IRS penalties exist for not following the Form 2555 instructions. Some ExPats need to file for tax extensions to pass the physical presence or the bona fide resident test for IRS tax Form 2555, especially on the first Form 2555 tax return. If you don’t understand the Form 2555 instructions or don’t have a local Form 2555 CPA, consider calling me for a free consult. (910) 399-2705. Our virtual office means distance isn’t an issue.
Form 2555 CPAs routinely deal with extending Expat tax returns. Why? Form 2555, Foreign Earned Income, requires passing the physical presence or the bona fide residence test. That requires a year out of the US, at least on the first Form 2555 tax return. If you read the Form 2555 instructions you’ll see a special provision exists for Folks out of the US on April 15th, 2015. But most Form 2555 tax accountants file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. And your State extension too, if one is needed. We generally e-file Form 4868 to avoid the vagaries of foreign postal logistics.
I never saw a Form 2555 tax case when I was a brick and mortar CPA
So how did I become a Form 2555 CPA? Well the brick and mortar practice drew clients from maybe a 20 mile radius. But this blog, now with over 600 posts, established an international presence. So it became worthwhile for me to become a Form 2555 CPA. Then I established our virtual office for Form 2555 Clients, complete with a secure client portal to exchange documents. I was willing to take calls after hours to accommodate international Clients. You don’t have to be a rocket scientist to be a Form 2555 CPA but if you look at the Form 2555 instructions you’ll see plenty of IRS wrinkles.
“What’s the most common Form 2555 mistake I see? Not claiming the foreign housing exclusion which can max out at $29,760 for 2014. Look at your back tax returns and consider amending if you didn’t claim the foreign housing exclusion.”
- Gary Bode, Form 2555 CPA and ExPat tax accountant
How much can a I make a year overseas and pay no federal tax?
Let’s look at the max for a single person in 2014. Note you can’t escape social security and Medicare taxes, only the income tax.
- The max Form 2555 foreign earned income exclusion is $99,200 in 2014.
- The foreign housing exclusion maxes out at $29,760 for 2014.
- Your standard deduction for 2014 is $6,200.
- Your personal exemption for 2014 is $3,950.
“You can earn up to $139,110 in foreign earned income in 2014 and pay no income tax. But your circumstances can limit that amount.”
- Gary Bode, Form 2555 and ExPat tax accountant
Form 673, Statement for Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusion(s) Provided by Section 911
Form 673 is analogous to Form W-4 most of us who work in the States. Form 673 allows your employer to with hold no income taxes on your expected foreign earned income. So there’s two extremes with Form 673 you won’t find in the Form 673 instructions. The first is where your employer with holds income tax. You get a large refund when you file. The other is your employer with holds no federal income tax. Your cash is better but you get no refund.
TIP: I’ve seen ExPats that had no tax with held and then fail the physical presence or bond fide resident test. Poof. You owe thousands in income taxes. Ouch!
The bottom line
Filing Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, can protect against late filing fees. The Form 4868 instructions are excellent but your overseas postal system may not be so easy to insure timely delivery.
Do I need a Form 2555 CPA?
Maybe. Look at the Form 2555 instructions. If you can’t understand them (note CPAs have alternate sources for easier reading of the Form 2555 instructions) and don’t have a local Form 2555 CPA, consider calling me for a free phone consult at (910) 399-2705.
Leave a Reply