Foreign Earned Income Exclusion

I'm doing my US taxes for 2008 now (got an extension to qualify for foreign earned income exclusion).  Does anyone know, when calculating foreign income, do I use the amount I was paid in the UK before or after UK taxes were taken out?

If I use the before-tax amount, is there another form to fill out to avoid paying both US taxes and UK taxes on the same income?  (I think I heard before about some sort of tax-treaty where you don't have to pay both countries on the same income).  I am filing a 1040 and 2555-EZ so far.

Thanks!  This is all so confusing! 

Isn't that what the 2555-EZ is for? You only get $80k tax free though.

You have to deduct the days you were physically present in the US, even holidays (I really hope this is wrong, as it seems unfair, but I have yet to hit the $80k limit, particularly with the 5000 deduction from line 40, but even so, it's just wrong ).

There is a place to get the exchange rate, but can't remember where. I always have to look it up.

So, say you earned £30k and were in the states for 14 days. (say, £30k*1.6=$48k)



line 14. 365-14 = 351.
line 15. 351/365=.962
line 16. 80,000*.962= $76960 (your excluded amount)
line 17. 48,000
line 18. (smaller of 16 and 17) = 48,000

Then on your 1040:

line 7. 48,000
line 21. (48,000) then put 2555-EZ on the dotted line.
line 22. 48,000 + (48,000) = 0



Job done. I'm guessing the assumption is that, as you submit your P60 (w2) with it, you HAVE paid the tax in the UK.



Note: I was looking at a copy of my 2005 forms when I filled this out, the numbers may be different now!

2nd note: Yep, I've just looked at my 2007 forms and it's gone up to 85,700.

Thanks.  I guess I was thinking about it wrong because I only qualify for the exclusion for 25 days of 2008 so don't get a very high amount and will wind up paying US taxes on the money as well, but when I figured it all out it is only about $40, so I guess it's not the end of the world.  I certainly don't make anywhere near $87,000, it just worked out that my exclusion was so small for last year that I have to pay a little bit of tax.

http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html

That has all the info. It's $91,400 for 2008.

Sweet!

Job done. I'm guessing the assumption is that, as you submit your P60 (w2) with it, you HAVE paid the tax in the UK.

I've never submitted my P60 because I have needed it for things in the UK.  Are you supposed to?  This is the first I have heard of it!

You don't have to submit your P60, the IRS wouldn't even know what to do with it!

Up to roughly 20 years back you had to attach a copy of the foreign return as proof of foreign tax paid, but nobody does that any more.  You'd still keep a copy as proof if you were ever audited.

You don't have to submit your P60, the IRS wouldn't even know what to do with it!

That is what I figured! 

Up to roughly 20 years back you had to attach a copy of the foreign return as proof of foreign tax paid, but nobody does that any more.  You'd still keep a copy as proof if you were ever audited.

Cheers!

Oh right, I just sent a photocopy of it. Won't bother this time!

Another question about the Foreign Earned Income Exclusion:

I'm using Turbo Tax, too. But I'm wondering how to qualify for the FEIE? I thought Turbo Tax would take me through. Do I not qualify because I lived in the US for 6 months and a few days? Most of my Income was earned in the UK - I earned under the minimum of $3600 in the US.

Thanks in advance. And I hate taxes!

If you did not move to the UK until more than 6 months into 2009 you won't yet have spent 330 days overseas.  This means you won't yet qualify for the exclusion so will have to file for an extension and file when you do qualify. If you try to file sooner the IRS will bounce the claim.

If you did not move to the UK until more than 6 months into 2009 you won't yet have spent 330 days overseas.  This means you won't yet qualify for the exclusion so will have to file for an extension and file when you do qualify. If you try to file sooner the IRS will bounce the claim.

How do I file for the extension?