Tax question: What's the "state of residence" when still living abroad?

G

gst

New Member
Short summary: I've activated my Green Card in April 2010. Due to unforeseen issues with the project I'm currently working on I haven't immigrated to the US yet, but will immigrate in May 2011 or June 2011.

I'm currently filing my 2010 taxes with turbotax and have a few questions to ensure that the answers are correct:

"State of Residence on December 31, 2010": Is this the US address I gave when activating the Green Card or should I use my current foreign country here? I know that there are some "traps" when filing out the tax forums (e.g. filing 1040-NR might lead to a revocation of the Green Card), so I want to be sure that I can choose "Foreign" here.

"Physical Presence Test": In the Physical Presence Test in Turbotax there's the option "I am still living outside the U.S.". As I'm in the US next week (for one week) and as I will finally immigrate in May or June I'm not sure if I should file this or not. Any hints?

Thanks for any help!
 
"State of Residence on December 31, 2010": Is this the US address I gave when activating the Green Card or should I use my current foreign country here?
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As a green card holder, you're supposed to maintain a connection to a US address when you're staying abroad. That could be the same address you used when "activating" the GC, or a different address if you've become connected to a different address. Don't put a foreign address on your tax return.

"Physical Presence Test": In the Physical Presence Test in Turbotax there's the option "I am still living outside the U.S.".
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The physical presence test is for the purpose of deciding whether you can file as a resident or nonresident. That is irrelevant to you, because as long as you have a green card you're supposed to file as a resident. However for you, since you became a US resident after the beginning of 2010, you probably qualify for certain provisions as a "dual-status alien" (i.e. nonresident for part of the year and resident for the rest of the year), which may allow you to exclude income that was earned before you became a permanent resident. See IRS publication 519.

I assume you're aware that you have to list worldwide income on your US tax return. But you can use some or all of the tax paid to another country to reduce or eliminate your US tax liability. See IRS publication 514.

Cross-border taxation can be very complicated, and there is a high chance of getting it wrong if you do it by yourself, resulting in either paying too much taxes because you don't understand all the exemptions and treaties, or being hit with penalties by the IRS for underpaying your taxes.

I would advise you to use a tax accountant (not H&R Block) who has experience with this type of scenario. You might want to request an automatic 6-month extension to file your taxes (form 4868), which would allow you to file as late as October so you'll have ample time to find an accountant and organize your information. They're also cheaper after April 15 because the demand for them drops after peak tax season. Note that when requesting an extension, you're still supposed to estimate your tax liability and send payment with the extension request. If you underpay, you'll be penalized; if you overpaid, you'll get a refund after you file the return.
 
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Thanks for your reply!

The physical presence test is also required on "Form 2555" (Foreign Earned Income) that I use to declare my worldwide income. In this form there's a maximum income exclusion of $91,500 per year. So as far as I understand the form I do not have to pay taxes on my foreign earned income as long as I'm under $91,500 (which is the case, as I was a PhD student in 2010). However, to qualify for the exclusion I need to pass either the "bona fide residence test" or the "physical presence test".

However, I've just noticed that the "I am still living outside the U.S." option asked by Turbotax does not seem to directly map to any field within "Form 2555". So the response to this question seems to be used somewhere else.

Looking at "Form 2555 Part III" I'm not exactly sure how to fill out line 18 (a)-(f). Does "abroad" refer to "outside of the US" or "outside of the country in line 17"?
 
Apply for an extension, then find a tax accountant who knows how to handle US+foreign taxation. TurboTax and common tax software like that are not good at scenarios like yours.

But one thing I'll say is -- don't try to use the "bona fide residence test", because that involves claiming bona fide residence in another country, but you're supposed to be a bona fide resident of the US when you have a green card. Claiming to be a bona fide resident of a non-US country could jeopardize your green card or citizenship prospects.
 
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Ok - thanks again for your help.

Are there any good accountants you could personally recommend?
 
Sorry, I used a firm that specialized in US+foreign taxation over a decade ago when I moved to the US, but I'm not sure I remember their name and I don't know how good they are now or if they still exist.

That's why I said to apply for an extension, then take your time to find a firm like that after you return to the US. Google for terms like "expatriate tax return" or "US otherCountryName taxation", and start reading their web sites and calling them up until you find one you're comfortable with. Or as you settle into the US and meet more people, start asking around.
 
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