US TAx help -another angle

Where to buy? Where can I find? How do I? Getting started.
Post Reply
cressers
Posts: 618
Joined: Fri May 23, 2003 12:12 am
Location: Tampere

US TAx help -another angle

Post by cressers » Wed Jan 17, 2007 8:54 am

Hi

I lived in the US from Jan-June and in Finland for the rest of the year.

I have paid local taxes correctly in both.

Now, I want to file my US tax return. Any guidance? Can I claim my Finnish income as a Tax credit on the US return, given that I pass the US substantial presence test?

Anyone know any good websites on this?



US TAx help -another angle

Sponsor:

Finland Forum Ad-O-Matic
 

fskrc1
Posts: 20
Joined: Sun Nov 19, 2006 11:26 am

Post by fskrc1 » Wed Jan 17, 2007 3:09 pm

I'm in almost the exact same situation. My advice, and I know this is probably not what you want to hear, is to go through a tax advisor/accountant. This stuff gets pretty tricky and you don't want to get hit with a penalty.


cressers
Posts: 618
Joined: Fri May 23, 2003 12:12 am
Location: Tampere

Post by cressers » Wed Jan 17, 2007 7:36 pm

yeah i am trying to persuade work to cough up... PWC did it the past few years, and even with all the forms in front of me, I still cant get the numbers they get!!!


Edelman
Posts: 12
Joined: Mon Jan 01, 2007 11:59 pm

Post by Edelman » Fri Jan 26, 2007 12:22 am

Cressers, from your actual name in your profile you seem to be American, not Finnish. The "substantial presence test" is something only relevant to non-Americans to determine if they are a US resident.

If you are indeed American, then you are a US resident based on your US citizenship. You would file a US return reporting your worldwide income for the whole year. The next question is how do you reduce the US tax because you have foreign (Finnish) income and are paying Finnish income taxes. Two possibilities that can be used separately, or together, to accomplish this:
(1) You may be eligible to exclude outright the foreign earned income (FEI) under the FEI exclusion (form 2555). One way to qualify is the "physical presence test" which is what you might have been thinking of. The other test is the "bona fide residence test" but you cannot meet that until you have been resident in a foreign country for a period that includes at least one full calendar year.
(2) The other alternative is to take a foreign tax credit (form 1116) against the US proportional tax on your Finnish income because you have paid Finnish income tax on that income.

Due to changes in the US tax rules from 2006 on, the exclusion method is not as interesting as it once was for someone paying high foreign income taxes. If you have not used the FEI exclusion in the past, you may want to not-exclude, and just use the foreign tax credit alone. I can be of assistance should you choose to follow fskrc1's advice...
Les Edelman
skype lesedelman


SaraK
Posts: 3
Joined: Sun Apr 24, 2005 7:30 pm
Location: Denver

Post by SaraK » Tue Feb 06, 2007 8:07 pm

I'm in the same situation, worked half the year in Finland, and am now back in the US. Does anyone know what Finnish documents I'll need when filing the US tax return? I have my old pay stubs from Finland, but will Vero mail something more 'official' later this year?


Edelman
Posts: 12
Joined: Mon Jan 01, 2007 11:59 pm

Post by Edelman » Wed Feb 07, 2007 11:10 am

Your Finnish pay stubs should suffice to substantiate your income.

If you are claiming a foreign tax credit on the "paid" basis, then you'd claim the taxes you paid (need proof of payment) or were withheld (probably evident from paystubs).

If you claim FTC on the "accrual" basis, then you'd need as backup your tax return or a Vero tax statement showing your final liability for the year.
Les Edelman
skype lesedelman


cressers
Posts: 618
Joined: Fri May 23, 2003 12:12 am
Location: Tampere

Post by cressers » Wed Feb 07, 2007 11:49 am

Edelman wrote:Cressers, from your actual name in your profile you seem to be American, not Finnish. The "substantial presence test" is something only relevant to non-Americans to determine if they are a US resident.

If you are indeed American, then you are a US resident based on your US citizenship. You would file a US return reporting your worldwide income for the whole year. The next question is how do you reduce the US tax because you have foreign (Finnish) income and are paying Finnish income taxes. Two possibilities that can be used separately, or together, to accomplish this:
(1) You may be eligible to exclude outright the foreign earned income (FEI) under the FEI exclusion (form 2555). One way to qualify is the "physical presence test" which is what you might have been thinking of. The other test is the "bona fide residence test" but you cannot meet that until you have been resident in a foreign country for a period that includes at least one full calendar year.
(2) The other alternative is to take a foreign tax credit (form 1116) against the US proportional tax on your Finnish income because you have paid Finnish income tax on that income.

Due to changes in the US tax rules from 2006 on, the exclusion method is not as interesting as it once was for someone paying high foreign income taxes. If you have not used the FEI exclusion in the past, you may want to not-exclude, and just use the foreign tax credit alone. I can be of assistance should you choose to follow fskrc1's advice...
Actually I am british.....but pass the significant prescence test.. so I know I am liable for tax in both countries, but only on the icnome I earner there.

So I can claim the FTC for my US earnings....


Edelman
Posts: 12
Joined: Mon Jan 01, 2007 11:59 pm

Post by Edelman » Wed Feb 07, 2007 12:09 pm

Sorry, but either you're not saying what you mean, or you're confused.

You cannot take FTC against US tax on your US earnings.
You can only take FTC against the US tax on your foreign earnings (or you may be able to just exclude the foreign earnings -- I don't know the numbers and other circumstances so I can't opine on the best method).

Depending on the circumstances, you may be able (if it's preferable) to claim nonresidence in the US for the part of the year after you moved to Finland. If so, then you'd file a 2006 dual status return (resident for part year, then nonres for part year - this way you would not report foreign source income during the nonres period at all).
Two options:
1. Closer connection exception -- read IRS Pub 519 carefully. You must not have spent 183 or more days in the US in 2006, among other requirements.
2. "Tie-breaker" position under the US/Finland treaty (assuming you became a tax resident of FInland when you arrived there) asserting that you are Finn-resident only. You may have to file a Form 8833 with your Dual-Status 1040NR, attaching Form 1040 as a Dual Status Statement.
Les Edelman
skype lesedelman


cressers
Posts: 618
Joined: Fri May 23, 2003 12:12 am
Location: Tampere

Post by cressers » Mon Feb 26, 2007 10:45 pm

OK I lived and worked in the US from 2002 till June 2006. I worked more than 183 days in the US in 2006.

I have lived and worked in Finland since June 2006.

As I understand it. I have to include ALL my income on my 1040 (finnish and US) but I can claim the tax I already paid on my finnish income as a credit, but this then makes my total earnings way more than the US tax I paid... this is way too confusing..

Is there anyone who can reccomend professional tax help??


Edelman
Posts: 12
Joined: Mon Jan 01, 2007 11:59 pm

Post by Edelman » Mon Feb 26, 2007 11:05 pm

If you meet the substantial presence test for 2006, then you qualify as a US tax resident until 12/31/06 (but see "Ending residency early" below). You would report your worldwide income on Form 1040. You then reduce/eliminate the US tax on your foreign earnings using one or both of two rules:
1. foreign earned income exclusion - exclude the foreign earnings (pro-rata of $82,400)
and/or
2. foreign tax credit - apply Finn taxes on non-US income against the proportional US tax on non-US income

Under the new exclusion rules effective for 2006 onwards, I am finding that someone in your situation would get a better result using the foreign tax credit only -- but this is something that must be individually analyzed.

Ending residency early: there are a few ways to end your US residency earlier, e.g., on the date you left the US (but possibly tricky if you visited the US again during 2006 after you moved away). In this case you would be a "dual status alien", i.e., part-year resident, part-year non-resident. This may or may not be beneficial. You can get post-move income off the US return, but you lose certain deductions. Again, something worth analyzing.

I would agree that seeking professional tax advice may prove beneficial since there are so many choice you have regarding filing methods/options.
Les Edelman
skype lesedelman


sarahh
Posts: 80
Joined: Tue Jan 30, 2007 3:58 am
Location: Seattle

more tax stuff

Post by sarahh » Thu Mar 01, 2007 11:55 pm

Hi Les,

You seem to be the resident tax expert! I am planning to move to Finland in 3.5 years. I am a US citizen (with a Finnish boyfriend), I will have a US government pension, income from a rental property in the US, and will contract part time to my former employer (the US government) for several years.

I have read through the INS forms that I can find and the US-Finnish tax treaty, and it seems like I will only owe US taxes(?) Does this seem right to you? It seems as though US govt pensions and income from States based property may be exempt from Finnish taxes - is that right, in your opinion? As far as the contract work goes, I will be living in Finland when I do it, but all of the income (as well as the income from the prior two sources) will be paid to my US bank account. I will just transfer what I need then to Finland. Any idea how I'll be taxed on this??

If I don't end up paying taxes in Finland, will I be able to get a health card there? Kinda doesn't seem fair that I could, unless I pay 'something"!

If you know of any tax professionals who are familiar with US and Finnish tax law, I would LOVE to get a referral, or ideas on how to find one.

Thanks,

Sarahh


Post Reply