I never done a foreign tax return, but I want to learn.
A client moved to France in 2019. In 2020 she worked as a teacher in a University earning 18,313.80 Euros & 10,328 self employment doing tours. No W-2, She filed a return to French Gov. She's a US citizen. I tried reading and understanding all the articles but still not clear. I figure I might get a better understanding with posting her specific facts and hope someone can guide me. Is it in form 1116? or 2555?
I appreciate your help
You can choose to use the foreign earned income exclusion - Form 2555 or take the foreign tax credit-Form 1116. Work it both ways to see which gives the best tax result.
Beware that you cannot flip back and forth on the foreign earned income exclusion from year to year, so you and the client need to think ahead, too.
I have no knowledge of the Tax Treaty, but here is some general information to add on to Susan's comment:
- This is not a "foreign tax return". It is a US tax return that has foreign income on it.
- The earnings from a teacher sounds like "wages", so you report that on Line 1 of the 1040.
- Did the taxpayer pay Social Security (either on her teacher wages or self employment tax for her business) to France?
- As was pointed out you choose which option to use; from what I've seen it seems like the Foreign Earned Income Exclusion is a better option in many cases.
- You will need to convert the dollar amounts to US dollars.
There is a 'Wage and Tips' worksheet (or something like that). There is a spot on it for foreign wages.
An easy way to find the worksheet is to go to the 1040Wks, go to Line 1, then double click the BLANK space between the words and where the number shows up.