# 2555 and 1040 self-employed



## dtintheeu

Hello again,

I was totally overwhelmed with work and unable to start this process. Taking the time now to prepare for a Streamlined process before June 15th.

This forum is fantastic, one can spend quite a lot of time...

My questions:
1) I am self-employed in Germany, on form 2555, line 4a (Employer's foreign address) I put my address, is that correct or should I put my office address?

2) Line 5 (Employer is) "c" (self) (?)

3) Do I need to provide proof that I am paying taxes as a self-employed person (certificate of coverage), if so does anybody know what it is called in German? Is the healthcare question important, there I pay quite a bit, do I need to prove it, or is that the certificate mentioned above?

4) I am under the maximum foreign earned income exclusion for 2011-2014 and don’t have much in the bank, that’s why I’m using the 2555 (if that is correct is only a guess on my part?)

5) FBARS are almost on their way, even if some are under 10K, I want to show compliance, or is it a waste of time?

6) Now the 1040 :-/ Line 7: money earned (though self-employed), Line 57: (Self-employment tax) remains blank, if I understand this correctly? (I pay enough here in Germany!)

7) Since I am under the maximum foreign earned income exclusion should I just leave out dependents and other deductions? I’m trying to take the path of the least resistence… and forms 

Thank you all for the best forum around!


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## Bevdeforges

OK, there is more than one "correct" answer when it comes to filing US tax returns. So be prepared for some "discussion" here on Ye Olde Forum....

There are a couple of missing bits of information that you'll need to decide exactly how to handle your situation. Main ones are: what is your family situation (i.e. married or single?) If married, what is your spouse's status (i.e. US citizen/taxpayer or not?)? When you say you're self-employed, do you have a business registration of some sort?

Now, to your specific questions:
1) If your business is registered in any manner, use the registered address of the business. (May be your home address.) If not, use your home address.

2) Up to you. If your business is registered and has a name, you can use that. Or put "self" if you prefer.

3) You don't need to provide anything with your tax returns. Probably not a bad idea to have something on hand in the unlikely event they ask you for "proof." But for the time being, any document you have from having paid your social insurances is probably adequate. The US and Germany do have a tax and social security treaty so as long as you're up to date with your payments, you should be ok. (Or at least you don't have to get anything to send in with your tax return.) On the healthcare question on the tax forms, you're supposed to fill in a form, claiming an exemption based on being resident outside the US.

4) Unless you want to tackle form 1116 (to claim your German income taxes paid against any potential US tax liability), the 2555 is probably the quickest and easiest way to go. (Someone else will be by soon claiming that you should run things with the 1116 instead of the 2555 - and if you're game, go ahead. For fast and dirty, go with the 2555 forms.)

5) Technically, you don't have to do FBARs for any year when your combined bank total was less than $10,000. But there's no penalty for "over compliance" if it makes you feel better.

6) Line 7 is either your net income from your schedule C (i.e. itemizing your business results) or your gross revenue from your business (if it falls below the exclusion amount, just exclude the whole thing and forget about the Schedule C). This is another point where you'll get differing points of view - but there is no law that says you HAVE to take all deductions from your business that you're entitled to. Leave line 57 blank (you have the treaty behind you on this one).

7) This is where your family status comes into play. If you're single, you just work your way through the form, taking your personal exemption and the standard deduction - in part just to prove your "taxable income" is negative so you owe $0. If you're married, you probably want to file as "married, filing separately" if your spouse is a NRA. Again, you only get your own personal exemption. If you have kids, there are other options - but if you're after the simplest approach, as long as your tax liability comes down to $0, you're done and dusted.

OK, I shall now stand back and wait for the "responsible alternative advocates" to explain their approaches.
Cheers,
Bev


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## dtintheeu

Hi Bev,

Thank you for the detailed response, let the discussion begin!
I am married to a NRA (that really sounds impersonal) and my business is not registered. One of my kids has a SSN and is under 17 and the other still doesn't have her SSN yet.

You Wrote:"6) Line 7 is either your net income from your schedule C (i.e. itemizing your business results) or your gross revenue from your business (if it falls below the exclusion amount, just exclude the whole thing and forget about the Schedule C)"
If the gross earnings are under the $99,XXX then I should just write it on Line 7? I would love not to have to do the Schedule C when I'm anyway unter the amount.

Some have claimed that self-enployment tax is not covered by the 2555, but if I'm paying so much here how could the IRS then slap on a double tax, or am I just naive?

Thanks
dtintheeu


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## Bevdeforges

dtintheeu said:


> You Wrote:"6) Line 7 is either your net income from your schedule C (i.e. itemizing your business results) or your gross revenue from your business (if it falls below the exclusion amount, just exclude the whole thing and forget about the Schedule C)"
> If the gross earnings are under the $99,XXX then I should just write it on Line 7? I would love not to have to do the Schedule C when I'm anyway unter the amount.


Honestly, that's what I'd do. The Schedule C is only to pare down your gross revenue to what you actually "made" in your business. But if the gross is still under the exclusion limit, why bother with all the paperwork? Exclude it all and be done with it!



> Some have claimed that self-enployment tax is not covered by the 2555, but if I'm paying so much here how could the IRS then slap on a double tax, or am I just naive?


The self-employment tax is not covered by the 2555 - but, given that there IS indeed a social security treaty between the US and Germany, it means that if you are paying into the German system, then you don't owe any "self-employment" tax to the US. If they ask for it, you'll need some proof that you are, indeed, paying your social insurances to the Germans. But under the circumstances, it is highly unlikely they'll ask to see your certification. Hang onto any paperwork you have that shows what/that you are paying in and I think you'll be fine.
Cheers,
Bev


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## BBCWatcher

The responsible party here would point out that U.S. citizen kids are often worth $1000 each in free money from the IRS but not if you use Form 2555 (or 2555-EZ), and as long as your income isn't too high. All I ever suggest is to run the calculation both ways, with and without the Foreign Earned Income Exclusion. Not a radical idea! Who couldn't use free money, in this case the Additional Child Tax Credit? See if you and your kids qualify.


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## Bevdeforges

Just be sure to check first if the Foreign Tax Credit approach actually saves you money in terms of taxes. While many countries are considered "high tax" jurisdictions, that often involves more than just income taxes (and may not take into account how folks in the lower to middle income ranges are taxed). The FTC only applies to "income tax" fairly strictly defined. 
Cheers,
Bev


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## BBCWatcher

Of course! That's what running the calculation both ways means.

I do not _presume_ that either path is the optimal one. But there is free money potentially at stake, so it's a darn good idea to check both paths, preferably using tax preparation software (even the free software, such as TaxAct or TaxSlayer) because then it's rather easy to do.


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## dtintheeu

Hi BBCWatch and Bev,

I tried TaxSlayer, but it does not allow my spouse to be a "NRA", it wants a SSN. I didn't look further into it yet, but from what I have read on this forum it must work!?


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## BBCWatcher

dtintheeu said:


> I tried TaxSlayer, but it does not allow my spouse to be a "NRA", it wants a SSN. I didn't look further into it yet, but from what I have read on this forum it must work!?


According to TaxSlayer themselves it's supposed to work. If you're having difficulty with TaxSlayer, ask for help in their support forum.


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## shidareume

If your wife is an NRA, and you provide more than half the support for your kids, you could claim Head of Household status instead. Don't need to list the wife's info at all in that case, just need at least one kid's SS number. Also get larger standard deduction than with MFS.


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## BBCWatcher

shidareume said:


> If your wife is an NRA, and you provide more than half the support for your kids, you could claim Head of Household status instead.


Ah, no. Where are you getting that?

Let's turn to IRS Publication 501. According to that publication, to file as Head of Household you must meet all of the following requirements:

1. You are unmarried (Dtintheeu is not) or you are considered unmarried at the end of the year....

OK, how can Dtintheeu be considered unmarried? Well, he must meet all of the following tests:

A. He files a separate tax return. OK, he can do that.

B. He paid more than half of the cost of keeping up the home for the tax year. OK, let's assume that's true.

C. His spouse did not live in the home the last 6 months of the year. Temporary absences do not count....

It's extremely unlikely Dtintheeu's spouse did not live in the same home for at least the last 6 months of the year.

There are other tests to pass, both in the "considered unmarried" section and in the main section, but the most you could suggest is that he investigate the _possibility_ of filing as Head of Household. It's far from a given, though.

There is another filing status available, however: Married Filing Jointly. It's up to Dtintheeu's spouse to decide whether she wants to participate in a joint U.S. tax filing with Dtintheeu. NRA spouses can participate in joint U.S. tax filings by making what's called a Section 6013(g) election. In these circumstances I would only recommend considering such an election if Dtintheeu cannot claim the maximum Additional Child Tax Credit and if his spouse's participation in a joint filing would substantially raise the refundable tax credit (ACTC) available to the household.


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## Bevdeforges

If, however, your entire income is excludable anyhow, the head of household doesn't really change things any (i.e. from $0 taxes due to $0 taxes due). Maybe if you're eligible for the child rebate...

With an NRA spouse, it may be difficult to e-file no matter what you do. Using TaxAct, I got the program to take the return, only to have the IRS reject the e-filing. If all else fails, print out the return and mail it in (postmarked by June 15th, if possible). The forms you print out from the software are perfectly acceptable in printed form for mailing them in.
Cheers,
Bev


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## shidareume

BBCWatcher said:


> Ah, no. Where are you getting that?


U.S. Citizens and Resident Aliens Abroad - Head of Household


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## BBCWatcher

I stand corrected re: Head of Household, thanks.


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## dtintheeu

Bevdeforges said:


> Honestly, that's what I'd do. The Schedule C is only to pare down your gross revenue to what you actually "made" in your business. But if the gross is still under the exclusion limit, why bother with all the paperwork? Exclude it all and be done with it!
> 
> 
> The self-employment tax is not covered by the 2555 - but, given that there IS indeed a social security treaty between the US and Germany, it means that if you are paying into the German system, then you don't owe any "self-employment" tax to the US. If they ask for it, you'll need some proof that you are, indeed, paying your social insurances to the Germans. But under the circumstances, it is highly unlikely they'll ask to see your certification. Hang onto any paperwork you have that shows what/that you are paying in and I think you'll be fine.
> Cheers,
> Bev


Hi Bev, hi Forum,

This is a rather late response to say the least! Life just gets in the way of doing (American) taxes… 

I decided on the easy way out since my gross income under the Maximum foreign earned income exclusion. Just going with the bare bones to make it easier.

I have one last question concerning 2555 and 1040 if I may? 

Form 2555, line 45 is the same sum on Form 1040, line 7. Is it correct that on 1040, line 22 I subtract the sum from 2555, line 45 from 1040 line 7? That would then equal 0.00$ for 1040, line 22.

The IRS writes (form 2555) "Subtract line 44 from line 43. Enter the result here and in parentheses on Form 1040, line 21. Next to the amount enter “Form 2555.” On Form 1040, subtract this amount from your income to arrive at total income on Form 1040, line 22"

I might be way off here and would appreciate any input form this great forum!!!

Best regards from Germany!


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## BBCWatcher

Not quite.

Think of it this way. IRS Form 1040 line 21 is a number in parentheses. Numbers in parentheses are negative numbers. Form 1040 line 22 instructs you to add lines 7 through 21 together. When you get to line 21, that's a negative number, so adding a negative number means subtracting that number (without the minus sign). You don't _only_ refer to line 7.

Let's illustrate with an example. Suppose you have these numbers (lines 7 through 21):

7: 10283
8a: 321
9a: 0
10: 0
11: 0
12: 1200
13: (280)
14: 0
15b: 0
16b: 0
17: 0
18: 0
19: 0
20b: 0
21: Form 2555 (10283)

So, to figure out line 22, just add everything together, using minus signs for any numbers in parentheses. In this example that's 10283+321+1200-280-10283 = 1241, so you'd write 1241 in line 22.

As a reminder, it's really not a great idea to attempt to use IRS forms directly, manually. That's a bit like growing your own wheat to make a cake -- it can be done, but it's tedious at least. Tax preparation software is very useful, even including the free editions of tax preparation software (such as TaxAct.com and TaxSlayer.com). They handle the arithmetic for you, among many other things -- and they all handle this particular arithmetic. They help prevent making basic mathematical errors whether through misinterpretation of instructions or miscalculations that could result in IRS inquiries and/or incorrect calculation of tax owed. I really, really recommend taking advantage of tax preparation software, even the free stuff (which is quite good) so that questions like this one wouldn't even come up.


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## dtintheeu

BBCWatcher said:


> Not quite.
> 
> Think of it this way. IRS Form 1040 line 21 is a number in parentheses. Numbers in parentheses are negative numbers. Form 1040 line 22 instructs you to add lines 7 through 21 together. When you get to line 21, that's a negative number, so adding a negative number means subtracting that number (without the minus sign). You don't _only_ refer to line 7.
> 
> Let's illustrate with an example. Suppose you have these numbers (lines 7 through 21):
> 
> 7: 10283
> 8a: 321
> 9a: 0
> 10: 0
> 11: 0
> 12: 1200
> 13: (280)
> 14: 0
> 15b: 0
> 16b: 0
> 17: 0
> 18: 0
> 19: 0
> 20b: 0
> 21: Form 2555 (10283)
> 
> So, to figure out line 22, just add everything together, using minus signs for any numbers in parentheses. In this example that's 10283+321+1200-280-10283 = 1241, so you'd write 1241 in line 22.
> 
> As a reminder, it's really not a great idea to attempt to use IRS forms directly, manually. That's a bit like growing your own wheat to make a cake -- it can be done, but it's tedious at least. Tax preparation software is very useful, even including the free editions of tax preparation software (such as TaxAct.com and TaxSlayer.com). They handle the arithmetic for you, among many other things -- and they all handle this particular arithmetic. They help prevent making basic mathematical errors whether through misinterpretation of instructions or miscalculations that could result in IRS inquiries and/or incorrect calculation of tax owed. I really, really recommend taking advantage of tax preparation software, even the free stuff (which is quite good) so that questions like this one wouldn't even come up.


Hi BBCWatcher,

Thank you for your informative response! I did start with TaxSlayer, but had problems right away with NRA status for my wife, the e-form would not allow it. But I don't want to get into that right now.

My gross Income in lower then the Maximum foreign earned income exclusion, therefore I am just avoiding any othere forms and taking no deductions, just the 2555 and 1040. I don't have investments and my bank accounts are close to the null point, money comes, money goes... there is no reason to go through all that, We have enough to do and pay for for our German taxes.

After reading your message it seems that I will be putting the "0.00" on line 22! 

Thanks again for your advice!


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## BBCWatcher

dtintheeu said:


> I did start with TaxSlayer, but had problems right away with NRA status for my wife, the e-form would not allow it.


Have you considered you were trying to force TaxSlayer to fill out a form in a way that the form is not supposed to be filled in -- and that's why TaxSlayer raised an objection? That's _usually_ the problem. If TaxAct agrees, look in the mirror: you are probably the problem. 



> After reading your message it seems that I will be putting the "0.00" on line 22!


If that's what the math shows (based on reporting the truth), sure.


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## Bevdeforges

BBCWatcher said:


> Have you considered you were trying to force TaxSlayer to fill out a form in a way that the form is not supposed to be filled in -- and that's why TaxSlayer raised an objection? That's _usually_ the problem. If TaxAct agrees, look in the mirror: you are probably the problem.


A little harsh, perhaps. Although TaxAct and TaxSlayer do have significant provision for overseas taxpayers, both can be kind of fiddly when it comes to finding the right button to click on or option to choose so that things are reporting the way the software wants. And even if the software ok's whatever you've entered, there is always the chance that the IRS e-file system will reject your forms. 

Most tax software also has an option where you can "force" what you want by going directly to the forms to fill in a particular line or blank. This "feature" is there for a reason - because there are always cases and situations they simply haven't built into the program.

There is usually the option to simply print out the forms and mail them in, just like in the "good old days." 
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> And even if the software ok's whatever you've entered, there is always the chance that the IRS e-file system will reject your forms.


Which is a very separate issue (_how_ the forms are filed) from letting the tax preparation software fill out the forms.



> Most tax software also has an option where you can "force" what you want by going directly to the forms to fill in a particular line or blank. This "feature" is there for a reason - because there are always cases and situations they simply haven't built into the program.


"Always," for every individual filer, no. "Always" in terms of the entire tax code and entire body of regulations and instructions, and across the entire population of filers, yes, there will always be at least one exceptional filer by that standard. You (the randomly selected filer) are probably not that exceptional filer _assuming you wish to adhere faithfully to the tax code and associated regulations and instructions_.


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## Bevdeforges

BBCWatcher said:


> "Always," for every individual filer, no. "Always" in terms of the entire tax code and entire body of regulations and instructions, and across the entire population of filers, yes, there will always be at least one exceptional filer by that standard. You (the randomly selected filer) are probably not that exceptional filer _assuming you wish to adhere faithfully to the tax code and associated regulations and instructions_.


Just to clarify - there is never any single "right" way to do anything when dealing with US taxes. There are just about always some "options" "elections" or other choices to be made. With just about any software, it can be tricky to suss out precisely what you have to do, click on or respond to to get the software to report things in a particular way - which is why they always have the option to go directly to the forms themselves as needed.

Or, you make an initial pass through using the Q and A function and then look at the forms it produces to see if they reflect what you intended to do/say/report. Many times, the forms need manual "tweaking" - often for silly reasons. Actually that's one of the big advantages of using tax preparation software - the ability to go back and change things, either directly on the forms themselves, or by retracing your questionnaire responses so that for next year, you know that to get an amount to appear on line x you need to respond to the appropriate question in a certain way. (It's how I learned to do my French taxes by playing around with the software. I'm sure most first-timers wind up doing the same with TaxAct and/or TaxSlayer.)
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> Just to clarify - there is never any single "right" way to do anything when dealing with US taxes.


Never..._anything_? I disagree with that characterization.


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