Form 2555 on H&R Block

[Ketsuban 1,034]

Hi guys

We're trying to do a MFJ return on H&R Block and we're encountering two issues:

1) It is saying the foreign income I am excluding on the 2555 is higher than my husband's W-2 income (it isn't). For example it is saying that my $22,000 income is higher than his $30,000 (fictitious amounts).

2) It is deducting my foreign income from my husband's W-2 income leaving us with $5000 total taxable income. This doesn't seem right to me since I only want to exclude my income, not my husband's W-2 as well.

Can anyone help?

[Nich-Nick 3,354]

I have never used HR software, but I may this year because TurboTax is dropping common forms from the cheap version I buy.

So I can't tell you with precision how to find it in your software. But the UK income should appear on line 7 (Form 1040) along with the US income. Can you get out of the interview to view the form? Line 7 should have $52,000. Then Line 21 appears as -$22,000 (negative number) for the exclusion.

You need to find where to enter the foreign income. In TurboTax it falls under a topic called "Less Common Income" way at the end of all income topics. Sorry I don't know your software, but maybe that will give you some help and you can find it.

[Nich-Nick 3,354]

Ok...some additional info to add to my previous post. I looked at H&R Block support. Two answers concerning entering foreign income.

Report income from foreign sources the same way you report income from U.S. sources:

If youre an employee of the foreign company, enter your wage information in the W-2 section.

If I didn't receive a W-2, how do I report foreign earned income?

Foreign employers aren't usually required to issue you a W-2. Contact your employer to find out if the company issues W-2s and request they send you the form. [no, don't bother]

If the company doesn't issue W-2s, complete Form 4852: Substitute for Form W-2. This will record your wages and taxes withheld. Keep this form for your records and report the foreign earned income as you would normally on your U.S. return.

That is how TurboTax had it organized maybe six years ago. So enter you foreign income as you did husbands. It probably will say "Did you get a W2?" No. Then you sorta fill out name and address of of employer and create a substitute W2 because you didn't get a W2 (nor would you expect to.)

The concept here is you must first get that foreign income entered as wages before you can deduct it.

Edited January 23, 2015 by Nich-Nick

[Ketsuban 1,034]

Ok...some additional info to add to my previous post. I looked at H&R Block support. Two answers concerning entering foreign income.

Report income from foreign sources the same way you report income from U.S. sources:

If youre an employee of the foreign company, enter your wage information in the W-2 section.

If I didn't receive a W-2, how do I report foreign earned income?

Foreign employers aren't usually required to issue you a W-2. Contact your employer to find out if the company issues W-2s and request they send you the form. [no, don't bother]

If the company doesn't issue W-2s, complete Form 4852: Substitute for Form W-2. This will record your wages and taxes withheld. Keep this form for your records and report the foreign earned income as you would normally on your U.S. return.

That is how TurboTax had it organized maybe six years ago. So enter you foreign income as you did husbands. It probably will say "Did you get a W2?" No. Then you sorta fill out name and address of of employer and create a substitute W2 because you didn't get a W2 (nor would you expect to.)

The concept here is you must first get that foreign income entered as wages before you can deduct it.

Hi Nick

I have no problem entering my income into the system. What I'm confused about is it subtracts my wage from his, making it look like we both earned $5000 for the year instead of the $30,000 he did earn and was taxed on. It is also saying my $22,000 wage is higher than his $30,000 wage which obviously isn't the case.

At this point I just want to paper file, but my husband is insisting on using H&R Block. We went to visit them a few weeks ago and to be honest I'm surprised they even know what day of the week it is.

[Ketsuban 1,034]

Ok...some additional info to add to my previous post. I looked at H&R Block support. Two answers concerning entering foreign income.

Report income from foreign sources the same way you report income from U.S. sources:

If youre an employee of the foreign company, enter your wage information in the W-2 section.

If I didn't receive a W-2, how do I report foreign earned income?

Foreign employers aren't usually required to issue you a W-2. Contact your employer to find out if the company issues W-2s and request they send you the form. [no, don't bother]

If the company doesn't issue W-2s, complete Form 4852: Substitute for Form W-2. This will record your wages and taxes withheld. Keep this form for your records and report the foreign earned income as you would normally on your U.S. return.

That is how TurboTax had it organized maybe six years ago. So enter you foreign income as you did husbands. It probably will say "Did you get a W2?" No. Then you sorta fill out name and address of of employer and create a substitute W2 because you didn't get a W2 (nor would you expect to.)

The concept here is you must first get that foreign income entered as wages before you can deduct it.

Never mind Nick, I figured it out. I thought that 2555 bit would enable me to add my income AND exclude it, but it just excludes it. Since we only entered my husband's income, it takes it out of his. As you said, I need to figure out where to add my "other" (non-W-2) income before we exclude it.

Thank you

[Nich-Nick 3,354]

Not sure what you are doing wrong. Is it an interview type set up?

Anything like this?

Did John have any income? Yes (get Into his details)

Did John have another employer? No (move on)

Did Mary have any income? (Fill out her substitute W2, etc)

Did you have any interest income? yes

Who did it belong to? John Mary

Maybe you need to delete the whole Form 2555 stuff and go back to getting line 7 to show the total of both incomes first. Tax software is great if you know how to answer the questions that are sometimes confusing.

Sending you a PM.

[smile44 4]

Are you doing the bonafide or physical presence test? My wife arrived 12/29 so she meets physical presence by being in the UK for 330 days. Looking at the form online it wants all the dates she left the country and returned, but of course she won't be returning. Not sure if the software allows for that or will require a return date? Also wondering if we have to write the letter declaring that we want her treated as a residence for the full year. My understanding at first was that if she was a resident by the end of the year she would be treated as a resident for the full year. But after reading other posts, not so sure.

[Nich-Nick 3,354]

Are you doing the bonafide or physical presence test? My wife arrived 12/29 so she meets physical presence by being in the UK for 330 days. Looking at the form online it wants all the dates she left the country and returned, but of course she won't be returning. Not sure if the software allows for that or will require a return date? Also wondering if we have to write the letter declaring that we want her treated as a residence for the full year. My understanding at first was that if she was a resident by the end of the year she would be treated as a resident for the full year. But after reading other posts, not so sure.

Is your wife a UK citizen? If, yes she is a bonafide resident of the UK.

Was she born in the UK? Then her bonafide residence began on the date she was born and ended on Dec 29 for the purpose of this form.

Using Form2555EZ (print it and follow along http://www.irs.gov/pub/irs-pdf/f2555ez.pdf)

The date columns required are for times she was in the US. No dates after she immigrated are to be listed. So if she came to visit in the summer you list those dates. Do not list 12/29 trip.

In the next section you have to figure out what percentage of the maximum foreign income exclusion she qualifies for. The 2014 maximum for a whole year in a foreign country is (line 13) $99,200. If she left the UK halfway through 2014 (July 1ish) then she only gets half of the maximum exclusion $49,600.

(Next is Lines 14, 15, 16)

So the IRS has you figure the fraction of the year she was a bonafide resident in the UK. 361 days out of 365 days.

361 divided by 365 = 0.989 That is the percentage of $99,200 she could exclude

0.0989 x $99,200 = $98,108 her maximum exclusion. If she earned more than that, the overage can't be excluded.

Even if you are using a tax program, it helps to know the concept of what you are doing so you can see of the numbers generated make sense or if you got off somewhere. The beauty of the tax program is if you put in dates of bonafide residence, it calculates the number of days, the percentage, and the max exclusion number and puts them in the correct lines.

Edited January 25, 2015 by Nich-Nick

[smile44 4]

She is a UK citizen and was born there. I was interpreting it wrong, thinking she had to be a bonafide resident for the full tax year we were filing for. Your explanation helps a lot, very much appreciated! We will be using a tax program but it does help to see how the math works. Thanks again

[Nich-Nick 3,354]

Note: I made a typo. The calculation is 0.989 x $99,200 = $98,108 (not 0.0989)

[Owen_London 65]

Nich-Nick: you clearly know more about dual-status returns than I do, since I elected to count as fully resident in my first year.

If you're thinking of changing software, I recommend TaxAct, which I used last year. TurboTax, I don't like the ethics of the company or their pricing; H&R Block I have seen some bad reviews, though I don't know how much these come from association with the variable quality of their tax preparation advisors.

On the IRS 4852, I have seen advice that this is only required for US employers. How accurate this is, I don't know.

[Nich-Nick 3,354]

Nich-Nick: you clearly know more about dual-status returns than I do, since I elected to count as fully resident in my first year.

If you're thinking of changing software, I recommend TaxAct, which I used last year. TurboTax, I don't like the ethics of the company or their pricing; H&R Block I have seen some bad reviews, though I don't know how much these come from association with the variable quality of their tax preparation advisors.

On the IRS 4852, I have seen advice that this is only required for US employers. How accurate this is, I don't know.

Hey Owen-

I don't remember that much about dual status. I think that is more appropriate for aliens not married to USCs. So easy to be considered resident for tax purposes when married to an American. We also did the election to treat the mister as a resident for the entire year.

Don't really know about the 4852 question other than I pasted in what H&R Block support said was their way of entering foreign income. TurboTax deals with foreign income as a separate interview topic and does not create a substitute W2.

I have just installed my free H&R Block software. Not overly impressed yet. At first glance, TurboTax seems more user friendly, but free is worth a try over $97 which I would have to pay TT for 2014 software. It did pull in my previous data from last year's return and promises to import my Edward Jones accounts. Still waiting on all the tax documents I need to get started. Have 1 of about 7 expected so far. Then we will see what I think of H&R Block Deluxe.

[Owen_London 65]

TaxAct Deluxe is $13 though, which isn't so much. You might even be able to get away with just using the free version. It looks like most of the IRS forms are included in that.

Comparison of the different TaxAct versions:

http://www.taxact.com/taxes-online/