Hi folks,
For my spouse and me, it's our first year teaching abroad. We are US citizens, and the first half of our year (until the first week of August) was spent in the US.
First, is there any tax benefit for us, or will be required to pay full income tax for 2015?
Second, is it an easy enough return to do ourselves on an online platform like Turbotax, or should we hire a "guy"?
Third, if we need said "guy", any recommendations on someone who knows our situation well?
Thanks for any and all help you can give!
US TAXES
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speedracer
- Posts: 35
- Joined: Tue May 28, 2013 9:31 am
Re: US TAXES
You will need Form 2555 (Foreign Earned Income Exclusion)
https://www.irs.gov/Individuals/Interna ... -Exclusion
You get to exclude the first $100,800 of your foreign income. Anything on top of that is taxed.
Things become trickier if you own/rent property (I think)
When I lived abroad I did all mine with e-file
https://www.irs.gov/Individuals/Interna ... -Exclusion
You get to exclude the first $100,800 of your foreign income. Anything on top of that is taxed.
Things become trickier if you own/rent property (I think)
When I lived abroad I did all mine with e-file
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wrldtrvlr123
- Posts: 1173
- Joined: Sat Feb 06, 2010 10:59 am
- Location: Japan
Re: US TAXES
Actually as a couple you each get to claim the foreign income exclusion.
The only tricky bit is the first year since as you say you were partially earning income in the US. You basically have two choices. If I recall correctly you can claim a partial/prorated exclusion benefit based on the percentage of days since you left the states (i.e. if you have been out 6 months you can exclude half of the usual amount). Or if filing an extension would allow you to meet the requirements and be out of the country for 330 days then you can go that route and claim the full exclusion.
We have always used TurboTax with no problems but many people do use accountants, at least until you get the hang of things.
The only tricky bit is the first year since as you say you were partially earning income in the US. You basically have two choices. If I recall correctly you can claim a partial/prorated exclusion benefit based on the percentage of days since you left the states (i.e. if you have been out 6 months you can exclude half of the usual amount). Or if filing an extension would allow you to meet the requirements and be out of the country for 330 days then you can go that route and claim the full exclusion.
We have always used TurboTax with no problems but many people do use accountants, at least until you get the hang of things.
Response
There is a foreign income credit, a deduction and an exclusion. You can both claim it unless you are filing jointly. Theer is a 330 day residence test, but you can just take it even if you dont meet the test. The IRS looks to see where your return came from, they really dont and cant investigate the days you were away. As such i would take the full credit regardless of your length of absence.
Unless you have a business, capital gains, rental, or other complex tax issues or more than USD$10K in a foreign bank account, you can do the return yourself either online or by paper. I recommend the paper route, since its clear you were overseas when you filled (but its an extra hassle).
You dont need a tax adviser, however your nearest US embassy/consulate typically has a drive around this time of year. You can meet meet with one of their advisors, submit your return there or they keep a list of qualified prepares outside the DOS that can assist you. Understand however that their rates are typically higher then you would pay for a preparer back in the States.
Unless you have a business, capital gains, rental, or other complex tax issues or more than USD$10K in a foreign bank account, you can do the return yourself either online or by paper. I recommend the paper route, since its clear you were overseas when you filled (but its an extra hassle).
You dont need a tax adviser, however your nearest US embassy/consulate typically has a drive around this time of year. You can meet meet with one of their advisors, submit your return there or they keep a list of qualified prepares outside the DOS that can assist you. Understand however that their rates are typically higher then you would pay for a preparer back in the States.
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jstwatchin
- Posts: 32
- Joined: Sun Sep 02, 2012 4:27 pm
Re: US TAXES
Is there a requirement to file form 2555 or is it a benefit? There may be some situations, where the refund is greater when the form is not filed, so I am curious.
Re: US TAXES
with respect to what wrldtrvlr123 said, you can get around the having to claim 6 months in US by filing for an extension - this allows you to file your (first time overseas) taxes in October rather than April - which then allows you to claim being out of country for the required number of days. Once you file the extension - the next thing is to REMEMBER to file in October - and use an online program (TurboTax, etc) to efile. Unless you have property, retirement and investments, etc., it's actually quite simple. I've done it for 14 years and never used a "guy."
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wrldtrvlr123
- Posts: 1173
- Joined: Sat Feb 06, 2010 10:59 am
- Location: Japan
Re: US TAXES
jstwatchin wrote:
> Is there a requirement to file form 2555 or is it a benefit? There may be some situations,
> where the refund is greater when the form is not filed, so I am curious.
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My understanding it that you have to elect to take the foreign income exclusion and file the form. Otherwise you would owe income tax on all of that income (after deductions, credits, etc). If you haven't paid taxes on a sizable chunk of income I can't imagine too many scenarios where you are better off having to come up with the tax but anything is possible I guess.
> Is there a requirement to file form 2555 or is it a benefit? There may be some situations,
> where the refund is greater when the form is not filed, so I am curious.
===============
My understanding it that you have to elect to take the foreign income exclusion and file the form. Otherwise you would owe income tax on all of that income (after deductions, credits, etc). If you haven't paid taxes on a sizable chunk of income I can't imagine too many scenarios where you are better off having to come up with the tax but anything is possible I guess.
Reply
@jstwatchin
While I concur with @WT123, I cant think of a reason not to take an exclusion, deduction or credit, there is no requirement that you take one, you can consider it regular income if you want.
However, you must still declare assets held in foreign banking/financial institutions. You can not use the option of filing form 2555, and claiming an exclusion, deduction, credit as a means of avoiding the requirement.
You dont get a 6 month extension by filing, you get an automatic 3 month extension by being out of the country on the date your filing is due, and you can apply for a 4 month extension for a total of 6 months.
While I concur with @WT123, I cant think of a reason not to take an exclusion, deduction or credit, there is no requirement that you take one, you can consider it regular income if you want.
However, you must still declare assets held in foreign banking/financial institutions. You can not use the option of filing form 2555, and claiming an exclusion, deduction, credit as a means of avoiding the requirement.
You dont get a 6 month extension by filing, you get an automatic 3 month extension by being out of the country on the date your filing is due, and you can apply for a 4 month extension for a total of 6 months.
Re: US TAXES
Two accountants in a row ruined my taxes because they are incompetent on the international rules. It's pretty pathetic. Don't go abroad and then back home and then abroad again. Either stay home or leave forever. By the way, forum members near and far, I'm back b****s!
Re: US TAXES
My understanding is that you'd have to pay taxes on the US earned income, but you would exclude the foreign earned income. Even if you filed for the extension and were out of the country for x number of days, the income was still US earned, so it wouldn't be subject to the foreign exemption.