# Form 1116 or 2555?



## saccentekennedy (Oct 25, 2018)

Hi All,

I am an Americal who has been living in the UK for 20 years as an EU dual national.

In 2011, I got compliant with my US taxes as I didn't realise before this time that I needed to file taxes in the US. I then also filed taxes in 2012. For both of these exercises, I used a professional prep team Taxes for Expats. They filed electronically, and all was fine.

I have failed to file since.

My situation is very straightforward. I work for the NHS and earn a modest amount. I have no investments or any other form of income. I do not have an aggregate bank account balance of over $10,000 at any time in my accounts (see earlier comment about working for the NHS!).

I contacted Taxes for Expats and they have advised I need to file for all the intervening years (2013-2017), and would charge me $1400 for this. This seems a lot, particualrly as I don't owe any taxes. 

So - I got TaxACT and got to work. I have filled out the forms as best as I can, and they are IDENTICAL to what the professionals completed for me several years ago. I am pretty sure that I got everything right. 1040, Sched B to say I don't have any FBAR eligible accounts, 1116 and the 8965 saying I live abroad and don't need Obamacare.

The question I have is that my previous taxes were filed with Form 1116. My income in the UK is taxed higher than my income in the US would be, and therefore, the credit is adequate to ensure I don't owe any US taxes. To be honest, I don't see this situation changing in the near or even medium future.

However, I realise that form 2555 is probably the 'better' option moving forward? In a way I'm glad that they didn't use this in the past as, because of my failing to file, I would have lost the option to use it anyway.

Can anyone tell me whether there's any good reason next year to use 2555, or should I just keep the strategy I have at the moment with 1116. I am even amassing a bit of a carryover anyway, so, it seems like a good strategy!

Finally, I notice that there's no way of telling the IRS who my employer is. So I have included the TaxACT 'FEC' form in my printed out returns which I plan to post off tomorrow. Is this OK?

Thank you all so much! This forum is a really fantastic source of information and support!


Brian


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## Bevdeforges (Nov 16, 2007)

Whether you use the 1116 or 2555 is pretty much your choice. If you're employed and can use the FEIE (form 2555) it can make life way easier if your interest and investment income are well below the filing threshold anyhow. Using the 1116 (FTC) you have to segregate your income and taxes paid into active and passive categories and you can only use the appropriate taxes against the appropriate sort of income.

I believe the FTC carry-forward is limited to 10 years, so if you aren't able to use your credits within that time period you may have done all that work for nothing. OTOH, if your circumstances change, the excess could come in handy.

As you approach retirement you will want to check the tax treaty for your country of residence if you have any right to a US based pension (esp. US Social Security). I think the UK claims the right to tax US SS in any event, so it may not influence your US taxes all that much.

Oh, and if you're printing out your returns, there is no particular need to print off and send in the FEC form from your tax prep software. (At least there wasn't anything about that the last few years I filed hard copy returns and was still working.) Check the instructions for the 1040 form, but I don't believe that has changed any in recent years.
Cheers,
Bev


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## saccentekennedy (Oct 25, 2018)

Thanks for that! I'll go ahead and file these forms today, and will have a think about all the rest that you brought up. For now.. I'm going to keep it simple, and replicating what the previous forms had on it is an easier way of knowing I have the thing filled in correctly! Rather than try a new form (2555!)


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## underation (Oct 25, 2018)

saccentekennedy said:


> My situation is very straightforward. I work for the NHS and earn a modest amount. I have no investments or any other form of income. I do not have an aggregate bank account balance of over $10,000 at any time in my accounts (see earlier comment about working for the NHS!).
> 
> [..]
> 
> My income in the UK is taxed higher than my income in the US would be, and therefore, the credit is adequate to ensure I don't owe any US taxes. To be honest, I don't see this situation changing in the near or even medium future.


It will change when you retire, because of your personal tax allowance. You'll be receiving your UK State Pension plus your NHS pension and will be paying UK tax only on what's left after your tax allowance is deducted. You won't have enough credits to reduce your US tax due to zero.

You might want to consider renouncing your US citizenship, if you intend to stay in the UK. (Or just go back to not filing.)


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## saccentekennedy (Oct 25, 2018)

That's 25 years away I'm afraid. Who the heck knows what will be happening by that time!


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## underation (Oct 25, 2018)

saccentekennedy said:


> That's 25 years away I'm afraid. Who the heck knows what will be happening by that time!


True. Some things probably still _won't_ be happening though: it still won't matter if you don't file a US tax return every year, if you don't actually owe any tax.


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## saccentekennedy (Oct 25, 2018)

underation said:


> True. Some things probably still _won't_ be happening though: it still won't matter if you don't file a US tax return every year, if you don't actually owe any tax.


I know... I really shouldn't have let the fear get me on this one! I could have left it alone, but I was afraid of being audited or not being able to renew my passport! After doing my return, I realise I'm such small potatoes in the first place, and I don't owe any tax anyway. 

Hey-ho. I've done it now. Hopefully I haven't done them so wrong that they don't try to put me in federal prison because of something I made a miskate on! LOL.


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## underation (Oct 25, 2018)

saccentekennedy said:


> Hey-ho. I've done it now. Hopefully I haven't done them so wrong that they don't try to put me in federal prison because of something I made a miskate on! LOL.


I think you're probably pretty safe. They're still busy with Manafort.


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