[jmcqup]

Hi. I have a new complication in my taxes. I'm American and my wife British (NRA). We both live and earn our income abroad (India and Uganda in 2007).

Normally I filed married, filing separately, but would like to file jointly this year -- as I believe it would be advantageous. I know that I will also need to apply for a tax number for my wife, however when I do so, TurboTax indicates that I'm not eligible to take the foreign earned income excemption.

If I file jointly, are both our incomes eligible for foreign earned income exclusion or just hers? (provided they are in fact earned abroad)

Many thanks

-james
:confused:

[MukatA]

You can file a joint return or a separate return. You must file the return if your worldwide income meets the filing requirements. In both the cases (joint or separate return), you need ITIN of your wife. You will attach W7 (ITIN application) with your tax return.

You must report your world wide income.
If you paid taxes in the foreign country you will file Form 2555 (for earned income exclusion) and/or Form 1116 for foreign income credit.

Read: Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income

[jmcqup]

Wow. What a quick reply. Gee, I guess we should have filed her taxes before, but as there was not US earned or related income and she was a nonresident alien, I didn't think it was necessary. Do you think we need to go back 5 years and file returns for her now?

At any rate, I found this statement on IRS website...

Nonresident alien or dual-status alien. A joint return generally cannot be filed if either spouse is a nonresident alien at any time during the tax year. However, if one spouse was a nonresident alien or dual-status alien who was married to a U.S. citizen or resident alien at the end of the year, the spouses can choose to file a joint return. If you do file a joint return, you and your spouse are both treated as U.S. residents for the entire tax year. See chapter 1 of Publication 519.

So if I understand, even though I would be considered "US Residents" and we would both report all worldwide income, we can still both claim the foreign earned income exclusion? As my wife's income does not exceed the exclusion ceiling, I benefit by being able to include her as a dependent...

Does that make sense?

Thanks again. -james

[MukatA]

Your spouse is never your dependent. You can file joint return. You will get standard deduction of $10,700 and exemptions for both of you and the kids (if you have kids).

If you file a separate return, you can claim exemption of your spouse only if she did not have any income in 2007.