How to File International Taxes
If you are a U.S. taxpayer who has worked abroad during the tax year, you are required to file a U.S. income tax return even if you have no U.S. income. To avoid double taxation of U.S. taxpayers, the IRS grants generous tax breaks to U.S. taxpayers who live and work abroad. These tax breaks include the foreign earned income exclusion, the foreign housing deduction, and tax treaty deduction for taxes paid to foreign governments.
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Things You'll Need
- IRS Form 2555 instructions
- IRS Form 2555
- IRS Form 1040
- Personal financial records
Instructions
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Download IRS forms 1040 and 2555 along with their accompanying instructions.
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Determine if you qualify for the Foreign Earned Income Exclusion. To qualify, you must meet either the Physical Presence Test or the Bona Fide Residence Test. The Physical Presence Test requires you to be physically present in a foreign country (or countries) for at least 330 days of any 12-month period during a total period of continuous foreign residence that includes at least a portion of the current tax year. The Bona Fide Residence Test requires you to have resided in a foreign country for a period that includes an entire calendar year and at least a portion of the current tax year.
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Calculate the number of days that you have resided abroad during the current tax year, and divide it by the number of days in the year (365 or 366). Multiply this fraction by $91,400 (for 2009) to arrive at your Foreign Earned Income Exclusion. Subtract this amount from your taxable income on Form 1040.
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Calculate your Foreign Housing Deduction by deducting the value of employer-provided foreign housing and related expenses from your Form 1040 taxable income, up to the IRS maximum. There are limitations on using both the Foreign Housing Deduction and the foreign earned income exclusion as deductions form your taxable income -- you probably will not be abe to take full advantage of both.
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Add your Foreign Earned Income Exclusion and your Foreign Housing Deduction (to the extent that IRS rules allow), and subtract the total from your taxable income Form 1040. Calculate your total tax due using this figure.
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Calculate your total tax due from Form 1040 without taking into account either the Foreign Housing Deduction or the Foreign Earned Income Exclusion. Deduct from this figure all taxes paid to foreign governments during the tax year, if this is allowed under the bilateral tax treaty entered into between the U.S. and the applicable foreign government. Since this deduction is an alternative to the Foreign Housing Deduction and the Foreign Earned Income Exclusion, compare your total tax due under the Foreign Housing Deduction/Foreign Earned Income Exclusion calculation method to the tax treaty calculation method, and calculate your taxes using whichever method results in a lower total tax. If you select the latter method, you will not have to file Form 2555.
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Submit Form 1040 and Form 2555 (if applicable) to Department of the Treasury, Internal Revenue Service, Austin, TX 73301-0215 .
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Tips & Warnings
If you received no employer-provided housing, had no self-employment income, and had no more than $91,400 in foreign earned income during the tax year, you may file Form 2555-EZ, a simplified version of Form 2555.
Even if you determine that you owe no taxes due to the Foreign Earned Income Exclusion, file a tax return. The Foreign Earned Income Exclusion will not be applied until you claim it, and you can only claim it by filing a tax return for the first year in which you are claiming it. Once you claim it, however, it is valid for all subsequent tax years until you revoke it, regardless of whether you file a tax return or not.
