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Taxes: Bona Fide/Physical Presence Test Question

4155 Views 2 Replies 2 Participants Last post by  Starla
Does anyone know if it would be worth it to file an extension on my taxes in order to file as a bona fide resident/physical presence to get the foreign earned income credit?

I moved to the UK September 2009 so if I do file for an extension, that will JUST put me into the Physical Presence category. I've only been working here since November 30, if that helps.

I'm just not sure if it's worth it to file for an extension. Will I lose money if I don't? Will my tax return be significantly less than normal? Any advice??

Thank you!
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The first year you generally do file under the physical presence test (because the requirement is 330 days outside the country in any 12 consecutive month period) rather than bona fide resident (because that requires you be outside the country for an entire tax, i.e. calendar, year). For 2010, you may well be able to file under the bona fide resident test once you've lived a full calendar year in the UK.

You can file for an extension until you meet the physical presence test - so in your case, you'd get an extension until October, 2010 - giving as your reason the need to meet the physical presence test. The only catch there is that if you are going to owe taxes, you need to make an estimated payment when you ask for the extension. But with 4 months of income excluded from your AGI, chances are you'll be looking at a refund.

If you don't take the foreign earned income credit, you'll be taxed in the US on your UK income from September until December 2009 (and also by the UK government - though you can take a tax credit for taxes paid to the UK during those 4 months). Don't forget, though, that the UK tax year runs from April 6th to April 5th, which makes things tricky. It can also set off some bells and whistles if you don't bother to take the exclusion one year and then take it the next.

One alternative is to file your 2009 taxes on time (which, from the UK means by June 15th - you get 2 extra months if you're overseas) without taking the exclusion. Then, after September 2010, file an amended return for 2009, claiming the exclusion for your income from September to December - which ought to result in a refund. But the thinking on this approach is, why give the IRS the free use of your money for another 6 or 8 months, only to have to re-do your filing to get the money back?
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You are fantastic! Thank you once again, Bev! I will go with the extension and physical presence test. I've never had to owe money before so hopefully I won't have to this year, either. I think next time I file taxes, it will be a much smoother (and less worrisome) process.

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