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Foreign Earned Income

Mustapha Ratib
Level 3

Hi All,

I am preparing a tax return for a US Citizen who worked in Germany for the whole year and he made $24,553 with withholding tax of $$1,767. So I started with 1040 form and start filling form 2555 then I jumped to 1116 form which I thought I would use it to claim his withholding, and his Rent other than that there is nothing else, no interest or dividend no income here in USA, 

My questions are: at this point I have an error for not having any income because 1040 has all Zeros, 

and I think because the return is not eligible for efiling, Second is there anything that I am missing in finishing this return?

Third is if this return supposed to be filed with this small income?

 

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DTNY07
Level 5

Yes you have to file it.   Is the $24,553 USD?   Assuming it is, there is no need to calculate the Form 1116 activity. That is because he would have the foreign earned income exemption and that is more than $24,553.  But that is only if he is a bona fide resident of Germany.  Or if he passes the physical presence test in Germany.  

As far as all zeroes.  Just put $10 of interest.  Then you can e-file and there is no tax due on $10 interest

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31 Replies 31
DTNY07
Level 5

Yes you have to file it.   Is the $24,553 USD?   Assuming it is, there is no need to calculate the Form 1116 activity. That is because he would have the foreign earned income exemption and that is more than $24,553.  But that is only if he is a bona fide resident of Germany.  Or if he passes the physical presence test in Germany.  

As far as all zeroes.  Just put $10 of interest.  Then you can e-file and there is no tax due on $10 interest

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Mustapha Ratib
Level 3

Yes it is USD amount, I used the average method to convert.

so in this case there will be no taxes due or refund due and that’s the reason behind not using the 1116 form since there is nothing to reduce as taxes, right?

 

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DTNY07
Level 5

Yes, that is correct

Accountant-Man
Level 11

No, the reason you cannot use 1116 is that the foreign income is being excluded, so you can't get a tax credit on income that is not being taxed.

** I'm still a champion... of the world! Even without The Lounge.
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Mustapha Ratib
Level 3

Hi DTNY07,

Again thank you for your support.

I added a $10 Interest on Schedule B to avoid zero income error on 1040 form which it did, but by doing that I created an error on Form 1116 in Part I under Deductions & Losses section Line 3e.

the $10 dollar did show up on line 3e Gross income from all sources, and the error says '' Line e should be greater than your foreign income on line 1 which is the line that has the total income taxpayer made in Germany.

what am I doing wrong in this part?

Please advise.

Thank you

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sjrcpa
Level 15

Don't file the 1116 if you're excluding all of the income on the 2555.

Or vice versa. If you're using the foreign tax credit don't claim the foreign earned income exclusion.

No double dipping.


ex-AllStar
Mustapha Ratib
Level 3

That’s right, I don’t know what I was thinking this morning. Thank you very much.

thank you for you all

Mo

 

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Mustapha Ratib
Level 3

Hi All,

One Last question on this matter, what is the average price charged for this kind of Tax Return?

Only One Foreign earned income FORM, and nothing else and preparing his federal and State for that.

only 2555 form involved here.

Thanks

Mo

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DTNY07
Level 5

You have to decide that.  Everyone is different, depends on how long you've been doing this.  Where you are located  (I am in Brooklyn, NY and prices are generally higher in new york city compared to other parts of the country)

Mustapha Ratib
Level 3

I am a neighbor, live in CT, and before I used to work for HR Block so prices are part of the system, now that I am in my own I don't know what is the average price out there, especially that HR are little pricee.

my other problem as of now is that when I printed the client copy the form 2555 is not there, so if I efile this return it wouldn't have the 2555 form which is the most important form there. please advise

Thanks

Mo

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DTNY07
Level 5

If you have data on the form, it will be e-filed to the IRS.  I wouldn't worry about that.  I've had that issue in the past.  where had to print the form separately (or if they wanted it emailed, pdf the form separately).  Well my wife is my office manager, she is the one who e-files it, sends copies of the returns, besides making appointments, answering the phones, etc.

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sjrcpa
Level 15

How about FBAR?
And how did client live on $24K?


ex-AllStar
Mustapha Ratib
Level 3

He lived with his sister who lives there, 

Mustapha Ratib
Level 3

Now The fact that form 2555 is not activated within the tax return, is it because all his income was waved so it's zero then no form 2555 to file for????

 

Thanks

Mo

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sjrcpa
Level 15

No. You don't get the foreign earned income exclusion unless you complete Form 2555.


ex-AllStar
Mustapha Ratib
Level 3

I completed the form 2555, including all the information needed, and I did get the exclusion which brings his income to $0 obviously, but when I view the tax return copy as pdf the Form 2555 is not there, the only thing came is form 1040 with $10 I included to be able to E-file the return, the standard deduction and other worksheets plus 8879 form.

Mo

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DTNY07
Level 5

Form 2555 should be part of the return.  What do you mean it is not coming up?  That it is not included if you pdf (or mail a copy) to your client.  It absolutely would be part of what is e-filed.  As you wouldn't receive the exclusion without it. And you said the exclusion was included

Mustapha Ratib
Level 3

As I said it is not there. if there was no exclusion then he would have $24,553 showing in his taxes as an income to be taxed, correct? So under Form in use column I can see the form but it is not coming up when it comes to the printing form as taxpayer copy or the Filing copy.

Mo

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DTNY07
Level 5

Your first sentence is correct.  But, I don't know why it is not showing up as it should be

Mustapha Ratib
Level 3

you know what DTNY I think it is a set up issue, the form may be need to be set up to be included in the tax  return printing copy. I will find out and definitely let you know about the outcome.

but thank you so very much for all your support.

Mo

DTNY07
Level 5

That makes sense.  I have made that mistake in the past with forms I rarely ever use.  I've been using Pro Series since 2006, so it hasn't happened in years, but definitely the first few years I was using it 

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Mustapha Ratib
Level 3

Well you know better, using Proseries for that long it gains you a quite great experience.

I was looking into the issue more in details last night and I found out that my problem was the sequence of using the forms, between W-2 and 2555T and 2555S form. Apparently I need to use one them for example W-2 WORKSHEET  and DATA will flow to the form 2555, and shows up on form 1040. So I did that and everything worked fine I can see the amount at 1040 and 2555 but then I don't see any exclusion there.

please please please help.

 

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DTNY07
Level 5

In quick entry mode. Area 38 B

Did you check the box to include the foreign income as wages on Form 1040 Line 1.   Then Mark Code F.

 

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Mustapha Ratib
Level 3

I started with the W-2 method, I entered the wage and the withholding then on line 13-B I checked the box and that created the form 2555, there non Part I,  I entered the address info, name of employer and his address, after that under Part I, 

1-Taxpayer pops up and I added his occupation,

5-c Self cause employer is a doctor

7- US Citizens

8-a answer is No

Part II: 

10- Date Bona Fide  09/18/2019   to 03/06/2021

11- checked d: quarters furnished by Employer ( he lived at ER House)

12-a No

13- a: No   b: Yes

15- c: No   d:No

Part III

16-  01/01/2020  To 12/31/2020

17- Germany

18- (a) Physical presence the entire year.

the rest is empty.

 

   

 

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DTNY07
Level 5

Sorry, but I don't know what to do.  It seems right to me.  

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Mustapha Ratib
Level 3

Would it be okay to do share screen ''Teams'', if you can and we go through this together, and of course I would pay you for your time. if possible I would appreciate it.

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Mustapha Ratib
Level 3

Hi DTNY,

I figured it out the issue for my 2555 and I thought to share it with you. I found out that I was using the form 2555S for spouse which he has not instead of 2555T and that's why  nothing was posted in the form 1040 🙂

thanks for alll your help.

Mo

DTNY07
Level 5

You're welcome and glad you figured it out

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Mustapha Ratib
Level 3

and because of that reason I am holding on E-filing the tax return.

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Greta
Level 7

Not every tax preparer or even CPA knows how to fill out Form 2555, especially in small towns whose residents don't often work abroad. That's something that should be considered in the price. If I have to spend a lot of time learning how to do the form, I charge more. H&R still seems to charge higher prices than I do. But I'd say at minimum $250-$300.

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DTNY07
Level 5

While I helped him with the working of the form. I didn't answer about the price because I am in New York City and everything costs more.  Plus, everyone's experience level is different.  As far as H&R block, I agree.  There are times when a new client tells me how much H& R charged and I am surprised it was that high.  I do have about 15 clients that live overseas so yes it is easier for me now.  But I remember the first one I did, maybe 10-12 years ago and I had no clue what I was doing, it was complicated.