Help on State Return Residency

[Absolut]

I have a new clients this year, they are married.

Wife moved back to Maine in January of 2007, lived prior in BC, Canada

Husband is a Canadian, and he didn't move here until May 2007. He had no income in Maine for 2007, and received his green card in October of 2007.

I'm confused on how to file them for Maine, to many complicated returns and book work to go along with it this year.

Anyways here my questions:

1. Do I file them MFJ for Maine, full resident?

2. Do I file them MFS for Maine?

3. Do I file Wife as Single for Maine?

Wife had income in Maine, plus money from trust funds.

Thank you for any answers to this..............Hope all is well with everyone in the tax world.

[Koss]

Not enough info

You've got issues with federal status as well as state.

When did they get married and how did they file last year?

Most, but not all states, require the taxpayer to use the same filing status that is used on the federal return. Most of the time MFJ is better than MFS. Ohio, which is where I practice, is one of the rare exceptions. If both spouses have income, sometimes it is better in Ohio to file separately, even if they actually lose a little on the federal return.

Unless there is some compelling reason for them to file separately, I would stick with MFJ. But keep in mind that a US citizen is required to report all worldwide income.

He became a resident alien during 2007, and he's married to a US citizen. He can choose to be treated as a resident alien for the entire year, and that may be in his best interest.

Did either of them have any meaningful income while they were not living in Maine?

One or both of them might even qualify for the Foreign Earned Income Exclusion. If they do, it will substantially reduce AGI, maybe even to zero. Maine may not be much of an issue.

Did either of them have any income in Canada? Were they taxed on that income by Canada?

Geez, these are gaping holes. There's even a tax treaty between the US and Canada that might be applicable to your clients.

Without knowing what the federal return looks like, I can't speculate any further on Maine...

[Absolut]

You've got issues with federal status as well as state.

When did they get married and how did they file last year? They were married in 2006, and lived in BC, Canada. She had a Apartment in Ca, for two months and her Tax Preparer in 2006 had her file Single and I asked her why and she said she wasn't for sure.

Most, but not all states, require the taxpayer to use the same filing status that is used on the federal return. Most of the time MFJ is better than MFS. Ohio, which is where I practice, is one of the rare exceptions. If both spouses have income, sometimes it is better in Ohio to file separately, even if they actually lose a little on the federal return.

Unless there is some compelling reason for them to file separately, I would stick with MFJ. But keep in mind that a US citizen is required to report all worldwide income.

He became a resident alien during 2007, and he's married to a US citizen. He can choose to be treated as a resident alien for the entire year, and that may be in his best interest. He had income in BC, Canada, and he is having someone up there do the return for him.

Did either of them have any meaningful income while they were not living in Maine? He is the only one that had income in Canada. I will have to ask how much.

One or both of them might even qualify for the Foreign Earned Income Exclusion. If they do, it will substantially reduce AGI, maybe even to zero. Maine may not be much of an issue.

Did either of them have any income in Canada? Were they taxed on that income by Canada? He will be taxed on his income in Canada.

Geez, these are gaping holes. There's even a tax treaty between the US and Canada that might be applicable to your clients.

Without knowing what the federal return looks like, I can't speculate any further on Maine...

On their Federal Return for 2006 she filed single, and the same for CA.
Wife formed a S-Corp to open a Coffee Shop here in Maine in June of last year, they had no income from the Coffee Shop, because they didn't open it until Feb08, they were renovating and setting things up. Husband is running the Orangic Coffee Shop and drawing a wage off the company.

Right now she owes on both Federal and State return because of stock sales on the trust investments.

Should I find out how much he made in Canada before he moved here?

[erchess]

I am not an expert on handling people who did not

spend all of the previous year in the US. However, I believe it would be a good practice if you would ask every client to tell you their total worldwide income from all sources and about all the taxes they pay anywhere in the world on that income. No, not all the income will be subject to tax here and foreign tax paid to governments the US strongly dislikes will not get a credit but in my opinion you need the whole picture. Suppose I picked a square on the chessboard and ignored anything that might be on it or I picked a certain chessman and decided never to think about it. I would not be a good chessplayer in either case.