# Form 2555



## byline (Dec 5, 2011)

I have a question about Form 2555 (Foreign Earned Income). On Form 2555, Line 45, it says: "Subtract line 44 from line 43. *Enter the result here and in parentheses on Schedule 1 (Form 1040), line 21. Next to the amount, enter “Form 2555.”* On Schedule 1 (Form 1040), subtract this amount from your additional income to arrive at the amount reported on Schedule 1 (Form 1040), line 22."

The problem is, I don't have additional income that would be reported on Schedule 1. All I have is the income I'm reporting on Form 1040, and again on Form 2555. So surely there's no need to include Schedule 1, only to make that notation. Or do we?


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## Bevdeforges (Nov 16, 2007)

Give them the Schedule 1 like they ask for. There is often no rhyme or reason for how they want you to report this stuff. After all, there's a whole schedule (Schedule 6) just to report your foreign address.


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## byline (Dec 5, 2011)

Very well, I will give it to them. It doesn't make much sense ... especially since subtracting my income from the nonexistent additional income comes to a negative amount. Basically 0.

Speaking of the foreign address form, I'm surprised they don't ask for a street name, since that, to me, is what constitutes an address. All they ask for is the country name, province/county and postal code.


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## Moulard (Feb 3, 2017)

The same thing happened on the old 1040 You added your foreign income as income on line 7, and then removed the amount by adding it again as a negative value on line 21.

Line 21 was used for other income, supported by other forms like the 2555. Thus as it was once treated as other income, it is still treated as other income. Schedule 1 is just another pointless intermediary, like Schedule 6 which effective splits your address onto two forms.

All to protect the ruse that our taxes are simpler because the basic 1040 is half the size, and brushing away the fact that in reality, there are more pieces of paper to file


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## Bevdeforges (Nov 16, 2007)

As Moulard says, on the old 1040 form you included a negative amount in "other income" to take your FEIE. And as you have noted, the street address goes on the 1040 form, while the Schedule 6 thing for foreign addresses needs only your country and postal code (not even town). Makes no sense, but then again, neither does much of anything when it comes to taxes.


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## byline (Dec 5, 2011)

I didn't really understand how Form 2555 worked with the old Form 1040 because I paid a tax preparer to do it back in 2010. He was the last one to file Form 2555. He also filed Form 1116, as did two other subsequent tax preparers ... but, for whatever reason, they didn't file Form 2555. Given my meager income, I'm not sure why they did it that way.

When the paid preparers got too expensive for me, I started doing my own taxes in 2016. I simply followed the lead of my last tax preparer and continued doing it the way he did it. That was the simplest route for me.

This year, changes in the new Form 1040 caused me to re-examine which forms I was submitting. Form 2555 makes a lot more sense for my particular situation, but that meant filling it out for the first time. So this was my first actual experience doing it.


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## Moulard (Feb 3, 2017)

Technically the Foreign Earned Income Exclusion is a reduction in tax owned on the foreign income not actually reduction in income. They way they do that is to reduce your adjusted gross income. By changing your AGI you reduce the tax on that income... this is basically why you add it in one spot and then subtract it in a different spot. 

It is quite common to file both Form 2555 and Form 1116. Two very common reasons...

1) Your foreign earned income is over the limit for Form 2555 and thus you still have US taxable salary. You can reduce that by then taking a credit on the foreign taxes paid to reduce your US tax burden (via a general category Form 1116). This approach is very common if you live in a country where taxes are lower in the foreign country than they are in the US. If you only used Form 1116 then you would owe more US tax.

2) Form 2225 can only be used on earned income (think salary, wages etc). It cannot be used to offset passive income (think interest, distributions etc). So reduce your US taxes on that income, you use a passive category Form 1116 to claim a credit on the foreign taxes paid on that part of your income. 

Hope that all makes some sense.


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## byline (Dec 5, 2011)

Moulard said:


> 2) Form 2225 can only be used on earned income (think salary, wages etc). It cannot be used to offset passive income (think interest, distributions etc). So reduce your US taxes on that income, you use a passive category Form 1116 to claim a credit on the foreign taxes paid on that part of your income.


Thinking back on it, initially my only Canadian income was from my freelance writing business (and that income has never been much). That changed when I took on a part-time job in 2012. Now the wages from that part-time job are the majority of my total income (which totals a little over $8,000 USD). The only other income I have is a small amount of interest ($133 USD). So this year it made sense to switch over completely to Form 2555.

It seems strange to have to file so much paperwork, since now the $12,000 standard deduction completely offsets my income. But then, nothing about this whole process has ever made much sense to me.


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