U.S. residents must report all income earned during the tax year, even if the money was earned while working in a foreign country. Filing a return is required even if you have no tax liability for your foreign income. Exclusions are available to limit double taxation on income reported to a foreign tax agency. You may not always receive a W-2 or 1099 form from the payer, but you are still required to report the income.
You may exclude foreign income up to the specified limit each year. For the 2012 tax year, the allowable exclusion for single taxpayers is $95,100 and $190,200 for married taxpayers filing jointly. You prorate the exclusion based on the percentage of the year you spent living outside the U.S. You must file a tax return to claim the exclusion in your first year of earning foreign income. You will then be eligible to claim the exclusion in future years, even if you have not filed another U.S. tax return since the first year.
You must qualify for the exclusion under the physical presence test or the residence test. If you visited a foreign country on a non-resident visa or lived in several different places while out of the country, the physical presence test will apply. You must spend at least 330 days in a foreign country during any 12-month period that includes part of the tax year. To establish a residence in another country, you must reside in a foreign country for at least one year on a resident visa.
You file Form 2555 to claim your foreign tax exclusion. If you claim the standard deduction on your individual tax return and have no housing exclusion to claim, you may use 2555-EZ. You must use the full Form 2555 if you itemize your deductions or wish to claim an exclusion for housing benefits.
The deadline for an individual tax return is usually April 15 or the next business day if it falls on a weekend or holiday. You may qualify for a two-month extension if you live in a foreign country and claim it as your home for taxes. However, this extension does not change the date your taxes are due. You still must pay interest and late fees if you do not make sufficient quarterly estimated tax payments before the original filing deadline.
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