This is information on ForeignEarned Income (Taxes) for US Citizens from the US IRS

The best Expat tax advice is to hire an accountant that specializes in preparing “Expat” or “Foreign Earned Income” taxes returns.

Figuring out the IRS’s massive, contradictory and confusing tax rules is a daunting task that few people are advised to do on there own.

The following information on Foreign Earned Income is from the US IRS’s website (IRS Publication 54); it is presented here for educational and informational purposes only, it has been edited for readability and is not shown here in its original complete form as it appeared on the IRS’s website.

This is the US IRS Questions and Answers section on Foreign Earned Income. It is probably the most useful section for most people concerning Taxes on Foreign Earned Income because it is written in fairly simple English without being to technical.


Questions and Answers
This section answers tax- related questions commonly asked by taxpayers living abroad.


Q) When are U.S. income tax returns due?


A.Generally, for calendar year taxpayers, U.S. income tax returns are due on April 15. If you are a U.S. citizen or resident and both your tax home and your abode are outside the United States and Puerto Rico on the regular due date, an automatic extension is granted to June 15 for filing the return. Interest will be charged on any tax due, as shown on the return, from April 15.


Q) I am going abroad this year and expect to qualify for the foreign earned income exclusion. How can I secure an extension of time to file my return, when should I file my return, and what forms are required?


A.

a) You should file Form 2350 by the due date of your return to request an extension of time to file. Form 2350 is a special form for those U.S. citizens or residents abroad who expect to qualify under either the bona fide residence test or physical presence test and would like to have an extension of time to delay filing until after they have qualified.

b) If the extension is granted, you should file your return after you qualify, but by the approved extension date.

c) You must file your Form 1040 with Form 2555 (or Form 2555-EZ).


Q) My entire income qualifies for the foreign earned income exclusion. Must I file a tax return?


A. Generally. Every U.S. citizen or resident must file a U.S. income tax return unless total income without regard to the foreign earned income exclusion is below an amount based on filing status. The income levels for filing purposes are discussed under Filing Requirements in chapter 1.


Q) I was sent abroad by my company in November of last year. I plan to secure an extension of time on Form 2350 to file my tax return for last year because I expect to qualify for the foreign earned income exclusion under the physical presence test. However, if my company recalls me to the United States before the end of the qualifying period and I find I will not qualify for the exclusion, how and when should I file my return?


A.If your regular filing date has passed, you should file a return, Form 1040, as soon as possible for last year. Include a statement with this return noting that you have returned to the United States and will not qualify for the foreign earned income exclusion. You must report your worldwide income on the return. If you paid a foreign tax on the income earned abroad, you may be able to either deduct this tax as an itemized deduction or claim it as a credit against your U.S. income tax.

However, if you pay the tax due after the regular due date, interest will be charged from the regular due date until the date the tax is paid.


Q) I am a U.S. citizen and have no taxable income from the United States, but I have substantial income from a foreign source. Am I required to file a U.S. income tax return?


A. Yes. All U.S. citizens and resident aliens are subject to U.S. tax on their worldwide income. If you paid taxes to a foreign government on income from sources outside the United States, you may be able to claim a foreign tax credit against your U.S. income tax liability for the foreign taxes paid. Form 1116 is used to figure the allowable credit.


Q) I have been a bona fide resident of a foreign country for over 5 years. Is it necessary for me to pay estimated tax?


A. U.S. taxpayers overseas have the same requirements for paying estimated tax as those in the United States. Overseas taxpayers should not include in their estimated income any income they receive that is, or will be, exempt from U.S. taxation.


Overseas taxpayers can deduct their estimated housing deduction in figuring their estimated tax. The first installment of estimated tax is due on April 15 of the year for which the income is earned.


Q) Will a check payable in foreign currency be acceptable in payment of my U.S. tax?


A. Generally, only U.S. currency is acceptable for payment of income tax.


Q) I have met the test for physical presence in a foreign country and am filing returns for 2 years. Must I file a separate Form 2555 (or Form 2555-EZ) with each return?


A. Yes. A Form 2555 (or Form 2555-EZ) must be filed with each Form 1040 tax return on which the benefits of income earned abroad are claimed.


Q) Does a Form 2555 (or 2555-EZ) with a Schedule C or Form W-2 attached constitute a return?


A. No. The Form 2555 (or 2555-EZ), Schedule C, and Form W-2 are merely attachments and do not relieve you of the requirement to file a Form 1040 to show the sources of income reported and the exclusions or deductions claimed.


Q) On Form 2350, Application for Extension of Time To File U.S. Income Tax Return, I stated that I would qualify under the physical presence test. If I qualify under the bona fide residence test, can I file my return on that basis?


A. Yes. You can claim the foreign earned income exclusion and the foreign housing exclusion or deduction under either test as long as you meet the requirements. You are not bound by the test indicated in the application for extension of time. You must be sure, however, that you file the Form 1040 by the date approved on Form 2350, since a return filed after that date may be subject to a failure to file penalty.

If you will not qualify under the bona fide residence test until a date later than the extension granted under the physical presence rule, apply for a new extension to a date 30 days beyond the date you expect to qualify as a bona fide resident.


Q) I am a U.S. citizen who worked in the United States for 6 months last year. I accepted employment overseas in July of last year and expect to qualify for the foreign earned income exclusion. Should I file a return and pay tax on the income earned in the United States during the first 6 months and then, when I qualify, file another return covering the last 6 months of the year?


A. No. You have the choice of one of the following two methods of filing your return:

a) You can file your return when due under the regular filing rules, report all your income without excluding your foreign earned income, and pay the tax due. After you have qualified for the exclusion, you can file an amended return, Form 1040X, accompanied by Form 2555 (or 2555-EZ), for a refund of any excess tax paid.

b) You can postpone the filing of your tax return by applying on Form 2350 for an extension of time to file to a date 30 days beyond the date you expect to qualify under either the bona fide residence test or the physical presence test, then file your return reflecting the exclusion of foreign earned income. This allows you to file only once and saves you from paying the tax and waiting for a refund. However, interest is charged on any tax due on the postponed tax return, but interest is not paid on refunds paid within 45 days after the return is filed. (If you have moving expenses that are for services performed in two years, you can be granted an extension to 90 days beyond the close of the year following the year of first arrival in the foreign country.)


Q) In 2000, I qualified to exclude my foreign earned income, but I did not claim this exclusion on the return I filed in 2001. I paid all outstanding taxes with the return. Can I file a claim for refund now?


A. It is too late to claim this refund since a claim for refund must be filed within 3 years from the date the return was filed or 2 years from the date the tax was paid, whichever is later. A return filed before the due date is considered filed on the due date.


Q) I recently came to Country X to work for the Orange Tractor Co. and I expect to be here for 5 or 6 years. I understand that upon the completion of 1 full year I will qualify under the bona fide residence test. Is this correct?


A. Not necessarily. The law provides that to qualify under this test for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, a person must be a “bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year.”

If, like most U.S. citizens, you file your return on a calendar year basis, the taxable year referred to in the law would be from January 1 to December 31 of any particular year. Unless you established residence in Country X on January 1, it would be more than 1 year before you could qualify as a bona fide resident of a foreign country. Once you have completed your qualifying period, however, you are entitled to exclude the income or to claim the housing exclusion or deduction from the date you established bona fide residence.


Q) I understand the physical presence test to be simply a matter of being physically present in a foreign country for at least 330 days within 12 consecutive months; but what are the criteria of the bona fide residence test?


A. To be a bona fide resident of a foreign country, you must show that you entered a foreign country intending to remain there for an indefinite or prolonged period and, to that end, you are making your home in that country. Consideration is given to the type of quarters occupied, whether your family went with you, the type of visa, the employment agreement, and any other factor pertinent to show whether your stay in the foreign country is indefinite or prolonged.

To claim the foreign earned income exclusion or foreign housing exclusion or deduction under this test, the period of foreign residence must include 1 full tax year (usually January 1 - December 31), but once you meet this time requirement, you figure the exclusions and the deduction from the date the residence actually began.


secureaspects.com is not responsible for the use or misuse of any of the following information You are encouraged to seek professional tax advice from a competent tax consultant, attorney or accountant.

I still don't get it!! LOL.............I don't think I'll ever get it!

First 80K: Tax free (you still pay social security and medicade)

Anything after 80K: you pay taxes on (whatever tax bracket your in, that will depend on many things (if you own a house, how much cash you have, how much your spouse makes if you file jointly, ect)

Anything over 90K: You do not have to pay Social Security or Medicade on any amount over 90K


.

James, have you ever felt like you're teaching kindergarten??

The guy that teachs the tax class at PAST sonfuses you more than anything.. he does make sure you have his info in case you want to pay him $500 to do your taxes... after reading james' post here, and checking out the 2555EZ form.. it seems much simpler.. I think I'll just do it myself... (I may end regretting that!) thanks for the info james!

Teaching kindergarten? No I understand that that figuring out your foreign earned taxes is complicated.


I use this book as a reference when I do my taxes, I highly recommend it

Citizens Working Abroad: How to Count Your 330 "Qualifying Days" for Claiming $80,000 tax Free Each Year of Foreign Earned Income



.

Hey James, thanks! I'm gonna get that book. We hired an accountant to do our taxes for us this year......but I'm a little worried because he doesn't know much about this type of stuff. We live in a rural area in Idaho and can't seem to find an accountant who has dealt with this stuff before!

Korrie,

Contact PBGH at 1-800-296-3710 ask for Dan Bender or dbender @ pbgh.com