Marriage, GC, taxes and non-residency

[n400la]

I have a question about taxes and my wife's green card and later her naturalization.

Here is our situation:
- We got married in 2004
- I got US citizenship in the beginning of 2005, we filed documents for her green card
- She got her conditional green card in September 2005
- Starting 2004 we filed taxes married filing jointly as California residents and did it through 2006
- In 2007 I moved out of US (spent 2 months in US)
- In June 2007 she filed for removing conditions from her GC and she got permanent GC in September 2007
- She lives in California, I live in Russia
- In 2007 I withdrew money from my 401K in part to finance her education, I don't have any other income.

We would like to file taxes jointly again and I want to put myself as a non-resident. (1040 and 540NR) (Filing taxes as a resident will cost us a lot of money, if we file separately as well).

My question: will my wife have problems in the future when she files for citizenship? (She will file after 5 years). How will USCIS look upon taxes where her husband is a non-resident?

And is it going to look to them like a fraud when we filed to remove conditions in the year where in taxes it says I am a non-resident?

We had some difficulty last year in our marriage (we were thinking about a divorce) but luckily things changed.

Thank you for your responses.

 

[TheRealCanadian]

We would like to file taxes jointly again and I want to put myself as a non-resident. (1040 and 540NR) (Filing taxes as a resident will cost us a lot of money, if we file separately as well).

Too bad. You're a US citizen, and you cannot file a 1040NR.

 

[n400la]

I am not going to file 1040NR, I want to file 1040 (regular form, married filing jointly, just trying to avoid state taxes if I can) and 540NR (California non-resident form). In 1040 you can write that you are located out of US.

 

[newxgate]

I am not going to file 1040NR, I want to file 1040 (regular form, married filing jointly, just trying to avoid state taxes if I can) and 540NR (California non-resident form). In 1040 you can write that you are located out of US.

Unfortunately, as a US citizen, your place of residence does not affect your liability to US federal taxes. As an aside, you would be treated the same even if you were still a permanent resident.

However, being non-resident does allow you to take advantage of some tax rules to reduce your liability. Firstly, you get an deduction of around $80,000 (check with IRS for the current amount) for overseas earned income, in other words you are not taxed on the first 80,000 of your earnings overseas. Secondly you may be able to take advantage of any tax treaties between the US and your country of residence, typically these allow you to deduct the value of taxes paid to your country of residence to avoid dual taxation.

The IRS website will have more information about these issues. You may also want to consider getting a good tax specialist who is experienced in these matters to prepare your tax returns. Although it may cost more than DIY in your case it might be well worth it, due to the complexity of the rules and the financial implications of getting things wrong or missing opportunities for tax reduction.

 

[n400la]

Newxgate, thank you for your response. I understand it about federal taxes, being non-resident let's us avoid paying state taxes. But mostly I want to know about my wife's immigration implications if we file jointly and I say I am a non-resident. Any opinion about that?

 

[Jackolantern]

Newxgate, thank you for your response. I understand it about federal taxes, being non-resident let's us avoid paying state taxes. But mostly I want to know about my wife's immigration implications if we file jointly and I say I am a non-resident. Any opinion about that?

As a US citizen, you have to file Federal taxes as a resident. While you live outside the US, you can get credits and exemptions and deductions for Federal taxes, but you still have to file as a US resident (see IRS Publication 54).

For state taxes, go to your state's web site and look up the rules. You will be at least a part-year resident of California for 2007 because you started the year as a resident. Also bear in mind that some states will continue to consider you as a full resident of the state while you live abroad (I don't know if California is like that ... you'll have to read the rules), if you continue to maintain certain ties to the state such as owning a home, and/or owning a car registered in the state, and/or not turning in the state's driver's license.

 

[n400la]

For state taxes, go to your state's web site and look up the rules. You will be at least a part-year resident of California for 2007 because you started the year as a resident. Also bear in mind that some states will continue to consider you as a full resident of the state while you live abroad (I don't know if California is like that ... you'll have to read the rules), if you continue to maintain certain ties to the state such as owning a home, and/or owning a car registered in the state, and/or not turning in the state's driver's license.

California will not consider me as a full resident, I already checked. Maybe I don't phrase my questions well, but what I really want to know is the possible immigration consequences for my wife (citizenship later) when we file state taxes jointly and I am a non-resident in California.

 

[Jackolantern]

California will not consider me as a full resident, I already checked. Maybe I don't phrase my questions well, but what I really want to know is the possible immigration consequences for my wife (citizenship later) when we file state taxes jointly and I am a non-resident in California.

So you want to file taxes jointly for Federal but separate for California, with you as a part-year resident and she as a full year resident?

She needs to file as a resident of California (or whatever other state she moves to, unless it is a state without an income tax), or they may deem her to have broken continuous residence, which would delay her citizenship by some number of years until she rebuilds her 5 years of residence.

 

[n400la]

I was looking at many different options for filing, and yes, we will file jointly for federal taxes and jointly as well for state taxes. In state taxes her status will be as a resident and my status will be as a non-resident.

I don't know if it's possible to file federal taxes jointly and state taxes separately...

What I am afraid of is a following hypothetical scenario: in 5 years since the date she became her GC she is going to apply for citizenship, let's say in 2010. She will have to provide taxes from 2005 - 2009, or 2006 - 2010. USCIS will look at them and her file and see, that she applied in 2007 for removing conditions and this is also the year I filed my taxes with her as a non-resident. And this will cause her problems which I want to avoid.

Do you think something like this can happen?

 

[Jackolantern]

I was looking at many different options for filing, and yes, we will file jointly for federal taxes and jointly as well for state taxes. In state taxes her status will be as a resident and my status will be as a non-resident.

Nonresident? Not part-year resident?

What I am afraid of is a following hypothetical scenario: in 5 years since the date she became her GC she is going to apply for citizenship, let's say in 2010. She will have to provide taxes from 2005 - 2009, or 2006 - 2010. USCIS will look at them and her file and see, that she applied in 2007 for removing conditions and this is also the year I filed my taxes with her as a non-resident. And this will cause her problems which I want to avoid.

As a citizen, you have no requirement to reside in the US, only she does as a permanent resident. The only problem is that you filing as part-year or nonresident while she files as a resident would simply make it obvious that you were living apart, which could make the marriage look sort of shady to the interviewer if you don't ever get back together before she applies for citizenship, especially since you left in the same year that she got her unconditional card.

But they will probably ask about the marriage anyway, because she got her green card via marriage, so she's probably not going to escape that line of questioning anyway.

 

[n400la]

Nonresident? Not part-year resident?

In the form 1040 that we are going to file jointly, I can enter FC (foreign country) as my state of residence. This doesn't affect my federal taxes, but affects state taxes a lot. I am not sure if it's call non-resident or part year resident. I guess part year resident sounds better?

As a citizen, you have no requirement to reside in the US, only she does as a permanent resident. The only problem is that you filing as part-year or nonresident while she files as a resident would simply make it obvious that you were living apart, which could make the marriage look sort of shady to the interviewer if you don't ever get back together before she applies for citizenship, especially since you left in the same year that she got her unconditional card.

But they will probably ask about the marriage anyway, because she got her green card via marriage, so she's probably not going to escape that line of questioning anyway.

Last year we were thinking of a divorce because living apart is indeed hard, but we want to make it work. We see each other for at least 3-4 months a year... Our marriage is real, if we have to we can prove it (I am paying for her school etc.) I'm just afraid to do something that will create problems for her later.

The safest way for us would be to file separately but that will result in extra $5K of taxes since wouldn't be able to write off any education costs. But we'd rather spend this money on her school.

If I understood you correctly, technically we will not violate any USCIS laws or rules and it's just the matter of explaining it later to the immigration officer?

Thank you so much for your responses, it's very helpful!