My relative is a green card holder who works in Taiwan under a Taiwanese employer and pays Taiwanese income tax. He doesn’t qualify for the physical presence test and I am wondering if he can qualify for the bona fide resident test? I read on the irs website that for green card holders to qualify for this test, the US must have an income tax treaty in effect with the foreign country. It is to my understanding that Taiwan does not have an income tax treaty with the US. So does this mean that my relative will be taxed by both the US and Taiwan? Foreign tax credit doesn’t seem to deduct much…
Assuming you mean US taxes. If he doesn’t qualify for the physical presence test, he wouldn’t qualify for the bona fide resident test. “bona fide resident” means you stayed all year out of the USA. " “physical presence test,” means you stayed outside the USA at least 330 years in 12-month period.
Then why have two tests? I don’t think that’s true regarding the bona fide residence test. From the IRS:
“You must show the Internal Revenue Service (IRS) that you have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.”
Entire tax year is bona fide resident. However, you can still claim foreigner income deduction if you meet the physical presence test.
It says you need to be a resident of that country for an entire tax year, that doesn’t mean you need to be physically present in that country for the entire time…or outside of the US for that entire time.
I agree with squall on the bona fide resident definition. You only need to have established your residence in a foreign country for that one year period (Jan-Dec).
I find the physical presence test interesting. They make it sound like you can count days that occur in a different year (consecutive 12 month period) to meet the physical presence test. For example if a teacher moved to Taiwan April 1st there is no way for them to meet the bona fide residence test (must start at 1/1) but they could meet the physical presence test by being outside of the US for more than 330 days from 4/1/2014-4/1/2015. This gets tricky if you went back to the US for an extended period during that time. Or if you don’t meet the physical presence test until October (filing date is June 15th).
Just as a reminder US citizens should file taxes by June 15th. Not sure if there are any actual real penalties that could be handed out (in theory there are) but it would be nice to remain in good standing with the IRS. And you owe nothing in most cases.
Not sure that I remember this correctly, but just off the top of my head, you can meet the physical presence test during any consecutive 12 month period, but you can only take a fraction of the foreign income exclusion for the part of the calendar year that you were outside the US. So in your example, you can meet the physical presence test if you were gone from 4/1/2014 to 4/1/2015, but you can only take a fraction of the foreign income exclusion for the period from 4/1/2014 to 12/31/2014. At least that’s how I think it works.
Also I think bona fide resident doesn’t mean you have to be in the country the whole year, it just means you have established a permanent home in a country for a whole calendar year with no definitive plans to leave. Unless you move somewhere exactly on January 1, you won’t qualify for the bona fide resident test the first year you move. But you might qualify for the physical presence test the first year (you’ll only get a fraction of the exclusion though) and then you can get the bona fide residence qualification after that.
[quote=“Abacus”]I agree with squall on the bona fide resident definition. You only need to have established your residence in a foreign country for that one year period (Jan-Dec).
I find the physical presence test interesting. They make it sound like you can count days that occur in a different year (consecutive 12 month period) to meet the physical presence test. For example if a teacher moved to Taiwan April 1st there is no way for them to meet the bona fide residence test (must start at 1/1) but they could meet the physical presence test by being outside of the US for more than 330 days from 4/1/2014-4/1/2015. This gets tricky if you went back to the US for an extended period during that time. Or if you don’t meet the physical presence test until October (filing date is June 15th).
Just as a reminder US citizens should file taxes by June 15th. Not sure if there are any actual real penalties that could be handed out (in theory there are) but it would be nice to remain in good standing with the IRS. And you owe nothing in most cases.[/quote]
Ive used the physical presence test for part of the year. You need to file an extension with the IRS letting them know you will meet the 330 days by whatever date. They will grant you an extension but you still need to pay any taxes by April 15. Better to pay them and get a refund.