RetireJapan

Background:
My Japanese wife and I retired to Japan from the US in September ’18. In June ’19, she filed INS Form I-407 and surrendered her green card from Japan. We have not been back to the US, nor do we intend to do so for the remainder of 2019.

By 12/31/19, my wife will file IRS Form 8854. She has less than $2MM as personal wealth and therefore will not be subject to expatriation tax by the IRS.

By 12/31/19, I plan to draw down a significant portion of my taxable IRA and file and pay taxes in 2020 for Tax Year 2019.

My question is this:

Should we file 2019 returns as a married couple, enjoying the larger deduction and the lower taxes, whereupon, I will file as a single taxpayer in 2020 and thereafter, because I plan to continue drawing down my IRA. My wife will earn no income in 2020 and years thereafter, until we apply for Social Security in 2023.

Or, should my wife simply file IRS Form 8854, and I follow the same scenario as above, except filing as a single taxpayer, giving me a lower standard deduction and higher bracket?

Some would say the former is complicated and the latter is cleaner and lease subject to question by the IRS.

I think the optimal choice depends on your income and your wife's. If you are in a low enough income bracket to have no significant US tax liability it is likely to be best to file "married filing separately" so neither your wife's income nor assets require reporting to the IRS and Treasury Department. That is even more true if your wife will have a substantial income in Japan. If you are in a higher income bracket "married filing separately" subjects much more of your income to the higher US tax rates and it may be best to file jointly and bite the bullet on reporting your wife's income and assets. If you are looking to have significant income (for instance anything that could put you in a 32% or higher bracket filing separately) this is something for which I would get advice from a CPA who works with expats.

Some of the issues and options are outlined here:
https://www.taxesforexpats.com/expat-ta ... pouse.html

Just one other suggestion. You mention planning on taking a taxable distribution from your IRA on 12/31/2019 so I assume you want that income to count during 2019. I recommend doing the transaction with at least a week before the year-end as odd, unexpected things can interfer with withdrawals initiated from overseas and it sounds like you would not want that income to count for the 2020 tax year. You probably already know that you could tailor the amounts you withdraw so that you have almost no US tax liability if you can go slowly (smaller amounts each year) and don't have other taxable income you cannot control.

I understand every case is different. I married my Japanese wife in Tokyo in '91. We then moved to the US, whereupon she applied for a green card, and we filed joint tax returns for 25 years. Now, back in Japan, she has relinquished her green card, and plans to expatriate via IRS Form 8854. Now, obviously, I am not a CPA or attorney, but my understanding is that expatriating gives her the option not to file a tax return again beginning in 2020, either singly or jointly. Her tax obligations are to the Japanese tax authorities first. Yes, she is still married, still holds a social security number, and is still eligible for social security benefits. Form 8854 is an exit document, much like the FBAR, she has to disclose worldwide holdings. But if she does not earn income in 2020, or in any subsequent year, she is exempt from filing singly, if at all, and can be included on a married tax return, because she is, married.

But if she does not earn income in 2020, or in any subsequent year, she is exempt from filing singly, if at all, and can be included on a married tax return, because she is, married.

If you file jointly the tax return must include all income from both filers. If the foreign spouse has any passive income (interest or dividends, etc.) or pension income that would need to be reported on the return according to what I’ve been told. There are circumstances where you can file “married filing separately” but still claim an exemption for your spouse if they have no income and are not claimed as a dependent on anyone else’s form. It is complicated and only gets more so when the spouse starts to collect SS.

It is complicated and only gets more so when the spouse starts to collect SS.

Thank you very much for your concise answer. I will give careful consideration to my/our choices for the 2020 returns. As we are both eligible to collect SS from the US in 2023, are there articles you can point me to so I can get an understanding of what will be before her in '23?

I can’t say that I fully understand this myself. The IRS document on taxation of “aliens” is here and it describes some of the resident alien vs non-resident alien considerations
https://www.irs.gov/pub/irs-pdf/p519.pdf

This explains why you might want to have her classified as a “resident alien” in order to file married filing jointly
https://www.americansabroad.org/nonamer ... lications/

then regarding SS my understanding is if she’s a non-resident alien that 85% of her benefit is subject to a 30% withholding by SS

https://www.ssa.gov/international/AlienTax.html

Honestly that’s all complicated enough that I would want expert advice and I don’t think most tax preparers or CPAs will understand all the issues. I would go to someone who works with US expats.