regulatory<\/em> election. Congress simply said \u201cAt the election of a qualified individual . . . there shall be excluded from the gross income . . . .\u201d Congress then delegated the details of enforcing this rule to the Treasury Department (of which the IRS is a part). Thus, the Treasury Department sets the filing deadlines for when a taxpayer makes the election to take the foreign earned income exclusion.<\/p>\nThere are a host of rules that soften the harsh effect of missing the deadline. The IRS has general rules that deal with relief from deadlines when you blow an election. And there are specific rules that apply to the foreign earned income exclusion and what to do when you are late in claiming it.<\/p>\n
Timely Election for the Foreign Earned Income Exclusion<\/h3>\n
Making an election correctly is simple: file Form 2555 as part of a timely-filed income tax return. This means you file on or before the deadline that applies to you: April 15 or June 15.<\/p>\n
If you apply for an extension of time to file your income tax return (use Form 4868 \u2014 or Form 2350 \u2014 in the right circumstances), that extended deadline is the one that matters. Get your tax return filed before the extended deadline, have Form 2555 attached, and you have made the election to exclude your foreign earned income from taxation.<\/p>\n
Missed the Filing Deadline?<\/h3>\n
What happens if you are late? The filing deadline has passed, and you did not file Form 2555 to claim the foreign earned income exclusion. The default rule is \u201ctoo bad, you lose\u201d \u2014 you do not get to exclude foreign earned income from being taxed.<\/p>\n
But the system has some slack built in. It is designed to encourage you to move fast. The sooner you fix the problem, the safer you are. Here are the rules.<\/p>\n
Nonfilers: One Year Late<\/h3>\n
If you never filed a tax return and you are filing late, you can claim the foreign earned income exclusion if you are not too late.<\/p>\n
File your original tax return within one year after the actual deadline. The IRS will allow the foreign earned income exclusion to apply, whether you owe tax (or not) after applying the foreign earned income exclusion.<\/p>\n
Example<\/strong><\/p>\nYou are living outside the United States and meet all of the qualifications for the foreign earned income exclusion. Your salary is $50,000 per year. You missed the 15 June 2016 deadline for filing your 2015 income tax return. You file your 2015 income tax return in January, 2017. You attach a properly-prepared Form 2555 to claim the foreign earned income exclusion.<\/p>\n
You did not file a timely 2015 income tax return.<\/p>\n
However, your late tax return was filed within one year of the 15 June 2016 filing deadline. Therefore, your claim for the foreign earned income exclusion will be accepted.<\/p>\n
Note that it does not matter whether you are under audit, have received a notice from the IRS, or owe any Federal income tax. All that is irrelevant. If you get your original tax return on file within one year of the filing deadline, you win.<\/p>\n
Nonfilers: More than One Year Late<\/h3>\n
What if you are seriously late? You have not filed a Federal income tax return for several years. You want to clean things up, and the foreign earned income exclusion will, you discover, completely eliminate U.S. income tax on your income.<\/p>\n
If you are more than one year late in filing your tax return (with Form 2555), the question of whether you can force the IRS to accept your late Form 2555 or not depends on:<\/p>\n
\n- whether you owe Federal income tax; and<\/li>\n
- how fast you are in filing your tax return.<\/li>\n<\/ul>\n
Original Return More than One Year Late and You Owe No Tax<\/h4>\n
If you are filing your Federal income tax return more than one year late and, after applying the foreign earned income exclusion, you owe no Federal income tax, then the IRS cannot reject you. The foreign earned income exclusion is yours for the taking.<\/p>\n
Example<\/strong><\/p>\nYou are living outside the United States and meet all of the qualifications for the foreign earned income exclusion. Your salary is $50,000 per year. You have no other income.<\/p>\n
You missed the 15 June 2015 deadline for filing your 2014 income tax return. You file your 2014 income tax return in January, 2017. You attach a properly-prepared Form 2555 to claim the foreign earned income exclusion. Your Federal income tax liability is zero.<\/p>\n
You are more than one year past the filing deadline for your 2014 income tax return, but you owe no income tax. Therefore, you can claim the foreign earned income exclusion.<\/p>\n
You might have been discovered by the IRS and be under audit. It does not matter: if, when you file your original tax return, you have zero income tax liability, you can claim the foreign earned income exclusion. You still win.<\/p>\n
Original Return More than One Year Late and You Owe Some Tax<\/h4>\n
What if you are filing a tax return for the first time for a tax year, and, after applying the foreign earned income exclusion, you will still owe some some tax? Now, it\u2019s a race:<\/p>\n
\n- If you file your tax return before the IRS finds you, the foreign earned income exclusions is yours.<\/li>\n
- If the IRS finds you before you file your tax return, the foreign earned income exclusion is denied.<\/li>\n<\/ul>\n
Here is what the Regulations say. A taxpayer may make an election more than a year late if:<\/p>\n
\u201cThe taxpayer owes federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached before the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion.\u201d<\/p>\n
The implication is clear: no procrastination.<\/p>\n
The Meaning of \u201cZero Federal Income Tax\u201d<\/h4>\n
The Form 1040 you file must show that you owe zero Federal income tax or get a refund.<\/p>\n
\u201cFederal income tax\u201d means income tax (and alternative minimum tax). It does not include self-employment tax, social security tax, or any other type of tax. It makes total sense. The foreign earned income exclusion only eliminates earned income from income tax. It does not eliminate, for instance, self-employment tax.<\/p>\n
Apply the foreign earned income exclusion, and calculate your Federal income tax liability (and yes, that includes AMT). Ignore the \u201cother taxes\u201d (Lines 57 \u2013 62, Form 1040). Apply all the withholding taxes, estimated payments, foreign tax credits, etc. that you can muster. Do you owe tax or get a refund? If yes, then you can to claim the foreign earned income exclusion.<\/p>\n
\u201cIRS Discovers\u201d and Speed<\/h4>\n
It\u2019s a race. How do you know whether your tax returns have been \u201cdiscovered\u201d by the IRS? You might not, until it is too late. What if you the IRS sent you a notice and you did not receive it? Were you too late? You will not know until you file your late tax return, claiming the foreign earned income exclusion. Silence from the IRS means you filed before they found you, and you succeeded in claiming the exclusion.<\/p>\n
Amended Tax Returns and a Late Form 2555<\/h3>\n
What if you filed your income tax returns on time, but later learned about the foreign earned income exclusion? You now want to file amended income tax returns, claim the foreign earned income exclusion, and (probably) get a nice tax refund.<\/p>\n
Timely Amended Return After Timely Original Return<\/h4>\n
If you filed a timely original tax return and you file your amended income tax return within three years, then you may claim the foreign earned income exclusion.<\/p>\n
Technically, the time frame for filing the amended tax return is \u201cwithin the period prescribed in section 6511(a)\u201d. This is the statute of limitations for claiming a tax refund:<\/p>\n
Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid. Claim for credit or refund of an overpayment of any tax imposed by this title which is required to be paid by means of a stamp shall be filed by the taxpayer within 3 years from the time the tax was paid.<\/p>\n
Amended Tax Return After Late Original Return<\/h4>\n
If your original income tax return was late and you want to file an amendment to claim the foreign earned income exclusion, your ability to file Form 1040X with Form 2555 to claim the foreign earned income exclusion will depend on whether Federal income tax will be due after you file the amended return. These are the same rules as apply to the original tax return: if no Federal income tax liability exists, you may elect to receive the foreign earned income exclusion and if Federal income tax liability exists, you need to beat the IRS (you file before they find you) in order to claim the foreign earned income exclusion.<\/p>\n
This is a rare occurrence.<\/p>\n
You would only be filing amended tax returns if you screwed up on the original tax returns, and you want a refund. This means that you would need to beat the IRC \u00a76511(a) deadline in order to receive the tax refund (three years from filing or two years from making the tax payment).<\/p>\n
You would be unlikely to file an amended tax return if you owe more tax, although I can see this happening in rare cases (you need to amend your tax return for other reasons, so while you are fixing other problems you claim the foreign earned income exclusion, which partially \u2014 but not entirely \u2014 softens the blow of additional tax due).<\/p>\n
Magic Words You Must Use<\/h3>\n
In some cases, you must put magic words on your income tax return in order to make a late claim for the foreign earned income exclusion. The following situations require you to write \u201cFiled Pursuant to Section 1.911-7(a)(2)(i)(D)\u201d at the top of page 1 of Form 1040:<\/p>\n
\n- You are more than one year late in filing a tax return and you have no Federal income tax liability or you are getting a refund; or<\/li>\n
- You are more than one year late in filing a tax return, you owe Federal income tax, and you file your tax return before the IRS finds you.<\/li>\n<\/ul>\n
Note: if you do not write those words on the top of your Form 1040, you lose.<\/p>\n
Conclusion<\/h3>\n
The foreign earned income exclusion is useful for Americans living and working abroad \u2014 it reduces U.S. income tax liability. It is especially valuable for Americans who cannot (for whatever reason) use the foreign tax credit.<\/p>\n
Don\u2019t panic if you screwed up in years past. If you are a nonfiler, fix the problem. File those tax returns. Odds are that you will be able to successfully claim the foreign earned income exclusion. If you filed a tax return and did not claim the foreign earned income exclusion, prepare and file an amended tax return to claim a tax refund.<\/p>\n
The post Claiming the Foreign Earned Income Exclusion for Nonfilers<\/a> appeared first on HodgenLaw PC<\/p>\n","protected":false},"excerpt":{"rendered":"The Foreign Earned Income Exclusion Americans living and working abroad can make up to $101,300 of earned income tax-free. Earned income is what you get paid for working \u2014 wages or self-employment income. This is the foreign earned income exclusion. It is great. Your salary = $100,000. Your tax = $0. What\u2019s not to like?\u00a0 […]<\/p>\n","protected":false},"author":4,"featured_media":4453,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":"","_links_to":"","_links_to_target":""},"categories":[23,24],"tags":[35,20,39],"class_list":["post-4468","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-irs","category-us-tax-return-1040-1040nr","tag-35","tag-irs-2","tag-us-federal-income-tax-return"],"acf":[],"_links":{"self":[{"href":"https:\/\/ustaxconsultants.es\/es\/wp-json\/wp\/v2\/posts\/4468","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ustaxconsultants.es\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ustaxconsultants.es\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ustaxconsultants.es\/es\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/ustaxconsultants.es\/es\/wp-json\/wp\/v2\/comments?post=4468"}],"version-history":[{"count":0,"href":"https:\/\/ustaxconsultants.es\/es\/wp-json\/wp\/v2\/posts\/4468\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ustaxconsultants.es\/es\/wp-json\/wp\/v2\/posts\/4453"}],"wp:attachment":[{"href":"https:\/\/ustaxconsultants.es\/es\/wp-json\/wp\/v2\/media?parent=4468"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ustaxconsultants.es\/es\/wp-json\/wp\/v2\/categories?post=4468"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ustaxconsultants.es\/es\/wp-json\/wp\/v2\/tags?post=4468"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}