# Streamline filing - help needed!



## charlese

Hello all. I am new here, so will appreciate any advice. I read some previous threads which are helpful, but my situation is more complicated than most, so I am very confused and just want to double check to be comfortable with what I am doing. I will provide as much info as possible below with numbers and will appreciate your help in guiding me.

I left the US in 2006 and have never filed any tax return or FBARs. I became aware of the filing requirements about a few months ago as my income increased and filed 2014 FBAR on 30 June 2015. I now want to come into full compliance with the IRS and intend doing so through the streamlined offshore procedures based on the continuous physical presence outside the US since 2006. I have now prepared draft tax forms for 2012, 2013 and 2014 and FBARs for 2009, 2010, 2011, 2012, 2013 (however, have not submitted FBARs yet as I want to do so once I am ready to send my envelope with the tax returns to the IRS).

My situation:

In 2012 and 2013 I lived in the Eastern Europe. 

2012: total income at ca. USD 102,000, slightly above the FEIE for that year. However, my understanding is that as long as I am below USD 104,850 (FEIE of USD 95,100 + standard deduction of USD 5,950 + personal exemption of USD 3,800), I do not owe any taxes. This is the case in 2012, so I have prepared just Form 1040, schedule B (a small interest income of ca. USD 1,000), Form 2555 to claim the FEIE and Form 8938 (I have to file it as my balances are above USD 200,000). My understanding is that I cannot file Form 2555EZ because my income is above the amount of the FEIE, is this right? Are there any other required forms which I am missing? Is there any difference between filing 2555 and 2555EZ?

2013: total income at ca. USD 100,000. Again, I am slightly above the FEIE of USD 97,600, but owe nothing after I deduct standard deduction and personal exemption. Therefore, I prepared Form 1040, schedule B, Form 2555 and Form 8938. Again, can I use Form 2555EZ instead of 2555 as it seems with 2555EZ I am disclosing less information? Anything else I am required to file?

2014 becomes much more complicated as I moved to the UK in late 2014 for several years to take international assignment. In addition to my income of ca. USD 100,000, the company has provided housing allowance and cost of living differential which are ca. USD 40,000. My understanding is that I should add this amount to my income. I also got married in 2014, but my wife is not US citizen, has never lived in the US and has no social security number. 

In 2014, I am obviously above the FEIE of USD 99,200; however, I also decided to claim the Housing Exclusion for renting a flat both in Eastern Europe and the UK (which I did not claim in previous years as my income was not high enough to claim it, I arrive to zero tax even without claiming this), so I again arrive to zero tax. Can I do this? I have all receipts in case I get audited and can confirm all payments for my flats both in Eastern Europe and the UK, but I am concerned that I am deducting an amount in excess of USD 99,200. Is this allowed or I am completely lost on this and am misreading the manual? 

Also, do I need to put any information about my wife on the tax returns? She is not US citizen or a permanent resident, so does IRS need to know that I am married? This is very confusing. 

There is also confusion with addresses. Which address do I put for 2012 and 2013? Shall I put my previous address where I lived at that time and current address for 2014 return? 

I can only claim FEIE, no Foreign Tax Credit, so please advise on this basis only.

I will really appreciate your help on the above. Many thanks.


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## charlese

My other question relates how to send the forms from London once I am ready with them? Any recommendations? I would definitely like to get confirmation that IRS has received the forms and the package has not got lost.


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## BBCWatcher

Your understanding of 2012 and 2013 appears to be correct. You can always use Form 2555 even if you qualify to use 2555EZ instead, so just go with 2555 if you're in doubt.



charlese said:


> 2014 becomes much more complicated as I moved to the UK in late 2014 for several years to take international assignment. In addition to my income of ca. USD 100,000, the company has provided housing allowance and cost of living differential which are ca. USD 40,000. My understanding is that I should add this amount to my income.


The cost of living allowance, yes. The housing allowance, usually yes, but sometimes you can subtract a bit from that -- for example, if you incurred eligible moving expenses you may be able to subtract those.



> I also got married in 2014, but my wife is not US citizen, has never lived in the US and has no social security number.


That's OK. Congratulations!



> In 2014, I am obviously above the FEIE of USD 99,200; however, I also decided to claim the Housing Exclusion for renting a flat both in Eastern Europe and the UK (which I did not claim in previous years as my income was not high enough to claim it, I arrive to zero tax even without claiming this), so I again arrive to zero tax. Can I do this? I have all receipts in case I get audited and can confirm all payments for my flats both in Eastern Europe and the UK, but I am concerned that I am deducting an amount in excess of USD 99,200. Is this allowed or I am completely lost on this and am misreading the manual?


Sure, you're allowed to take the Foreign Housing Exclusion. It's part of Form 2555, so as long as you're following those instructions carefully you should be fine.



> Also, do I need to put any information about my wife on the tax returns? She is not US citizen or a permanent resident, so does IRS need to know that I am married?


Yes. First, you would select a different filing status for 2014 (and going forward as long as you stay married). There are three possible choices: Married Filing Separately, Head of Household (if you qualify -- read the instructions about non-resident alien spouses to see if you do), or Married Filing Jointly (if your spouse agrees to file a joint U.S. tax return with you -- she has that option). The last option is not too common when the spouse is a non-resident alien, but for what it's worth my NRA spouse files a joint U.S. tax return with me. Head of Household would be better than MFS if you qualify.

At the top of your tax return there's a space for your spouse's name, so you'd fill that in. (Actually two spots. You fill out one or the other depending on which filing status you choose.) And since your wife doesn't have a U.S. SSN or ITIN (I assume) and isn't required to get one (I also assume) the instructions say you can write "NRA" in the space where her SSN/ITIN would ordinarily go.



> There is also confusion with addresses. Which address do I put for 2012 and 2013? Shall I put my previous address where I lived at that time and current address for 2014 return?


No, put your current address there. That's simply your mailing address at the top of 1040. It's not necessarily indicative of where you actually live or lived. It tells the IRS how they can contact you by mail, that's all.



> I can only claim FEIE, no Foreign Tax Credit, so please advise on this basis only.


That's not correct. You can claim the FTC (Form 1116) for income tax paid on any/all income that you don't exclude, and you probably should. For example, let's suppose you received that $1000 in interest income from Poland and you paid $150 in Polish income tax on that interest. (Maybe the income tax was withheld before you even saw the interest, as Japan does for example.) That $150 can be taken as an FTC, and it's potentially a "bankable" excess FTC, which is the whole point of bothering with it.

Optional, yes, but take a look at it.


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## Bevdeforges

One small caveat with regard to how you file your forms for those years where your earned income exceeded the FEIE limits. Check Pub 54 again, but I don't believe you can take the personal exemption and the standard deduction in full against the amount you're over the FEIE limit. 

On the 1040, they refer to a worksheet to be used in figuring your tax if you take the FEIE - line 44. This worksheet basically forces you to apportion your personal exemption and standard (or itemized) deduction between the FEIE portion of your income and what's left. 
Cheers,
Bev


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## BBCWatcher

All of which is another really good reason to let tax preparation software (even the free stuff) have at least the first crack at running this calculation for you.


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## charlese

Bevdeforges said:


> One small caveat with regard to how you file your forms for those years where your earned income exceeded the FEIE limits. Check Pub 54 again, but I don't believe you can take the personal exemption and the standard deduction in full against the amount you're over the FEIE limit.
> 
> On the 1040, they refer to a worksheet to be used in figuring your tax if you take the FEIE - line 44. This worksheet basically forces you to apportion your personal exemption and standard (or itemized) deduction between the FEIE portion of your income and what's left.
> Cheers,
> Bev


Wow, this changes everything as in that case I may owe IRS some taxes. Thanks, will check today.:juggle:


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## charlese

BBCWatcher said:


> All of which is another really good reason to let tax preparation software (even the free stuff) have at least the first crack at running this calculation for you.



Thank you very much for detailed answers. This whole process is extremely confusing. If we want to file jointly with my non US wife, does it mean she needs to get SS number? Can we do a joint return without SS?


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## Bevdeforges

Your non-US wife can't get a SSN, but rather an ITIN (a tax identification number). The big caveat there is that filing jointly means that your wife's worldwide income must also be declared. She can claim the FEIE for her earned income - but you can't use any "leftover" exclusion amount against your income.

TaxAct is probably the online freebie tax software that is best adapted to those filing from overseas, though I've heard that TaxSlayer is also good in this regard (just haven't tried it myself). 

To get an ITIN for your wife, fill out a W-7 from the IRS and follow the instructions.
Cheers,
Bev


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## charlese

Bevdeforges said:


> One small caveat with regard to how you file your forms for those years where your earned income exceeded the FEIE limits. Check Pub 54 again, but I don't believe you can take the personal exemption and the standard deduction in full against the amount you're over the FEIE limit.
> 
> On the 1040, they refer to a worksheet to be used in figuring your tax if you take the FEIE - line 44. This worksheet basically forces you to apportion your personal exemption and standard (or itemized) deduction between the FEIE portion of your income and what's left.
> Cheers,
> Bev


Bev, are you sure about the above? I went to the Publication 54 and there is nowhere it says that you cannot take personal exemption and the standard dediction?

For example, if my income in 2012 was USD 102,000 and I take FEIE, I reduce AGI to USD 6,900. I then reduce it by the standard deduction for a single (USD 5,950) and arrive to 0 taxable income by taking a personal exemption. Do you mean I cannot take full amounts of USD 5,950 and USD 3,900? Why? 

This is what it says in Pub 54:

Items Related toExcluded Income
U.S. citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States.
If you choose to exclude foreign earned in-come or housing amounts, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. This includes any expenses, losses, and other normally deductible items that are al-locable to the excluded income. You can de-duct only those expenses connected with earn-ing includible income.

These rules apply only to items definitely re-lated to the excluded earned income and they do not apply to other items that are not defi-nitely related to any particular type of gross in-come. *These rules do not apply to items such as:*

*Personal exemptions,*
Qualified retirement contributions,
Alimony payments,
Charitable contributions,
Medical expenses,
Mortgage interest, or
Real estate taxes on your personal resi-dence.

For purposes of these rules, your housing deduction is not treated as allocable to your ex-cluded income, but the deduction for self-employment tax is.


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## Bevdeforges

I didn't say you can't take the personal exemption or the standard deduction (or any other deduction). Only that you have to apportion them to the part of your income that you excluded and what's left over. There is something called the Foreign Earned Income Tax Worksheet (part of the instructions for form 1040).

The worksheet starts with whatever you reported on line 43 of the 1040 (though you don't have to do the worksheet if you get to line 43 with a 0 balance. You may be OK if this is your situation.
Cheers,
Bev


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## charlese

Bevdeforges said:


> I didn't say you can't take the personal exemption or the standard deduction (or any other deduction). Only that you have to apportion them to the part of your income that you excluded and what's left over. There is something called the Foreign Earned Income Tax Worksheet (part of the instructions for form 1040).
> 
> The worksheet starts with whatever you reported on line 43 of the 1040 (though you don't have to do the worksheet if you get to line 43 with a 0 balance. You may be OK if this is your situation.
> Cheers,
> Bev



Bev, you are really confusing me now. In your previous response, you have said: "One small caveat with regard to how you file your forms for those years where your earned income exceeded the FEIE limits. Check Pub 54 again, but I don't believe you can take the personal exemption and the standard deduction in full against the amount you're over the FEIE limit. "

My income is slightly above the FEIE limit in 2012 and 2013. However, if I take the standard deduction and personal exemption in full for these years, my taxable income on Line 43 is zero and I do not even need to use the worksheet. 

I have now looked at the number of sample 2555 and 1040s for expat filings online and the personal exemption and standard deduction are taken in full - for example, US Expat Taxes - Completing Form 1040, the Face of your Tax Return


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## BBCWatcher

charlese said:


> Wow, this changes everything as in that case I may owe IRS some taxes.


Did you pay any income tax on your income? If you did, you'd simply take the Foreign Tax Credit on your U.S. tax return. If you also take the FEIE then you have to apportion the FTC to non-excluded income, but it's still available for non-excluded income. Taking the FEIE is optional not required -- you can take the FTC across all your income if you wish.

Tax preparation software (free or fee) handles these issues quite well. I wouldn't recommend trying to run these calculations manually. Even the pros use software tools to assist them -- and IRS auditors do too, for that matter.


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## charlese

BBCWatcher said:


> Did you pay any income tax on your income? If you did, you'd simply take the Foreign Tax Credit on your U.S. tax return. If you also take the FEIE then you have to apportion the FTC to non-excluded income, but it's still available for non-excluded income. Taking the FEIE is optional not required -- you can take the FTC across all your income if you wish.
> 
> Tax preparation software (free or fee) handles these issues quite well. I wouldn't recommend trying to run these calculations manually. Even the pros use software tools to assist them -- and IRS auditors do too, for that matter.


No, I have not paid income tax on the income. That is why I cannot use FTC, only FEIE.


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## charlese

BBCWatcher said:


> Tax preparation software (free or fee) handles these issues quite well. I wouldn't recommend trying to run these calculations manually. Even the pros use software tools to assist them -- and IRS auditors do too, for that matter.


Any suggestions on the software which I can use? Any good ones? I am happy to pay, no problem, as long as it is good.


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## BBCWatcher

Start with the free ones such as TaxAct.com and TaxSlayer.com -- they're both free for the current tax year (2014 still, as I write this). Or at least they have free editions, so give those a try first. If you like one or the other, or something else, you can consider paying for past tax years and/or other features, but that's optional.

Since you're taking the FEIE don't forget about the Foreign Housing Exclusion. Check those rules and add those figures into the calculation if you're allowed, as you're allowed. That'll give you some more "breathing room." (There are differing opinions on whether you should go through the FHE exercise if the FEIE is sufficient. One reason why you might still do it is if there's a future IRS audit or inquiry. Taking the FHE would give you that much more "breathing room" if an audit or inquiry has to adjust something else. But that's not a particularly strong reason to go through the FHE exercise if you don't need to, so whichever you prefer.)

Note that if you cannot fully shield all your income using the FEIE/FHE then your non-shielded earned income is a source for making U.S. IRA contributions if you otherwise qualify, and going forward (starting with a 2015 contribution if you wish). If you don't qualify for a direct IRA contribution because you earn "too much" then you can lookup something called the "backdoor Roth IRA" and use that approach.


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## charlese

BBCWatcher said:


> Start with the free ones such as TaxAct.com and TaxSlayer.com -- they're both free for the current tax year (2014 still, as I write this). Or at least they have free editions, so give those a try first. If you like one or the other, or something else, you can consider paying for past tax years and/or other features, but that's optional.
> 
> Since you're taking the FEIE don't forget about the Foreign Housing Exclusion. Check those rules and add those figures into the calculation if you're allowed, as you're allowed. That'll give you some more "breathing room." (There are differing opinions on whether you should go through the FHE exercise if the FEIE is sufficient. One reason why you might still do it is if there's a future IRS audit or inquiry. Taking the FHE would give you that much more "breathing room" if an audit or inquiry has to adjust something else. But that's not a particularly strong reason to go through the FHE exercise if you don't need to, so whichever you prefer.)
> 
> Note that if you cannot fully shield all your income using the FEIE/FHE then your non-shielded earned income is a source for making U.S. IRA contributions if you otherwise qualify, and going forward (starting with a 2015 contribution if you wish). If you don't qualify for a direct IRA contribution because you earn "too much" then you can lookup something called the "backdoor Roth IRA" and use that approach.



Thank you, very helpful! If anyone can recommend a good tax consultant, I will appreciate. It seems there are way too many issues for me to handle by myself, so I will prefer to pay and sort this out.


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## BBCWatcher

Try the free tax prep software first before deciding whether you want to go beyond that.


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## Bevdeforges

If you got to line 43 with a result of 0, you're fine the way you are. The worksheet is primarily for those who have unearned income and/or earned income over and above the FEIE limit that exceeds the exemption and standard deduction amounts. 

But as BBC says, try the freebie tax software and see how that turns out for you. (At least it shows you which numbers go where on the forms.) The help files for the tax software can often explain things better than the IRS publications - and even if you wind up paying for the software, it's usually less than $50.

I'd really hold off on going "pro" for your tax filings, as paid tax preparers get expensive pretty quickly. Until and unless you have some significant level of "tricky" investments with complicated tax consequences, you can probably get away with the software and a good faith stab at it.
Cheers,
Bev


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## charlese

Bevdeforges said:


> If you got to line 43 with a result of 0, you're fine the way you are. The worksheet is primarily for those who have unearned income and/or earned income over and above the FEIE limit that exceeds the exemption and standard deduction amounts.
> 
> But as BBC says, try the freebie tax software and see how that turns out for you. (At least it shows you which numbers go where on the forms.) The help files for the tax software can often explain things better than the IRS publications - and even if you wind up paying for the software, it's usually less than $50.
> 
> I'd really hold off on going "pro" for your tax filings, as paid tax preparers get expensive pretty quickly. Until and unless you have some significant level of "tricky" investments with complicated tax consequences, you can probably get away with the software and a good faith stab at it.
> Cheers,
> Bev


Thanks. Now more clear.


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## charlese

I have another quick question - was form 8938 already required to file for 2012 year? The form itself is very confusing and is more so for the 2013 year? There is no continuation sheet, so I am not sure how to do it if I have more than 2 foreign accounts.


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## BBCWatcher

Yes, Form 8938 existed for tax year 2012 (and tax year 2011 for that matter). You can find the form for those back tax years at the IRS's Web site.

On page 8 of the instructions for IRS Form 8938 (2012 edition) you'll see a section entitled "Additional sheets." Follow those instructions to report additional accounts. Refer to each tax year's instructions for guidance -- the instructions change slightly as you get to newer tax years.

At the risk of sounding like a broken record, tax preparation software generally handles all these details so you don't have to.


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