First tax declaration and foreign unearned income

[illuminato]

I am married and my wife and I are green cardholders. Our first entry to the USA was in Sep. 2019. Before this date, we lived in another country (Russia).
Now we need to pay taxes. In 2019 we didn't work in our country but I got income from stock trading and dividends (3k$). It was before we moved to the USA.
We worked two last months in the USA (TX) and our total wage is 5k$ (on w2). So in total, we have 8k$ income in 2019.
I've read Publication 519 and as I can see we can file a Dual Status. But probably it is not a good option for us because in this scenario we won't have a standard deduction.
Also, I thought that we can use the foreign earned income exclusion (Publication 54) but it seems that we cannot because our foreign income is not earned income. This income is unearned.
I also not sure about "Foreign tax credit" (Publication 514). We pay taxes in our original country (Russia) not from all unearned income but only from dividends (13% tax). We don't pay taxes in Russia from the profit of stock trading. The reason for it is that we were exempt from tax because we have a special account (It is very similar to Roth IRA in the US)
The question is what forms we need to file?
Thanks!

 

[Just Blue]

@Taxing Matters

 

[Taxing Matters]

I am married and my wife and I are green cardholders.

This is important: when did you and your wife each get your green card (permanent resident) status in the U.S.? The U.S. taxes it's citizens and residents on their worldwide income. Citizens and permanents residents (green card holders) are thus taxed on their worldwide income regardless of the amount of time they lived in the U.S.

Our first entry to the USA was in Sep. 2019. Before this date, we lived in another country (Russia).

This matters if your U.S. residency for tax purposes would be based on the substantial presence test rather than being a permanent resident. This is why the date you got the greencard will matter. Once you got the greencard, the income received after that is taxable in the U.S. no matter where you lived.

Now we need to pay taxes. In 2019 we didn't work in our country but I got income from stock trading and dividends (3k$). It was before we moved to the USA.

We worked two last months in the USA (TX) and our total wage is 5k$ (on w2). So in total, we have 8k$ income in 2019.

Then if you were considered residents for the entire year would owe no income tax because $8k is less than the $24k standard deduction you would get filing a joint return. Indeed, in that case you would not even have to file a return; though if you had income tax withheld from your pay from the jobs you worked you would want to file to get a refund of that withheld tax.

Also, I thought that we can use the foreign earned income exclusion (Publication 54) but it seems that we cannot because our foreign income is not earned income. This income is unearned.

Your foreign income was from stocks, and that is not earned income. So you are correct that the foreign earned income exclusion would not apply to you.

I also not sure about "Foreign tax credit" (Publication 514). We pay taxes in our original country (Russia) not from all unearned income but only from dividends (13% tax). We don't pay taxes in Russia from the profit of stock trading.

Here again it will matter when you got the green card as to what your situation would be for that income.

 

[LdiJ]

I am married and my wife and I are green cardholders. Our first entry to the USA was in Sep. 2019. Before this date, we lived in another country (Russia).
Now we need to pay taxes. In 2019 we didn't work in our country but I got income from stock trading and dividends (3k$). It was before we moved to the USA.
We worked two last months in the USA (TX) and our total wage is 5k$ (on w2). So in total, we have 8k$ income in 2019.
I've read Publication 519 and as I can see we can file a Dual Status. But probably it is not a good option for us because in this scenario we won't have a standard deduction.
Also, I thought that we can use the foreign earned income exclusion (Publication 54) but it seems that we cannot because our foreign income is not earned income. This income is unearned.
I also not sure about "Foreign tax credit" (Publication 514). We pay taxes in our original country (Russia) not from all unearned income but only from dividends (13% tax). We don't pay taxes in Russia from the profit of stock trading. The reason for it is that we were exempt from tax because we have a special account (It is very similar to Roth IRA in the US)
The question is what forms we need to file?
Thanks!

As Green Card Holders you must report your world wide income on your tax return. Your world wide income for 2019 appears to be well below a standard deduction for a married couple filing jointly, so it does not appear that you would end up paying any tax at all. Since you apparently meet the Green Card Test, I don't believe that filing Dual Status would apply to you.

 

[Taxing Matters]

As Green Card Holders you must report your world wide income on your tax return.

I'll reiterate: it matters when they became green card holders. All I know is that today they are green card holders. But exactly when they got the green card does make a difference.

 

[illuminato]

I very much appreciate your help! Thanks!

This is important: when did you and your wife each get your green card (permanent resident) status in the U.S.?

We've received foreign unearned income in August 2019. We moved to the USA at the beginning of September 2019 and we got our green card at the end of September. As for now, we don't have any investments and businesses outside the US.

 

[illuminato]

Can we use schedule B (form 1040) to declare foreign unearned income?

 

[Just Blue]

@illuminato I just want to make you aware that Taxing Matters is a site vetted Tax Attorney who has worked for the IRS.

 

[Taxing Matters]

We've received foreign unearned income in August 2019. We moved to the USA at the beginning of September 2019 and we got our green card at the end of September. As for now, we don't have any investments and businesses outside the US.

Ok, assuming that your first time present in the U.S. was September 2019 then you became resident for tax purposes at the end of September when you got your green card. Your U.S. source income received at any time during the year is subject to U.S. tax and all of your worldwide income is subject to tax after the date you got the green card and became a permanent resident. This means you'd file Form 1040 just like every other citizen/resident and you'd include all your wages earned in the U.S. and any other U.S. source income you had, and include all other income received after the green card date. The foreign income you had prior to coming to the U.S. is not taxed and you just leave it off your return.

You could elect to be treated as a resident for the entire year if you wanted and then include the foreign income. But I do not see any advantage to you in doing that.

 

[LdiJ]

Ok, assuming that your first time present in the U.S. was September 2019 then you became resident for tax purposes at the end of September when you got your green card. Your U.S. source income received at any time during the year is subject to U.S. tax and all of your worldwide income is subject to tax after the date you got the green card and became a permanent resident. This means you'd file Form 1040 just like every other citizen/resident and you'd include all your wages earned in the U.S. and any other U.S. source income you had, and include all other income received after the green card date. The foreign income you had prior to coming to the U.S. is not taxed and you just leave it off your return.

You could elect to be treated as a resident for the entire year if you wanted and then include the foreign income. But I do not see any advantage to you in doing that.

There is no advantage but there is no harm either. Their total world wide income for the whole year is smaller than the standard deduction anyway.

 

[Taxing Matters]

There is no advantage but there is no harm either. Their total world wide income for the whole year is smaller than the standard deduction anyway.

Not in this case because the OP and his/her spouse were in TX which does not have an income tax. But making the election requires attaching a declaration to the return, which is an additional step in completing the return for no benefit. That might also make the return ineligible for electronic filing, though that part I'm not sure about as I prepare very few returns for clients (I generally refer clients to a CPA for that as the CPA charges less than I would for that) and have never had to try electronically filing a return with that declaration.

 

[davew9128]

There is no advantage but there is no harm either. Their total world wide income for the whole year is smaller than the standard deduction anyway.

It also opens them up to international informational reporting under 6038. Its not something to be taken lightly depending on the financial status of the taxpayer.

I just completed a 1040NR for someone who came from Australia in July 2019. Naturally he wants his $1,200 stimulus check but doesn't qualify because he was a non-resident alien for 2019. "Someone told him" he could elect to to be treated as a US person for the whole year, but then as it turns out, he then has a FBAR, FATCA, and oh by the way a PFIC and 3520 requirement for his Australian superannuation fund. The cost to prepare those extra docs alone pretty much wipes out his stimulus.

 

[LdiJ]

It also opens them up to international informational reporting under 6038. Its not something to be taken lightly depending on the financial status of the taxpayer.

I just completed a 1040NR for someone who came from Australia in July 2019. Naturally he wants his $1,200 stimulus check but doesn't qualify because he was a non-resident alien for 2019. "Someone told him" he could elect to to be treated as a US person for the whole year, but then as it turns out, he then has a FBAR, FATCA, and oh by the way a PFIC and 3520 requirement for his Australian superannuation fund. The cost to prepare those extra docs alone pretty much wipes out his stimulus.

I absolutely agree that someone in that circumstance shouldn't do it.

 

[illuminato]

I very much appreciate you help but I don't think you completely right regarding my case.


1)

$8k is less than the $24k standard deduction you would get filing a joint return. Indeed, in that case you would not even have to file a return

We have to file tax as green card holders. Maybe IRS doesn't have any special rules about it but USCIS has! When you renew your green cards, or apply for citizenship, you will be asked to supply copies of the tax returns you have filed. If you don't file tax, your application can be refused and you could be forced to leave the US. I now such cases. You need to show to USCIS that you have immigration intentions and a tax refund is a very good bet for it. Even an immigration officer at the port of entry could ask it if you were aboard more then half of a year.

2)

exactly when they got the green card does make a difference.

It doesn't matter when we've received a green card. DV visas, when stamped by the immigration officer at the port of your arrival (the airport where you went through the immigration) become your official green card. That is why they're stamped as I-551 - they are I-551 (the official document certifying to your status of a permanent resident alien)! Stamped visa is as good as the physical green card for 1 year, during which you're expected to receive your physical card, which is what indeed happened in my case.

3)

The foreign income you had prior to coming to the U.S. is not taxed and you just leave it off your return.

Dear Taxing Matters, you said that I can file a tax form from the moment as I have become a permanent resident but not from the whole year. In my case, it was September 2019. Could you please share any publication or article from IRS where it is said that it is possible? I've read Publication 519, Publication 54, Publication 514 and I didn't find such information. In my understanding, it is not technically possible to file tax for part of a year unless you file dual status.


Thanks,
Alex

 

[LdiJ]

Not in this case because the OP and his/her spouse were in TX which does not have an income tax. But making the election requires attaching a declaration to the return, which is an additional step in completing the return for no benefit. That might also make the return ineligible for electronic filing, though that part I'm not sure about as I prepare very few returns for clients (I generally refer clients to a CPA for that as the CPA charges less than I would for that) and have never had to try electronically filing a return with that declaration.

I am not at work right now, so I cannot say for certain, but many, many things can now be attached to electronic tax returns either by using an unformatted statement or attaching a pdf file that I am nearly certain that a return with that kind of declaration could still be efiled.

I very much appreciate you help but I don't think you completely right regarding my case.


1)

We have to file tax as green card holders. Maybe IRS doesn't have any special rules about it but USCIS has! When you renew your green cards, or apply for citizenship, you will be asked to supply copies of the tax returns you have filed. If you don't file tax, your application can be refused and you could be forced to leave the US. I now such cases. You need to show to USCIS that you have immigration intentions and a tax refund is a very good bet for it. Even an immigration officer at the port of entry could ask it if you were aboard more then half of a year.

2)

It doesn't matter when we've received a green card. DV visas, when stamped by the immigration officer at the port of your arrival (the airport where you went through the immigration) become your official green card. That is why they're stamped as I-551 - they are I-551 (the official document certifying to your status of a permanent resident alien)! Stamped visa is as good as the physical green card for 1 year, during which you're expected to receive your physical card, which is what indeed happened in my case.

3)

Dear Taxing Matters, you said that I can file a tax form from the moment as I have become a permanent resident but not from the whole year. In my case, it was September 2019. Could you please share any publication or article from IRS where it is said that it is possible? I've read Publication 519, Publication 54, Publication 514 and I didn't find such information. In my understanding, it is not technically possible to file tax for part of a year unless you file dual status.


Thanks,
Alex

No, he did not say that you should file a part year tax return. He said that you only had to include your income earned after you received the green card. There is no such thing as a part year federal tax return.