2009 taxes - 2555 foreign income exclusion

[Laura & Kyle 16]

When I was doing my taxes (and not even including my husband's foreign income), turbo tax was still reporting about 300 more dollars than when I report and then exclude my husband's foreign income of 5000GBP. Why am I losing this 300dollars? Am I doing something wrong?

I'm reporting them under the less common income - misc. income - foreign income and then going back and excluding it in the "foreign earned income" section.

I'm seriously hate doing taxes. And because I'm reporting his 5000GBP, I have to pay for the basic turbo tax vs. the free turbo tax online. I know paper is an option, but i'm looking only to efile.

Any suggestions, tips, help? I've been running all over these forums but many of the links are broken with the conversion of the new forums here at VJ.

Laura

[Laura & Kyle 16]

nvm. i reported the earnings as is.. i still don't understand the logic behind it. I'm glad next year will be easier.

[TheMatrix 6]

OK I am no tax expert but this is what may be happening:

Even if you are subtracting his foreign income in line 21, when it comes to calculating taxes, if you have filed a 2555, they do a weird calculation in which they see whether your combined income (including his foreign income) would have put you in a higher tax bracket. If it would have done so then they use a different formula to calculate tax.

It is there in the instructions for 1040. Do a search on 2555 within that document.

[Nich-Nick 3,354]

When I was doing my taxes (and not even including my husband's foreign income), turbo tax was still reporting about 300 more dollars than when I report and then exclude my husband's foreign income of 5000GBP. Why am I losing this 300dollars? Am I doing something wrong?

Were you also not including your husband as a joint filer? To get the real comparison you should do your taxes as Married Filing Separately with no husband exemptions and no husband foreign income. Then do the way you did as Married Filing Jointly including/excluding the foreign income. Look at bottom line of the two ways. You aren't necessarily losing $300 if you compare to filing Married Separately.

What you did was looked at the bottom line too early. You looked at the advantages of being able to file jointly, but hadn't finished putting in all the income.

This is hard to explain briefly and simply but---- Tax for joint filers combine both incomes and put you in a tier/bracket based on the gross income, which might also include interest, dividends or any other money that comes your way besides the job. In general, higher incomes pay a higher percentage in taxes. The way the income exclusion works is-- taxes are figured on the joint income, then taxes on just the excluded part are calculated and that tax portion is subtracted from the total tax bill. The double income can bump you up to a higher percentage but the tax to be subtracted is based on a pretty small foreign income that alone would be at a lower percentage.

Basically you don't get to erase the foreign income completely, but you will probably come out better than if you file Married Separately.

[Laura & Kyle 16]

Were you also not including your husband as a joint filer? To get the real comparison you should do your taxes as Married Filing Separately with no husband exemptions and no husband foreign income. Then do the way you did as Married Filing Jointly including/excluding the foreign income. Look at bottom line of the two ways. You aren't necessarily losing $300 if you compare to filing Married Separately.

What you did was looked at the bottom line too early. You looked at the advantages of being able to file jointly, but hadn't finished putting in all the income.

This is hard to explain briefly and simply but---- Tax for joint filers combine both incomes and put you in a tier/bracket based on the gross income, which might also include interest, dividends or any other money that comes your way besides the job. In general, higher incomes pay a higher percentage in taxes. The way the income exclusion works is-- taxes are figured on the joint income, then taxes on just the excluded part are calculated and that tax portion is subtracted from the total tax bill. The double income can bump you up to a higher percentage but the tax to be subtracted is based on a pretty small foreign income that alone would be at a lower percentage.

Basically you don't get to erase the foreign income completely, but you will probably come out better than if you file Married Separately.

Thanks! I'm actually able to follow you on this and it makes sense. We didn't try the married filing separately, because after reading many of your and others previous responses on tax issues I knew that it would be better to file married filing jointly. The whole moving into the next tax bracket makes sense too. Oh well! At the end of the day, we were able to file our taxes, and they were direct deposited without problem.

Well actually.. one tiny glitch, but I'm guessing the IRS figured it out.. When we filed through Turbo tax online (for the 2555 form I'm guessing), we typed in that he arrived to the US on 10/06/2009 and left the space blank on when he left (since he didn't leave). When I printed out the forms for our records, I noticed TT had put in that he left on 10/06/2009 as well. For about a week, the IRS refund status page said our return was processing and the refund would be deposited by May 4th. This was way off the "timetable" the IRS gives of April 9th. But right about April 7th the status changed saying it would be deposited by April 9th (whew!). This won't be an issue next year and I realize this extra form (for us) is just for this year as it's his first year here. Next year will be easy peasy lemon squeezy!!!