Form 2555 questions as My Canadia wife's income in Canada

[octane99]

Hello, Nelson,

Here is my case. Both I and my wife are Canadian Citizens. I am working in US as a TN worker. My wife goes to a School in Canada. She went to USA for vacation three time in 2006 ( beginning of year, April and end of year, less than 20 days total). For 2005, I used MFJ and report world income (include my income in Canada) to USA and filed form 8833 to invoke treaty XXV.


My wife has about teaching assistant income around 12000 USD in Canada. I I have following questions:

1.) If I file 8833 to invoke treaty again, I have to report world income, can I still file form 2555 to exclude her income in Canada before she CAME to USA? This is a little bit tricky to me as she technically did not come to USA to stay ( just for vocation). But I may argue she did come to USA at the end of last year. Can I do this next year (for 2007 tax) too if my wife stays in Canada and still have Canada income?

2.) If I can't file 8833 this year, I may file a statement to treat my spouse as a resident (In Pub 519) and I believe I can file 2555 just for this year. And I can't use this in the future year for my wife's Canada income. Is my understanding right?

3.) For tax form 2555, I believe my wife meet the PPT test. I am not sure about the Bona Fide Resident, my wife is a Canadian citizen. She lives in Canada and is a Canada resident. Therefore, I should use PPT?

4.)If I plan to buy RRSP this year (in March), I do not need to report to USA in 2006 tax return, but I have to report it to USA in 2007 tax return. Is that right?

5.) Last question is about Turbo Tax. I follow all the guidance of the Foreign Earned Income, it seemed it give me double deduction. The Line 21 of generated 1040 shows a negative number -12000, which reduce our total income. I do not think it is right - (The more I earn in Canada, The more I can deduct in USA?). Therefore, shall I add this 12000 to the line 7 of 1040 even if my wife do not have W2 for that income? ( That makes sense, because I added 12000 then excluded it).

Thank you for much for the help and have a nice day!

James

[octane99]

You need to report Foreign earned income first then ask it to do exclusion. It is a confusing design anyway.

[nelsona]

You may continue to use 2555 to exclude her Cdn wages, so long as she continues to meet the requirements for FEIE, which is not being in US for certain ammount of days, or maintaining her tax home in CAnada.

Of course, her staying in Canada puts into question your own tax residence, but I'll leave that for now.

FEIE should not change your income at all. Underthe new rules, all that should happen is your taxhould chage, as it will be calculated differently. Thre should be no negative ammounts for wages.

[nelsona]

... just to clarify, you report all your and her income. Then use 2555 and the new tax sheet to calc tax.

[octane99]

Thank you Nelson. Just to clarify, I can still use F8833 to do treaty? Or is there other way because I will use 2555?

Have a nice weekend.

[nelsona]

Since you qualified as a resident the entire year, you do not need the treaty to do this (i would even say that 8833 was overkill in any event).

The treaty was really to exclude YOUR income before you became resident.