a USC to keep their income out of the equation).

The extension form is Form 4868

You said your wife started working in February, do you mean February 2017? Your wife's wages won't come into the equation for tax year 2016 and by next year when it does, you should have your full days for FEIE.

and in your situation, you say you started work in December, do you mean December 2016? That's one month in the 2016 year however you can still file for the extension for your situation.

Anything earned in the USA for tax year 2016 before the period of travel and the period when you started working in the UK is filed normally for the year 2016 (pre-July)

Also the Foreign Earned Income Exclusion isn't the only way to offset tax on foreign wages. there is the form 1116 (foreign tax credit form) however if you use that method, you won't be able to go back and use the form 2555 for FEIE for 5 years so best to file for that extension for yourself until you figure out which is the better method for your situation. With two of you filing jointly, there is a double amount to exclude with the FEIE however I believe you would both have to file separate form 2555 with your joint tax return.

The extension form is Form 4868

You said your wife started working in February, do you mean February 2017? Your wife's wages won't come into the equation for tax year 2016 and by next year when it does, you should have your full days for FEIE.

and in your situation, you say you started work in December, do you mean December 2016? That's one month in the 2016 year however you can still file for the extension for your situation.

Anything earned in the USA for tax year 2016 before the period of travel and the period when you started working in the UK is filed normally for the year 2016 (pre-July)

Also the Foreign Earned Income Exclusion isn't the only way to offset tax on foreign wages. there is the form 1116 (foreign tax credit form) however if you use that method, you won't be able to go back and use the form 2555 for FEIE for 5 years so best to file for that extension for yourself until you figure out which is the better method for your situation. With two of you filing jointly, there is a double amount to exclude with the FEIE however I believe you would both have to file separate form 2555 with your joint tax return.

There is one BIG mistake here. The 5 year non-claiming of the FEIE only applies if the exclusion is revoked. As you have never claimed you would not have revoked. I would probably simply claim foreign tax credit in your circumstances.

Thanks everyone,

- We were there for less than 35 days when we returned in Nov 2016. My wife was there for 30 days and I was there for 14.

- I thought the tax year was from March until March. So it's the case that we only need to include income from the calendar year of 2016? That would suit me fine... I suppose I never had to think about it before - I just did what the W2 said, ha ha ha! (sorry, that's probably not actually that funny...)

I'm going to file the extension and take it from there.

Much appreciated.

The UK tax year is from April to April but that has no relevance at all for the US tax filing which is by calendar year 2016 Jan to dec which is the tax return due now. so income earned in that period would be counted.

I used to find this a nuisance when i had to file because I had to complete self assessment for the UK year and use tax credits on passive income on my US tax return. but if you are just earning a wage on PAYE this won't be an issue for you.

Filing for an extension is probably a good idea. regarding Guya's post, which is interesting to me because I was under the impression from what Phil Hodgen's said somewhere that one cannot flip back and forth from year to year using FEIE and that one can accidentally revoke their election to use the foreign earned income exclusion. You do this by taking an inconsistent position on your income tax return: you claim the foreign tax credit for the income that is eligible for the foreign earned income exclusion.

Remember the FEIE is for earned income, this does not apply to passive or unearned income. One can always use the form 1116 for passive income if needed. also one can use a foreign tax credit on amounts over the exclusion amount.

However you could very well be right, that maybe the first year won't count if one were not eligible for the foreign earned income exclusion in the first place due to lack of days.

Thanks again. I e-filed the 4868 and it was accepted within 45 mins which I was quite surprised and impressed about.

One more potentially foolish question - do I need to also file for a state extension?

Sorry but I know nothing about state filing, i haven't lived in the US for decades. Maybe someone else will come back here with answers. it might help to say what state it is.