Americans: Filing status

[TJKansai]

It seems to me that it makes sense to file jointly if you have a spouse and kids since it gives you a bigger deduction on your US taxes. Whether it is still worth doing once the kids are no longer dependents is something I am not sure about.

Also, having investment accounts in your spouse's name may be a paperwork hassle.

[captainspoke]

If I understand things correctly...

If you file jointly, you open your (non-US) spouse up to US rules and regulations. So FBAR for their account(s), PFIC worries for their investments, and so on. Having a spouse who can invest according to rules here--IDECO, NISA, a tokutei account--is more valuable than any benefits to filing jointly.

I suppose if your spouse does not work, then there may be some pros/advantages.

[Teflon]

I file as a single person and owe nothing to Uncle Sam because my tax liability is fully offset by the higher Japanese taxes using the Foreign Tax Credit. In that sense, the only advantage I can see to filing as "married" or "head of household" would be if you have young children and want to claim the Child Tax Credit which is something like $3,600 for each child under 6 and $3,000 for children 6 to 17. So if you have three or four kids that would be one heck of a deal! Of course, the children would have to be registered as American citizens with the US Embassy before you could do that but I understand it's a simple procedure.

[TokyoWart]

I file as a single person and owe nothing to Uncle Sam because my tax liability is fully offset by the higher Japanese taxes using the Foreign Tax Credit. In that sense, the only advantage I can see to filing as "married" or "head of household" would be if you have young children and want to claim the Child Tax Credit which is something like $3,600 for each child under 6 and $3,000 for children 6 to 17. So if you have three or four kids that would be one heck of a deal! Of course, the children would have to be registered as American citizens with the US Embassy before you could do that but I understand it's a simple procedure.

The problem is that if you are married you are required to use one of the filing statuses which applies to married people. You can't legally file as single. The Child Tax Credit expansion to $3600 (under age 6) and $3000 (ages 6-16) unfortunately requires that the principal abode is in the US for at least half the year so almost no expats qualify.

[TJKansai]

The problem is that if you are married you are required to use one of the filing statuses which applies to married people. You can't legally file as single. The Child Tax Credit expansion to $3600 (under age 6) and $3000 (ages 6-16) unfortunately requires that the principal abode is in the US for at least half the year so almost no expats qualify.

I've collected the child tax credit in the past, even with an overseas residence, but it seems to disallow me depending on the year, rules, and current year's income. I was hoping I could score a but of this year's, but maybe not. Although my son was stateside for 6 months, so we'll have to see.

[TokyoWart]

I've collected the child tax credit in the past, even with an overseas residence, but it seems to disallow me depending on the year, rules, and current year's income.

Just to clarify, the new requirement for having the primary abode in the US applies to the expanded credit and monthly payments that started this month. US citizens living overseas have been able to qualify for the child tax credit (CTC) up until now because living in the US was not a requirement (maintaining eligibility for the CTC is I think the main reason some people file for the Foreign Tax Credit instead of the FEIE). My understanding is that the eligiblity for the lower, prior credit is not changed. I only know about this from US expat tax forums and a discussion of the stimulus that was passed earlier this year because I've never qualified for the credits.

[TJKansai]

(maintaining eligibility for the CTC is I think the main reason some people file for the Foreign Tax Credit instead of the FEIE). My understanding is that the eligiblity for the lower, prior credit is not changed. I only know about this from US expat tax forums and a discussion of the stimulus that was passed earlier this year because I've never qualified for the credits.

I wish I had known that about not using FEIE to get CTC. Might have gotten me a fair bit over the last two decades. I think I got the CTC maybe just 3-4 times.

[Teflon]

I never understood the benefit of using the FEIE over the FTC in Japan. With Japanese income taxes always higher than what you would pay to Uncle Sam, it makes sense to go with the FTC since your tax obligation will always be zero. You also cannot qualify for a Roth IRA if you exclude all your income but with FTC you can still qualify.

[TokyoWart]

I never understood the benefit of using the FEIE over the FTC in Japan. With Japanese income taxes always higher than what you would pay to Uncle Sam, it makes sense to go with the FTC since your tax obligation will always be zero. You also cannot qualify for a Roth IRA if you exclude all your income but with FTC you can still qualify.

That was also my expectation (FTC better than FEIE because Japanese tax brackets are higher than the US) but for my own US return I test this each year and FEIE gives me a better outcome than going solely with the FTC. I think the reason is that the AMT limits the amount of FTC you can count against the US tax liability so you wind up with a larger AMT component of your US tax bill. That said, I still find this a surprizing outcome and my accountant has also not been able to explain why the math works out this way on my US returns.

[TJKansai]

That was also my expectation (FTC better than FEIE because Japanese tax brackets are higher than the US) but for my own US return I test this each year and FEIE gives me a better outcome than going solely with the FTC. I think the reason is that the AMT limits the amount of FTC you can count against the US tax liability so you wind up with a larger AMT component of your US tax bill. That said, I still find this a surprizing outcome and my accountant has also not been able to explain why the math works out this way on my US returns.

I do claim a bit of FTC for the small portion of my income that exceeds the FEIE. Always a bit disappointed that the calculator doesn't give me the full amount for what I have paid the Japanese government. I think I get around 70-80%?