U.S. INCOME TAX INFORMATION
TAX FACTS FOR US CITIZENS LIVING ABROAD, 2005
Who must file a return? Any US citizen (throughout this fact sheet the term US citizen includes both citizens and US resident aliens) who has worldwide income in excess of the sum of his or her standard deduction and personal exemption must file a return annually. For 2005 the standard deduction amounts for most people are $10,000 (married filing jointly), $5,000 (single or married filing separately), and $7,300 (head of household). The personal exemption amount is $3,200 for each taxpayer and dependent.
When is my tax return due? US citizens have an automatic extension to June 15 if their residence address is overseas on April 17, 2006. For overseas residents who must file tax returns for calendar year 2005, returns are due by June 15, 2006. However, any amounts owed must still be paid on or before April 17, 2006. The automatic extension applies only to filing the return; it does not affect the due date of any money owed. An international postmark by these dates counts as timely filed, so long at the postmark date is clearly legible.
What form should I file? As the foreign earned income exclusion can only be claimed on a Form 1040, US citizens overseas will normally file a Form 1040. Do not file a Form 1040A or Form 1040EZ if you have income earned from working overseas.
How do I claim the foreign earned income exclusion? To claim either the foreign earned income exclusion or the foreign housing exclusion, you must complete either Form 2555 or Form 2555EZ. The Form 2555EZ should only be used if you were a full year resident overseas with earned income of less than $80,000. If you were an overseas resident for only a part of the year, if you earned more than $80,000, or if you are claiming a foreign housing exclusion, file Form 2555.
What is the maximum foreign earned income exclusion? The maximum exclusion amount for 2004 and future years is $80,000, with possible inflation adjustments for tax years 2006 and later. Each individual taxpayer may claim the exclusion. Thus, a married couple when both work can each claim up to the exclusion limit for the income they earn. If both spouses are employed overseas and both earn $80,000 or more in 2004 the maximum earned income exclusion is $160,000. If one spouse earns more than $80,000 and the other earns less the exclusion may not be "shared." The spouse earning more than $80,000 will have taxable earned income equal to the excess of earned income over $80,000; the spouse earning less than $80,000 will be able to exclude only the amount earned as an individual.
May I claim both the foreign earned income exclusion and the foreign housing exclusion? Yes, if your earned income exceeds the foreign earned income exclusion limit ($80,000 single, $160,000 joint in 2004). To the extent your total foreign housing costs exceed 16 percent of the annual salary of a GS14, Step 1, US government employee, those excess costs may be excluded. Fortunately, the Internal Revenue Service provides the daily rate, which will be approximately $11,700 for tax year 2005. If rent, local housing or real estate tax, common area fees, utilities, etc., exceed this amount the excess amount may be excluded from income.
Where can I get more guidance on filing requirements for US citizens resident overseas? Internal Revenue Service Publication 54, "Tax Guide for U.S. Citizens and Resident Aliens Abroad" has more detailed information. You may also go to the IRS web site, http://www.irs.gov/.
If I want professional help in preparing my return whom may I consult? TieCare has a relationship with Global Tax Service, which provides expert tax preparation services for US citizens or resident aliens residing overseas. E-mail Rick Gray, CPA, at email@example.com.
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