filing taxes question

[jboeh2]

Last year I filed for the Foreign Earned Income Exclusion, thus being exempt for paying any US taxes... we also received no refund. As I am filing now (on Turbo Tax), due to being in America 5 weeks last summer, I did not qualify for the physical presence test. Now, it shows I will be getting $2000 (child tax credit). Does this sound right, as I am "paying taxes" now? Also, do we NEED to apply for the Foreign Earned Income Exclusion, even if we qualify?

[wrldtrvlr123]

I'm no expert but we used Turbo Tax when we qualified and you have to apply every year for the exclusion. Even if you did not qualify for the physical presence test you should still qualify because your tax base remained in a foreign country (provided your income still came from a foreign country/company). I forget exactly what that one was called (bonofide?). Also, I seem to recall that you could usually play around with the dates so that you had 12 months out of the country (e.g. did not have to be consecutive days, start and end dates could be in different tax/calendar years etc).

As for getting a refund, I'm not sure how that is possible since you haven't actually paid any tax yet (I am assuming you did not make payment and deductions weren't made). Unless I am missing something you should still qualify for the exclusion and would be better off claiming it.

I'm sure someone will come along with more detailed/accurate information/opinions.

[mamava]

My understanding that is that you always have to file. That's true no matter what you earn or where you earn it. In your filing, of course, you would declare all the examptions, including the foreign earned income exclusion. My kids, who earn $1,000 for a summer job and owe nothing, still have to file.

[sid]

You have to file for the exclusion every year. Your first year getting the exclusion, you have to meet the physical presence test, which is 330 days out of 365, and doesn't have to be Jan 1 to Dec 31. You can use any consecutive 365 days to meet the test.
In subsequent years, you just need to be a bona fide resident overseas for the calendar year or any portion of it. Your exclusion gets lowered proportionally to the number of days you were in the US. So your long stay at home shouldn't disqualify you, but it will cost you a chunk of the exclusion.
At this point, I recommend you consult a tax advisor who specializes in expats. He can untangle the web and figure out how to file. The last thing you want to do is take a tax break you're not entitled to, pay taxes you don't really owe, or give up the exclusion, which can have effects for years to come. Doing all 3 in 1 could put you in a mess for ages and cost you money.

[Teach1010]

Sorry to hijack this thread, but I think my questions are related.

I didn't realize there was a 330 day rule. It's highly unlikely that you would reach 330 days abroad in the year that you first accept an IT post, so does that mean that you would be on the hook for paying U.S. taxes on that portion of your income? Let's say you just took your first IT post beginning in the 2017-18 school year. When you file your 2017 taxes, the first half of the 2017 tax year you would be earning income from your job in the States and it would be perfectly reasonable to expect to pay normal taxes on that income. The second half of the year (Aug.-Dec.) you would be earning income abroad, and if I'm understanding correctly, you would have to pay U.S. tax on that as well since you wouldn't have acquired 330 days abroad. Depending on what country you're living in, you may also be paying that country's income tax as well, right?

[sid]

Good observation.
In your first year abroad, you need to get an extension on filing your taxes. (There's no fee/penalty for that, but you might end up paying interest if you owe taxes.) You get enough extensions to get you through to the point where you've met the 330 out of 365 target. For example, you leave the US on July 31 - this counts as a day in the US, so your first day abroad is Aug 1. You stay out of the US from Aug 1 until Dec 18, when you return for Christmas vacation. That gives you 139 days out of the US so far (remember that Dec 18 counts as a day in the US, even if you land at one minute before midnight - any part of a day counts as a day).
So you've got 139 so far. You need 330 total, and you need to get them within 365 days, and since you started counting on Aug 1, that means you need them before July 31. So you have another 191 to go. Your best move is to have a pleasant Christmas in the US, and then stay out of the US continuously until you meet your 330 goal.
So if you go back after Christmas on Jan 3, you have to stay out of the US until July 24 (July 23 is your magic 330th day overseas, but remember you can't spend any part of that day in the US).
Then you file your taxes. You get a proportional amount of the exclusion for 2016. Full taxes due on whatever you earned before Aug 1, and taxes on your overseas income only up the amount of the (reduced) exclusion, which is hardly ever a problem since we don't earn that much.
It really messes with your access to the US in your first year abroad, but it's the only way to get started. After that first year, you can be a bona fide resident abroad, and spend as much time as you want in the US. Your exclusion will be reduced for every day in the US, but that's not usually an issue since teaching salaries aren't as high as the exclusion.
And it's best to keep your residency abroad permanently, once you start. If you establish residency in the US again, say between 2 international postings, you have to start all over again with the 330 day thing when you go back overseas. I established my residency abroad in 1994 and have kept it that way ever since, through a string of international posts. Far easier than playing the 330 game.

[b12r]

@sid

Thanks for this clarification! I was researching the 330 day rule and had some questions but this absolutely clears them all up.

My goal is to spend 2 weeks at home over Christmas and then once I hit the 330 day in the summer return back to the states to enjoy however much time I have left with the family.

[Teach1010]

Thank you, @Sid. After doing some more digging myself, I think I actually stumbled upon the answer to another part of my question that might be useful to others. According to what seemed like a pretty reliable source (that I forgot to bookmark... sorry!), you also have the option to file for a foreign tax credit. As I understand it, this just means that if you have already paid income tax to the foreign country, that amount is deducted from the amount of tax you would otherwise owe to the U.S. So if you work in a country that has and equal or higher tax rate than the U.S. (say, Western Europe), I don't see why you would need to mess around with the 330-day rule. You would already have paid more than your share of taxes to the country you are living in and therefore not owe anything in U.S. taxes. I'm sure there is more to it than that and there are probably lots of exceptions, but it might be something to considering for some people.

[sid]

For the credit, you definitely want to consult a tax professional.

[PsyGuy]

There is some good information from the previous contributors. However a few issues and in summary...
There is a foreign income credit, exclusion, and deduction, you can use any of the three you are qualified for. The issue in your case is really moot, as long as you obtained no income while in the States or from domestic sources regardless how long you were there you wont have to pay any taxes.
You do not need to meet the foreign presence test you can instead choose to meet the residency test which is declaration that you are permanently intending to reside outside the US, which is sufficient.
You can no longer use an extension to meet the 330 presence test.
You do not ALWAYS have to file a tax return if your income falls below the minimum threshold you do not have to file.

In regards to your issues, yes it sounds right because your not a foreign resident so you arent qualifying for foreign tax relief (deduction, credit, exclusion), and child tax credits are refundable credits even without having income (such as the Earned Income Credit). This is one of those times I'd strongly advise spending the few coin to talk to a tax advisor briefly. The issue is that, Ive known several ITs to essentially file tax returns to claim the refundable credits and not acknowledging their foreign earned income, and use the return (several thousand) as a bonus.

You have to file accurate returns, you certify that as part of your return. You dont have to apply for the exclusion if you dont want to but then youd have to account for it as income that youd be required to pay taxes on, you could count it as self employment income. You could form a corporation and direct any salary through your corporation, (some ITs have tried the Corporate sole, approach with mixed results) and there are a lot of things you could do to structure taxes, but what I sense you really want to know is if you can keep the child tax credits in some easy and legal way.

[jboeh2]

@PsyGuy,

Yes, well to my knowledge, I did file accurately ( I have always filed TurboTax with no issues). Because I didn't meet the 330 day rule, I didn't (or couldn't) apply for the physical presence test (we were 6 weeks in America for the summer). Following the steps through TurboTax, it kept the $1000 per child as refundable. But yes, don't want to break any rules. Already sent my returns, so guess can only wait. Paying $400 for a professional is quite steep.

My only concern is that no one seems to know about this benefit.

*@PsyGuy You dont have to apply for the exclusion if you dont want to but then youd have to account for it as income that youd be required to pay taxes on, you could count it as self employment income.

--- don't quite get that statement. I mentioned that I received income from an employer. I did put my salary as my income, meaning i'd pay taxes on that amount, only that I made too little to be exempt for paying taxes in the US. Does this sound right?

Thanks

[jboeh2]

@ Sid, you wrote
"In your first year abroad, you need to get an extension on filing your
> taxes. (There's no fee/penalty for that, but you might end up paying
> interest if you owe taxes.) You get enough extensions to get you through to
> the point where you've met the 330 out of 365 target.”

Why would you need to file an extension? We never did our first year abroad (it’s our third year now). I’m assuming if you have high income from both jobs/different countries, its well worth doing that. We didn’t have high income from America the first 1/2 of the year, so never put us at the level where we had to pay more taxes. We also got a refund that year, since we were over 6 months in America.

I’m a little nervous going to Turbo Tax now. Followed the steps, yet seems so confusing.

[sid]

You have to file an extension because you can't hit the 330 target before April 15. At least, you can't if you move overseas on a typical school calendar, ie in August or September.
If you don't get the extension, you can't have the exclusion, so your overseas income would have to be reported and taxed at normal US rates. It's a double whammy, because not only is the overseas income taxes, but since your overall income is higher, it's all taxed at a higher rate. Unless you didn't report the overseas income, in which case oops. Reporting is required.
Turbo Tax is not well designed for overseas filers. I used it for quite a while, but when my financial life got more complicated, I finally hired a tax guy. He re-filed my taxes going back several years and got me money back that I (obviously) never knew I was owed.
If all you've got is a simple salary, no investments, no property, no debt, no children, no foreign bank accounts (all accounts must be reported or the basic penalty starts at 50%, even on a basic checking account where your school deposits your paycheck), then maybe Turbo Tax can do the job. But if you have more, get a guy.

[PsyGuy]

@jboeh2

@Sid is taking the position that by filing the extension you can extend your "year" forward with enough time to meet the 330 presence test. You automatically receive a 2 month extension pushing your due date to June (from April) with the 6 month extension youd move your due date all the way to October. There was guidance offered by the IRS this year that this method does not permit you to meet the 330 day presence test.

Its a moot anyway as you can use the residence test anyway, which requires you to declare a foreign country as your residence, it doesnt have a time requirement.

You dont need to spend $400 to talk to a professional, many of these programs have an option to ask a tax question or to talk online or by phone with a tax professional its usually around $15-$30.

Lots of us know about these benefits, and the process. If worse comes to worse you have to pay the IRS back the credit, and in all honesty your very unlikely to be audited. Before entering DoDDS, I often used whatever date I needed to too meet the 330 day presence test and nothing ever happened.

So you had mixed foreign income and domestic US income? Your domestic income was small, and your foreign income larger, so essentially you can exclude the foreign income and pay on the domestic income. You then took a child tax credit. Sounds fine to me so far. Using turbo tax to do the return as long as you didnt intend fraud is protection enough, at the very worse some day you might have to pay back the child tax credit refunds for not being eligible, but its not worth sweating over.

[PsyGuy]

@jboeh2

You dont need to report accounts less than USD$10K.