Foreign Earned Income & foreign taxes paid?

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sokrsan
sokrsan Member Posts: 2 Newcomer
edited October 2023 in Filing my taxes

How do I categorize income earned outside the US, but was not away long enough to be considered foreign earned income?

Best Answer

  • MatthewD
    MatthewD FreeTaxUSA Team Posts: 247
    edited October 2023 Answer ✓
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    Hi, that is a great question. Many US residents work outside the country. Often for just short periods.

    As a US Resident, you are required to report all your global income on a Form 1040. Occasionally, you pay the country you work in taxes on that income. However, you are allowed either a deduction or a credit for foreign income or taxes. Generally, the credit is best.

    Our software currently supports the foreign tax credit, if the income is reported on a 1099-INT, 1099-DIV or a K-1. We also can support certain retirement benefits reported on a form similar to a SSA-1099. For example, pension payments from Canada.

    Unfortunately, FreeTaxUSA does not have the Form 2555 to report foreign earned income. However, if you can find a way to report it on your tax return, which you are comfortable with, you are welcome to use our software to file. See our Supported Forms and Items Not Supported.

Answers

  • sokrsan
    sokrsan Member Posts: 2 Newcomer
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    Thank you MatthewD! I understand as long as I report it and am comfortable with how I've recorded it, I do not need the f1116. I appreciate your prompt response as it is crunch time!

    Follow up, my employer provided stipend for rent, but reported it as income to me. Can I deduct the three months of rent I had to pay to do my work in Mexico?

  • MatthewD
    MatthewD FreeTaxUSA Team Posts: 247
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    Another good question. Generally, something like this cannot be deducted as an itemized deduction or adjustment from income when you are paid as an employee on a W2, unless you are reporting income from a 1099, associated with the expense on the Schedule C.

  • taxestaxestaxes
    taxestaxestaxes Member Posts: 4 Newcomer
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    I had a similar situation a few years ago. I wanted to report the foreign income on Schedule 1, Part I, Line 8 (Other Income), which FreeTaxUSA allowed me to do, however what I found was that this did not get carried over to my state return, and there was also no way to manually enter it (as additional income) on my state return. TaxSlayer and TurboTax were the only ones I could find that could handle this scenario. Fortunately, I no longer have this requirement and am happy to be back to FreeTaxUSA.

  • aaabbb
    aaabbb Member Posts: 1 Newcomer
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    Hello! I would absolutely love to continue using FreeTaxUSA. However, my most important priority this year is to file Form 2555. You wrote "if you can find a way to report it on your tax return." Any suggestions here? Thanks so much!

  • KeriC
    KeriC FreeTaxUSA Agent Posts: 93
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    If your foreign-earned income is reported on a W-2 or 1099, you will have no problem reporting your income within our software. However, if your foreign-earned income is not reported on an authorized US tax reporting form, our software won't be able to support filing your return. We do add additional supported forms each year and we hope to support Form 2555 in the future, but at this time we do not.

  • nossareh
    nossareh Member Posts: 1 Newcomer
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    I have a similar problem… I receive Pensions from 2 organizations located in the United Kingdom. These payments are not reported any recognizable forms for filing in the US. The best option is to using FEC (Foreign Earned Compensation). It has 3 boxes: Compensation amount, Pension amount and Taxable amount. For the UK Pensions (in my case) the Compensation box will be $0. The Pension Received will be the amounts I receive and the Taxable amount will $0 (based on US-UK Tax Treaty).

    Alternatively, you can use IRS Form 4852, which is a substitute form for W2, 1099-R, etc.

    In any case, I have not found any way to inserting any of these forms in the FreeTaxUs filing. So, I normally attach these forms to my filing and file on paper, no E-File. If the tax amount were non-zero, it has to be combined with other figures in 1040.