If you have recently received a Green Card through marriage you have some extra issues to consider with the first US income tax return you prepare after receiving the Green Card. This is a complex area of the US Tax Code so you would be well advised to get professional advice to make sure that you get the best tax position. This article will give you an outline of the issues involved so that you will be able to understand the work done by your tax preparer.
As a general rule a Green Card holder is treated as a US resident for tax purposes and needs to file a US Income Tax Return each year. After the first return this will usually be straight forward and will include worldwide income for the year. Remember that foreign income needs to be reported on the US income tax return. So if you still have income in your home country you need to report that on the US tax return. Depending on the tax treaty with your home country and the US tax rules you may get some relief to make sure that you don’t get taxed twice on the same income. Once in your home country and again in the US. Your tax preparer will be able to check that for you.
The first US return you are required to file after receiving a Green Card through marriage is a bit more complicated. Often in this situation you will have been living outside of the US for the early part of the year and living in the US for the latter part of the year. In this situation you are called a Dual Status Alien. This means that for tax purposes you were non resident for the early part of the year and resident for the latter part.
By default a Dual Status Alien who is married cannot file a joint tax return with their spouse. This creates complications such as both spouses needing to itemize on their separate returns because the Dual Status Alien cannot have a standard deduction. As the couple have to file separate they may lose tax credits, particularly if they have children. On the plus side the Dual Status Alien will only be reporting worldwide income for the part of the year they were resident in the US.
To get round these complications the couple can elect for the Dual Status Alien to be treated as a US resident for tax purposes for the whole of the year. With this election a joint return can be filed with the proviso that all of the Dual Status Alien’s worldwide income for the year will need to be reported on the return. There may be some relief for not taxing some foreign earned income.
To work out whether the election is beneficial your taxes need to be worked out both ways, married filing separate and married filing joint. Your tax preparer will do these calculations for you. There is no standard answer to which way is best. Some of the factors that affect the decision include:-
- Date of arrival in the US/getting the Green Card
- Amount of foreign earned income
- Amount of foreign investment income
- Whether you live in a community property state
- Are dependents such as children claimed
The way your state taxes your income will also be a consideration on how you wish to be treated in the first year. Some states don’t require you to follow the same filing status as the federal tax return which may benefit you.
This article only covers the broad issues that may affect you. As this is a complicated area of the US tax law make sure that you get professional advice before filing any income tax return affected by these rules.
If you are a green card holder and have more questions or want assistance with the preparation of your US income tax return call me on (480) 363-4808 to book an appointment. If you live in Chandler, Tempe, Mesa, Gilbert or Queen Creek, AZ I will come to you to prepare your income tax return. If you live elsewhere I can prepare the tax return using information you upload to my secure client portal or mail to me. I look forward to helping you prepare your income tax return.
Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.