Six IRS Tax Tips about Reporting Foreign Income

Are you a U.S. citizen or resident who worked abroad last year? Did you receive income from a foreign source in 2014? If you answered ‘yes’ to either of those questions here are six tax tips you should know about foreign income:

1. Report Worldwide Income.  By law, U.S. citizens and residents must report their worldwide income. This includes income from foreign trusts, and foreign bank and securities accounts.

2. File Required Tax Forms.  You may need to fileSchedule B, Interest and Ordinary Dividends, with your U.S. tax return. You may also need to file Form 8938, Statement of Specified Foreign Financial Assets. In some cases, you may need to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts. See IRS.gov for more information.

3. Review the Foreign Earned Income Exclusion. If you live and work abroad, you may be able to claim the foreign earned income exclusion. If you qualify, you won’t pay tax on up to $99,200 of your wages and other foreign earned income in 2014. See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, for more details.  On top of that amount you may also be eligible for the foreign housing exclusion or deduction if you earn in excess of the foreign earned income exclusion.

4. Don’t Overlook Credits and Deductions.  You may be able to take a tax credit or a deduction for income taxes you paid to a foreign country. These benefits can reduce your taxes if both countries tax the same income.

5. Tax Filing Extension is Available.  If you live outside the U.S. and can’t file your tax return by April 15, you may qualify for an automatic two-month extension of time to file. That will give you until June 16, 2015, to file your U.S. tax return. This extension also applies to those serving in the military outside the U.S. You will need to attach a statement to your return explaining why you qualify for the extension.

6. Get  Tax Help.  Check the international services Web page for the types of help the IRS provides. 

For more on this topic refer to Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. 

If you are preparing your own return and have questions, we can provide you with the answers in a mini consultation. Or if you want your return reviewed prior to filing with the IRS, we can do that too.  And of course, we also prepare expatriate, nonresident and international tax returns.  We have over 30 years experience preparing expatriate and nonresident tax returns. We are the experts you need.

Email for assistance at ddnelson@gmail.com 

Additional IRS Resources:

• Taxation of U.S. Resident Aliens
• Publication 514, Foreign Tax Credit for Individuals
• International Taxpayers

IRS Announces 2013 Foreign Earned Income Exclusion Amount and Foreign Housing exclusion amounts

The maximum foreign earned income exclusion that can be claimed for 2013 is $97,600. Remember if both you and your spouse live abroad and both work each of you gets to claim this offset against your respective foreign wages and self employment income.

The IRS new guidelines for the housing exclusion  or deduction for 2013 have also been released. This includes  foreign rent, utilities and maintenance expense that can be claimed in addition to the foreign earned income exclusion  has also been released. There is a minium amount of housing expenses that are not deductible is $15,616.  The maximum amount varies by country ( the charts shows amount before deducting the $15,616). Tokyo in the IRS's  opinion is now the most expensive city in the world since it has the highest maximum. of $117,100.  To see the Maximum amount allowed for your home country CLICK HERE.

Learn more at www.TaxMeLess.com or email us at ddnelson@gmail.com 

IRS issues housing cost allowances for those working abroad in high-cost areas in 2012

Notice 2012-19, 2012-10 IRB   This new Notice provides adjustments to the limitation on housing expenses under the Code Sec. 911 housing cost exclusion for specific locations for 2012.


SEE TABLE WITH ALLOWABLE HOUSING DEDUCTION/ALLOWANCE FOR YOUR COUNTRY OF RESIDENCE.

Background. A qualified individual may elect to exclude from U.S. gross income his foreign earned income and housing cost amount. (Code Sec. 911(a)) Under Code Sec. 911(c)(1), the maximum excludable housing cost amount is calculated by way of a complex formula.

The excludable housing cost amount is the excess, if any, of (1) the individual's allowable housing expenses for the year (i.e., the housing expense limitation) over (2) a base amount. For 2012, a taxpayer's allowable housing expenses, assuming he is eligible for the entire year, generally can't exceed $28,530; subtracting the base amount of $15,216 yields a generally applicable maximum housing amount exclusion of $13,314.

IRS may issue regs or other guidance providing for the adjustment of the maximum allowable housing expense limitation on the basis of geographic differences in housing costs relative to housing costs in the U.S. (Code Sec. 911(c)(2)(B))

Increases for high-cost areas. Notice 2012-19, makes adjustments for housing costs during 2012 in high-cost foreign areas. Specifically, it contains a table that (1) identifies locations within countries with high housing costs relative to U.S. housing costs, and (2) provides an adjusted annual maximum and daily housing expense limitation for a qualified individual incurring housing expenses in one or more specified high-cost localities in 2012 to use (instead of the otherwise applicable annual housing expense limitation of $28,530, or the prorated daily amount) in determining his housing expenses. A qualified individual incurring housing expenses in one or more of the high-cost localities identified in the table for the year 2012 may use the adjusted limit provided in the table (in lieu of $28,530 or the prorated daily amount) in determining his housing cost amount on Form 2555, Foreign Earned Income.

Illustration: A U.S. taxpayer is posted to Hong Kong, China, for all of 2012. His maximum housing cost exclusion is $99,084 ($114,300 full year limit on housing expense in Hong Kong minus $15,216 base amount).

NOTE: For some locations, the limitation on housing expenses provided in Notice 2012-19, Sec. 3, may be higher than the limitation on housing expenses provided in Notice 2011-18 (for 2011). A qualified individual incurring housing expenses in such a location during 2011 may apply the adjusted limitation on housing expenses provided in Notice 2012-19, Sec. 3, in lieu of the amounts provided in Notice 2011-18 (and as set forth in the Instructions to Form 2555 (2011)).

IRS anticipates that future annual notices providing adjustments to housing expense limits will make a similar election available to qualified individuals that incur housing expenses in the immediately preceding year. For example, when adjusted housing expense limitations for 2013 are issued, it is expected that taxpayers will be permitted to apply those adjusted limitations to the 2012 tax year.

Download our 2011 Expatriate Tax Questionnaire Here (msword format) and email or fax it back to us for a fee quote subject to your approval.