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Gary Bode, CPA is a Master's Degreed, nation wide accountant offering tax and business services. Member of AICPA and NCACPA. Our virtual office provides excellent service to long distance and international clients. Call (910) 399-2705 for a free phone consult.

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I became totally and permanently disabled after a working for 44 years. I returned to college late in life (while working full-time) to fulfill my dream of becoming an RN and at that time found it necessary to secure student loans. Three years after being declared totally and permanently disabled my student loans were discharged. In January 2013 we received a 1099-C form declaring said student loans that were discharged however that amount could be considered as income for 2012. This was a large amount of money and we live on two pensions and social security income.

I started looking on the internet for information regarding 1099-C and felt that this was something that we could not handle alone. I made phone calls locally to a very reputable tax group in a city near us and they said it would cost $500 for an appointment and that they really prefer to do corporate taxes and they referred me to a local person who had worked for them at one time, we called and explained the situation and an appointment was made and then the comment was made that "I will have to do some research on this" and flags immediately went up and we called back and cancelled that appointment. I had been researching the IRSwebsite and every place else I could think of and I was not comfortable doing our own taxes this year. We called another local tax preparer that we had used in the past and made an appointment, however prior to the appointment, while still seeking information regarding our situation,

I came across a website for Gary l. Bode, MSA, CPA, PC in Wilmington, NC. I called Mr. Bodeand explained our situation and asked if he could help. He spoke very knowledgeably regarding the situation and stated that yes; he felt he could help us. As Mr. Bode was in North Carolina and we were in New York I scanned all of our documents including back-up documents for all of our claims and forwarded all to him. Mr. Bode kept in touch with us via email; we have spoken on the telephone several times and have become very comfortable with his knowledge and professionalism. Also, as I am a true "worrier" I have continued looking into information regarding our tax situation and I came upon another web page for Mr. Bode that included testimonials which spoke of his experience with this type of tax situation as it became prevalent during the recession. This reinforced in our minds that we had made the right decision in hiring this person as our tax preparer.

I share all of this as our taxes are now ready to be filed (we do owe tax for 2012 but not the astronomical figure we thought we were facing), and we are confident that they have been prepared with the utmost care by a gentleman who has an excellent working knowledge of the situation we faced and the tax laws that were applicable to said situation.

 

Bill and Carol

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ExPat CPA discusses IRS Form 673 for 2014 | Foreign Earned Income Eligible for Exclusion | Form 2555

ExPat CPA Form 673 Form 2555

Gary Bode, CPA: most ExPats prepare their own Form 673. This post just presents some typical issues. (910) 399-2705.

ExPat CPAs sometimes help employees and employers with IRS Form 673, Statement for Claiming Exemption from Withholding on Foreign Earned Income Eligible for the Exclusion(s) Provided by Section 911.  What a name. But most ExPat clients prepare Form 673 themselves. Or perhaps with help from their employer. I suggest gaining an understanding of IRS Form 2555, Foreign Earned Income, as part of the process. This post presents some issues that generally factor into Form 673 preparation for 2014. Other sources of help for Form 673 and Form 2555 include:

  • The Form 673 instructions.
  • IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
  • The Form 2555 instructions.

What is IRS Form 673, Statement for Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusion(s) provided by Section 911?

It’s similar to the IRS W-4 required from employees working in the US, which helps employers calculate how much federal tax to withhold. You’re sort of estimating how much of your expat wages Form 2555, Foreign Earned Income, will exclude from taxable income when you file your tax return.

Form 673 allows ExPats to not have federal tax withheld on wages (and/or a housing allowance) paid to them while working in a foreign country.

Form 2555 Basics to help Understand Form 673 for 2014

You file Form 2555, Foreign Earned Income, with your Form 1040. Your foreign wages count as income. But then you can exclude them from income using Form 2555. The 2014 maximum exclusion for foreign earned income on Form 2555 is $99,200. Form 2555 may allow you to exclude costs of foreign housing as well. Lots of IRS wrinkles exist in Form 2555 and it pays to do your homework before presenting your ExPat employer a Form 673. The instructions for Form 2555 and IRS Publication 54 are a good place to start. For ExPat clients, we sometimes extrapolate the next tax return using all known information. There are non Form 2555 planning parameters too e.g. the exemption(s) and standard deduction of Form 1040 increase the amount of any wage or business income that’s tax-free.

“IRS Form 673 reflects the criteria required for the subsequent Form 2555.” 
– Gary Bode, ExPat CPA

We have many Expat posts on this website. Please find them through the Forms or Category drop boxes in the right sidebar. But here are two to start with:

  • Here’s a post on Form 673 specifics.
  • Here’s one of our many posts on Form 2555 preparation.

What Happens if you Mis-Calculate Form 673?

If an ExPat employer withholds too much federal tax on your paychecks, the ExPat employee gets tax refund when they File Form 1040 (which includes Form 2555 as an attachment). Many clients prefer to have a refund so they don’t try to max out Form 673. Why? They don’t want to get hit with a tax bill and penalties.

If an ExPat employer withholds too little federal tax, the Expat employee pays the deficient tax amount, and penalties, with their next tax return. Sometimes ExPats can use the money not withheld by their employer to make investments that exceed the under-payment penalty. But underestimating your federal tax obligation often results in a cash flow problem.

I’m an ExPat CPA with a virtual office to serve international and long distance clients. Sometimes we consult on Form 673, especially for the first Expat tax year. Our services include preparing Form 2555, Form 5471, Form 1116 and OVDI applications. For a free phone consult call (910) 399-2705.

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4 comments to ExPat CPA discusses IRS Form 673 for 2014 | Foreign Earned Income Eligible for Exclusion | Form 2555

  • ESW

    Hello Gary – Thank you for all the helpful info on your website. I have one more question regarding the 673. You mentioned that a client can try NOT to max out the Form 673. How does one do that? It does not look like there is an option to choose what portion of your income is taxed. Thank you!

  • Kevin

    Gary,
    What happens if my base pay exceeds the maximum limitation of 99,200? Say I earn 120,000 for example. Am I going to pay taxes on the entire 120,000 or on 19,800 (exceeded amount)?
    Thanks!

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