With just a week to go before the filing deadline, the Answer Desk e-mail account is taxed with questions about how to keep the IRS at bay. Aaryn, who is soon headed home to the U.S. from China with a new bride, is stuck trying to figure out which box to check when he gets to the part asking about his marital status.
I'm an American living in Shanghai, China and married to a Chinese citizen. We are currently in the middle of the immigration process and as part of that I need to show my recent tax records. I'm filing my taxes for 2005. ...My question is this: my wife has never been to America. When we eventually go there, I still have to walk down to the courthouse and officially register for marriage because currently we are only recognized by China as being married. So couldn't I simply claim on my American taxes that I am "unmarried" because I'm not recognized as being married in the United States yet?
-- Aaryn B., Shanghai, China
In other words, am I married for better or for worse, but not necessarily for tax purposes? Alas, in the eyes of both the Peoples Republic of China and U.S. Internal Revenue Service, you’re married.
According to the for the 1040 Form, “for federal tax purposes, a marriage means only a legal union between a man and a woman as husband and wife,” which means one spouse of each sex — no more and no less. If you're legally married where you're living outside the U.S., you're legally married inside the U.S. as well.
Even if your new home state hasn’t yet gotten the good news, the IRS deems you married based on the date you walked down the aisle, not the date you walked down the hallway of the courthouse to get a U.S. marriage license.
Though your new status is till death (or divorce) do you part, you still have a few choices about how to file. Generally, you can’t file a joint return if one spouse was a non-resident alien at any time during the year. But you can file jointly if you choose to have your wife treated as a U.S. resident for tax purposes.
The difference, according to IRS , U.S. Tax Guide for Aliens, is that resident aliens pay taxes on all income — no matter where it came from. A non-resident alien usually pays tax only on income from U.S. sources.
After that, it starts to get complicated. So depending on how much income each of you had, you should probably have a good accountant help you with these choices. If you can’t do that before April 15, you can always . Just download and mail it in. Only eight lines long, Form 4868 is about the easiest one the IRS has come up with yet.
Just make sure you send along a check for what you think you owe. The IRS is fine with asking for extra time with all its paperwork. But it wants your taxes paid on time.
ADVICE ABOUT ADVICE
My husband and I have a stock secured loan for $150,000. We are trying to decide if we should cash in 3,000 shares of stock to pay off the loan. Are the tax consequences such that we would be better to pay $1,000 per month in interest or go ahead and claim the capital gains and get rid of the loan? I talked with our CPA and did not get a real clear answer.
-- Pam L., Hoover, Ala.
Go back and ask the CPA again until you get a straight answer. That’s what you’re paying for. Some financial advisors don’t want to take the time to explain things thoroughly — either because they don’t have the patience (which means you’ve got the wrong financial advisor) or because they aren’t sure of the explanation (which means they’re in the wrong business).
It’s really not possible to generalize: too much depends on the rate you’re paying on the loan, your tax bracket, how much capital gains you’ve booked on the stock, how well the stock is performing, etc. But your CPA should walk you through the math so you’re able to understand why you’re being told to do what they're recommending.
This is true for all financial advice. Never go along with it unless you understand it backwards and forwards. If the advisor rushes you, or ducks an explanation by saying “it’s a routine form, just sign it” — find another advisor.
GRANDMA'S WRONG
I have a grandmother who says she does not have to file taxes because she is disabled. She owns a rental property and says that since she does not have to file taxes then she does not have to claim the rental income. Is this true? Also, where can I find this information on the IRS Web site?
-- Tana N.
Grandma needs to file a return. The basic requirement is that anyone who has earnings above a certain amount has to file — whether the money was earned from a job or from an investment like a rental property. (She may have heard that some people who receive only Social Security income don’t need to file, which is true, but only if they get no other income.) To learn more about who needs to file a return, check the handy checklist onthe IRS Web site.
She may not owe any taxes when she files — especially if she qualifies for an income tax credit because of her disability. For more information, see , Tax Highlights for Persons with Disabilities. But even if she owes no taxes, she still has to file a return.
There are a number of expenses related to the rental property that she can probably deduct from her rental income. If she’s never done this before, she should have an accountant set it up for her. And if she hasn’t filed returns for past years, she’ll need to file those returns — and likely pay penalties. Depending on how many years are involved, she may want to get a good tax attorney to try to negotiate with the IRS.