# Bona Fide test?



## sunrise85

Hi guys,

Quick question- 

Does visa status affect the ability of someone to claim the FEIE as a bona fide resident? 



Example:

US citizen moves to the UK on a student visa in 2007.

In 2009 she graduates and applies for a year-long post-study work visa.

In 2010 she applies for, and is granted, further leave to remain as the unmarried partner of the British Citizen she has been living with since 2007 when she arrived (you're given a two year probation period before applying for and being granted Indefinite Leave to Remain/National/permanent resident status).

In late 2012 she receives ILR/national/permnanent resident status.



On her US tax return for tax year 2012 would she be considered a bona fide resident if she was working, paying UK tax, co-renting an apartment and living with her British Citizen boyfriend? Would this still be the same if she spent around 45 days total in the US on different personal/business trips in 2012?


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## sunrise85

I suppose what I'm asking is, at what point in that timeline would that US citizen be able to use the bona fide residence test to take the Foreign Earned Income Exclusion?


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## Bevdeforges

Basically, if you've been living and working/studying in the UK since 2007, you can more or less assume that you've fulfilled the bona fide resident test. (At least the UK seems to assume that you're resident there.)

Although they ask you for the dates when you were in the US, it doesn't really matter how long you were there, as long as your residence didn't change. That "330 days outside the US in a 12 month period" thing only applies to those using the physical presence test. Though, under bona fide residence, they are very interested in how many days you were "on business" while in the US.
Cheers,
Bev


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## sunrise85

Cheers Bev. 

Business time in the US would have only been around 12 days in 2011 and around 13 days in 2012. 

She worked for a company that sold tech products and attended one US trade show in each of those years as a member of staff.

I don't know if she knew that you could specify how many business days you spent in the US, but if she didn't know and does this correct going forward, if she ever visits the US on business again, would that be ok?


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## sunrise85

She did say which days were personal and which were business, so I assume that's that.


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## Bevdeforges

On the bona fide resident thing - you list all days that you were in the US, and then specify how many days on each trip were business days. You then have to apportion your salary income that is subject to the FEIE.

Quick example: you spend 10 days on business in the US and it means you have to take 10/365 of your salary and subject it to US taxes. (i.e. you can't exclude the salary you "earned" while working in the US)

Depending on her level of salary, it may make very little, if any, difference in taxes payable.
Cheers,
Bev


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## sunrise85

Ah. 

She was earning £30,000/$46,000 before UK tax. She included a letter in the 2011 and 2012 return saying that her UK employer paid the money for her time in the US into her UK account, though she would have been unaware about what you're saying.

How would the figures affect taxes payable?


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## sunrise85

Also, when you say it might make little difference to the amount owed, if any, do you mean there is a way to exclude/offset it?


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## Bevdeforges

sunrise85 said:


> Ah.
> 
> She was earning £30,000/$46,000 before UK tax. She included a letter in the 2011 and 2012 return saying that her UK employer paid the money for her time in the US into her UK account, though she would have been unaware about what you're saying.
> 
> How would the figures affect taxes payable?


It really doesn't matter where or how she was paid. It's only foreign income if she was physically present outside the US while "earning" the money.

OK, let's say she earns $46,000 and spent 36 days in the US on business in a given year. 36/365 is roughly 10%, so 10% of her salary, or $4,600, would be excluded from the FEIE and thrown into the "taxable income" category.

However, even filing as married, filing separately, there is about $10,000 in exemptions and deductions available (personal exemption plus standard deduction). So, in the case where she has only her salary income, even if $4600 was not covered by the FEIE, she still wouldn't owe any taxes because it's covered by the personal exemption and standard deduction.
Cheers,
Bev


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## sunrise85

Gotcha, thanks.

So if she was there 13 days in each of those two years there's around $1,600 not coveredby FEIE, but tthat would be deductible anyway and nothing would be owed. We weren't married during either of those years, so does filing single still write off any tax owed with the standard amount you're allowed to take off?

If there is no tax due, even with amending, does it make a difference to file an amended return?


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## BBCWatcher

Filing Single is almost always more favorable than Married Filing Separately, so what Bev described still works, but it just might work even better.

I'm not sure what you're referring to about an amended return. But, to expand on how this works, if you've got some "U.S. time" earned income outside the Foreign Earned Income Exclusion, some interesting things might happen. One interesting thing is that you may become eligible to contribute to a Roth IRA, up to that non-excluded amount. But you'd have to do so by April 15, so it's already too late for calendar year 2013. Another benefit is that you might qualify for certain refundable tax credits. Yet another benefit is that you should be able to take the Foreign Tax Credit on that non-excluded income (to count the portion of foreign income taxes paid on that income), and while that may do nothing in that particular year, excess Foreign Tax Credits can be used to offset future U.S. income taxes -- up to 10 years in the future. This can work beautifully if you're nearing retirement or if you're returning to the U.S. in the future, as examples, but it only really works if you live in a comparatively high income tax jurisdiction. (And if you live in such a jurisdiction you might be better off skipping the FEIE completely anyway.) Even so, even a little bit of Foreign Tax Credit might help boost the value of your refundable tax credits, so it could still be helpful.

Isn't this fun?  Well, it's fun to save money, but it sometimes takes a little work.


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## sunrise85

Interesting, thanks. 

Basically, in 2011 and 2012 she filled out the dates she had been in the US and said which were personal and which were business. She didn'tknow that the 13 business days on each return were considered US source income and therefore taxable, and included a letter in each return stating that this was in connection with a UK job as she believed this would mean it wasn't taxable. Because of that, she used the FEIE on her whole wage. 

Now we know that a small portion of her wage, $1,600, was subject to US tax but could have been excluded anyway (using the personal exemption and standard deduction Bev mentions) to still give a $0 payable return, do we have to go back and amend? I'm thinking that if the IRS do see she's made a mistake they'll either realise that small portion could have been excluded or get back to her anyway, and my common sense tells me a return should probably only be amended when it makes a difference to the amount payable.


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## BBCWatcher

It's less good for the filer in this case (for the above mentioned reasons), so I presume the IRS isn't too bothered that you made a mistake in their favor.


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## Bevdeforges

I wouldn't bother with filing an amendment if there is no tax due either way. (Last time I tried to do that - for someone else - the form indicated that it would not be accepted unless the amendment resulted in a change in the amount due.)

As BBC says, filing single is usually preferable to filing MFS, however officially, you don't have that option. You are supposed to file using the status you have on the last day of the tax year (Dec. 31st). (Still, there are some overseas tax advisors who have told their clients married to NRAs to file as single. I have yet to hear of any come-back on that one - but it very well may come back to bite you down the road.)
Cheers,
Bev


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## sunrise85

Cheers guys, we'll leave it then. 

She's always filed with the correct status (single) and this year's return will be MFS as we got married last October.


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