Filing income tax

[Joanne]

I arrived US on the 15th of December 2005, and am wonder what I need to do for the income tax return. Searched this forum, didn't get any relavant result. So I start this topic and hope to get some good advices.

 

My situation is:

-I was employed before I came, and is still employed by the same employer in China now even though I reside in US.

-We own an apartment in China which is under my name.

 

Thank you for your kind input.

[Randy W]

I can't provide much help, but I think this is very relevant:

 

Did you receive a paycheck AFTER moving to the US (before Dec. 31)?

 

If not, you MAY be able to file separately. I have no idea what the law is here, though, since you are married and were employed in the US on Dec. 31.

[Joanne]

I am paid by a Chinese employer and the salary is put into my bank account in China every 5th of the month. So, I didn't get a paycheck during Dec 15 and Dec 31.

 

Could anyone recommend a good site (not IRS site, I am afraid their wording would be too precise for me to comprehend) for this type of information?

[Dan R]

It is my understanding that you do not need to declare the income for 2005. Foreign income is required to be reported for taxes by U.S. Citizens & Resident Aliens (Permanent Resident). You are on a nonimmigrant visa. Unless you are authorized to work in the U.S. and received income between Dec 15 and Dec 31, I believe you have no reportable income.

 

Be sure your husband files as married and two exemptions for a nice tax break.

 

Welcome to America, the land of freedom and clear cut simple to understand laws.

[Joanne]

It is my understanding that you do not need to declare the income for 2005. Foreign income is required to be reported for taxes by U.S. Citizens & Resident Aliens (Permanent Resident). You are on a nonimmigrant visa. Unless you are authorized to work in the U.S. and received income between Dec 15 and Dec 31, I believe you have no reportable income.

 

Be sure your husband files as married and two exemptions for a nice tax break.

 

Welcome to America, the land of freedom and clear cut simple to understand laws.

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I came with an immigrant visa (an IR1 case), so I have a green card and am authorized to work in the U.S.

 

So what seems to matter is whether the income I am earning in China should be reported. Even though the pay is not received between Dec15 and Dec31, but I will be paid for that period of time, at a later date (Jan 5th, 2006)

 

For the property we own in China, do we have to pay property tax here?

[Randy W]

No - your income counts as being received on the date it is received (did I say that?).

 

So your Jan. 5 paycheck is income for 2006.

 

and No. Property tax is paid to a municipal entity (city, county, or state), so it would not be paid on your property in China.

Edited January 19, 2006 by Randy W (see edit history)

[Joanne]

Thanks a lot, Randy and Dan! Now I get some good knowledge to start with.

[LeeFisher3]

There are a couple of options you need to consider.

 

1. You can declare that you did not live in the US long enough and be free of any tax burden in the US for 2005.

 

2. You and your husband can file Jointly and combine income, depending on your income from China this may be more beneficial to you financially. This would include making what is called the first-year choice and you would be considered a Resident for the entire year for tax purposes.

 

3. You can file separately.

 

There are benefits to be gained in each of these cases, but much depends on the income and expense amounts by you and your husband. I am digging around in the tax rules now and believe we will make the first-year choice which will get us an additional $3000 in refund this year.

 

You do not pay property tax on property owned in a foreign country to anyone in the US. They can only collect property tax on land within their district, but you may be able to use the expenses on the house in China on your US taxes depending on the choice you make on how to file your taxes.

 

You might want to consider seeking tax advice from someone who is knowledgeable in taxes for Alien Residents. Making the wrong choice can be costly. The determination of whether to be considered a US resident will be the factor in reducing your taxes this year and perhaps next year as well.

[Randy W]

Sorry to bring this up, but you need to also consider 2006. First find out if your paycheck in China will be subject to US taxes. If it is, you will need to look into filing quarterly.

Most of our taxes (about 80% to 90% or more) is paid through "withholding" - the employer will withhold an amount from each paycheck that will be sent directly to the IRS to cover the tax.

Since no taxes will be withheld from your paycheck, you will need to file quarterly (beginning April 15) - unless, of course, that income is not subject to taxation.

Edited January 20, 2006 by Randy W (see edit history)

[Joanne]

Thank you, Lee, Don and Randy. Those are sound advices. I think I will do a trial run for both options and see what outcome is better.

 

I still don't quite understand how my decision for year 2005 would affect that of year 2006.

[Randy W]

It won't - I'm suggesting that you be prepared for your 2006 taxes which will be filed in 2007. If you do have to file quarterly, the first installment (depending on how you fill out the form) might be due on April 15, 2006 (the same date that your tax return for 2005 is due).

 

If your 2006 income in China will not be taxed in the US, then you won't need to file quarterly.

 

Sorry to get complicated here, but you may want to take a look at Forms 1040-ES (estimated tax payments) for 2006, and 2210, where the penalty for underpayment is figured.

[Joanne]

I know that my income for year 2005 will not be taxed in US now. But how can I determine whether it will be taxed for year 2006? If I continue with that job, the income will be low enough to be tax exempt, but what if the situation change, like if I changed my job, get a job here, etc.?

[Randy W]

It sounds like your 2006 Estimated Tax payment for April 15 would be $0, in which case you don't need to file. If your situation changes, and it looks like you WILL owe taxes, you can adjust your estimate and make payments later in the year.

 

The interest for an underpayment is fairly low, and can be figured for you by the IRS at the end of the year. Like I said - sorry to get complicated, but it may be worthwhile for yoy to download the 1040-ES and 2210 forms and take a look.

[LeeFisher3]

All US residents are required to report their income to the IRS each year, including income from foreign sources. So being paid by a company in China is considered taxable income.

 

The rules are different for you for 2005 because you lived the majority of the year in China, but living in the US and having a an income will be viewed under completely different rules.

 

The tax laws are complicated enough that seeking professional advice can help you make wise decissions as to how to best report income and pay the lowest possible tax.

[Joanne]

I see your points, Lee. Thanks. I will study more on this topic.