Doing taxes

US Tax Frequently Asked Questions

  

Which tax form should I use? – Form 1040 or 1040NR?

Resident aliens and U.S. citizens must use Form 1040. Nonresident aliens must use Form 1040NR or 1040NR-EZ. The determining factor is whether your tax status is resident or nonresident alien. There are a number of issues related to making this determination.

 

What is the due date for filing tax returns?

For taxpayers living and working abroad, the filing deadline for payment is extended automatically to June 15th. Note that the deadline for payment is not extended; to avoid penalties and interest, any anticipated balance due should have been paid to IRS on or before April 15.

Taxpayers who cannot file by June 15 should file Form 4868 (“Application for Automatic Extension of Time to File U.S. Individual Income Tax Return”) on or before that date. By writing “Taxpayer Abroad” across the top of Form 4868 before filling it in, the filing deadline will be extended to August 15th. Copies of Form 4868 are available in the forms rack outside the IRS office in the Embassy or the IRS website. Taxpayers filing their first overseas return may elect to file Form 2350 anytime before the due date of their return (including extensions) in order to meet residency requirements to exclude foreign income.

 

How should I file my return? Are foreign postmarks acceptable?

You may send your return either to the Philadelphia Service Centre or to the US embassy in London. Postmarks from any official postal system, foreign or domestic, are valid as a record of timely filing/payment.

 

What is the foreign earned income (FEI) exclusion?

Central to the tax rules for certain filers of US tax returns who live and work abroad is the ability to exclude up to $92,900 of foreign earned income annually. Earned income that may be excluded means wages, salaries, professional fees, and other compensation received for personal services performed in a foreign country. It does not include pensions, annuities, social security, interest, dividends, capital gains, or alimony. The exclusion is available to both spouses on a joint return assuming both persons meet the qualifications.

 

I paid tax when I was working in the United States last year on a visa. How can I get it back?

A nonresident alien must file Form 1040NR or 1040NR-EZ to claim a refund of any overpaid taxes.

 

If I am able to exclude all my income, why do I have to file?

A U.S. citizen or lawful resident alien is required to report worldwide income if he/she exceeds the minimum filing requirements. If your tax liability is zero there is no penalty for not filing, but you may risk eligibility for future exclusions or deductions by not filing a timely and accurate return.

 

Will the Internal Revenue Service representatives at the Embassies answer questions about tax laws of our home state and the laws of the foreign country where we reside as well as U.S. federal income tax laws?

No. The IRS representatives are authorised only to answer tax questions on U.S. federal income tax. You should write your home state’s tax office for state tax information and contact the tax officials of the country where you reside for information regarding their taxes.

 

Can Internal Revenue Service personnel recommend tax practitioners who prepare returns?

No. IRS employees are not permitted to recommend tax practitioners who prepare income tax returns.

 

I just filed my return. How long will it take to get my refund?

It may take up to 10 weeks to issue a refund on a return that is properly made out. A refund may take longer than that if the return is filed just before the filing deadline.

An error on the return will also delay the refund. Among the most common causes of delay in receiving refunds are unsigned returns and incorrect social security numbers.

 

I have not received my refund from last year’s return. Can I claim the credit against this year’s tax?

No. That would cause problems to both years’ returns. If your last year’s refund is overdue, write to the Internal Revenue Service Center where you filed your return and ask about the status of the refund. Be sure to include your social security number (or individual taxpayer identification number) in the letter.

 

I forgot to include interest income when I filed my return last week. What should I do?

To correct a mistake of this sort you should prepare Form 1040X. Include the omitted interest income, refigure the tax, and send the form as soon as possible along with any additional tax due to the Internal Revenue Service Center where you filed your return. Form 1040X can be used to correct an individual Form 1040 income tax return filed for any year for which the period of limitation has not expired (usually 3 years after the due date of the return filed, or 2 years after the tax was paid, whichever is later).

 

Do I need an ITIN?

Generally, anyone who must file a U.S tax return but does not qualify for a Social Security number must apply for an ITIN. The same requirement applies to anyone who will be claimed as a dependent on a U.S. return. Please note persons must be either a U.S. citizen or resident to be claimed as a dependent. If legally adopted by a U.S. citizen then he or she is considered a U.S. citizen.

 

Can I claim my stepchildren as depends on my tax return?

If you are married to a nonresident alien who has children from a previous relationship, generally you may not claim them as your dependents. There are five dependency requirements that must be met, one of which is that the person must be a U.S. citizen or resident, or reside in Canada or Mexico for at least some part of the tax year. Since citizenship is conferred by adoption and not by marriage, your stepchild will not qualify as your dependent, unless legally adopted.

 

What is Alternative Minimum Tax (AMT)?

Over the years, legislative changes have created a number of avenues through which taxes can be avoided legally, most of which are available only to high-income taxpayers. In order to ensure that all taxpayers pay at least some income tax, Congress enacted the Alternative Minimum Tax.

Overseas, taxpayers who offset their US income tax with a substantial foreign tax credit often become liable for AMT, and the resulting calculations can be extremely complex. AMT is computed using IRS form 6251.

 

What is the maximum gift I can give without incurring a liability for gift tax?

Generally, you may give any one person up to $13,000 in any year, with no limit on the number of persons. There is no requirement for the recipients to be related to the donor. If you give anyone more than $13,000 in cash or property in any one year, you must file a gift tax return, IRS Form 709. See IRS Publication 950 for more information.

A recipient of a gift does not incur a tax liability on the gift itself. However, if the recipient invests the gift, any subsequent earnings on that investment are subject to tax.

 

My British employer did not give me a Form W-2. Is that a problem?

No. W-2s are used primarily to verify Federal Income Tax Withheld from wages, which is not done by British employers. Therefore, it is not necessary to attach any wage statement.

 

Can I file my state tax returns with the IRS in London?

IRS London does not have the resources to accept state tax returns or provide information regarding tax requirements of individual states. However, each state has its own website; URLs can be found listed at the Federation of Tax Administrators website. You may request information and forms from the website or by mail or phone.

 

When are US income tax returns due?

Generally, for the calendar year taxpayers, U.S. income tax returns are due on April 15. If you are a U.S. citizen or resident and both your tax home and your abode are outside the United States and Puerto Rico on the regular due date, an automatic extension is granted to June 15 for filing the return. Interest will be charged on any tax due, as shown on the return, from April 15.

 

Will a check payable in foreign currency be acceptable in payment of my U.S. tax?

Generally, only U.S. currency is acceptable for payment of income tax.

 

I am a U.S. citizen and have no taxable income from the United States, but I have substantial income from a foreign source. Am I required to file a U.S. income tax return?

Yes. All U.S. citizens and resident aliens, depending on the amount of the foreign source income, are subject to U.S. tax on their worldwide income. If you paid taxes to a foreign government on income from sources outside the United States, you may receive a foreign tax credit against your U.S. income tax liability for the foreign taxes paid. Form 1116 is used to figure the allowable credit.

 

I am a U.S. citizen who has retired, and I expect to remain in a foreign country. Do I have any further U.S. tax obligations?

Your U.S. tax obligation on your income is the same as that of a retired person living in the United States. (See publication 17).

 

How do I qualify for the foreign earned income exclusion?

To be eligible, you must have a tax home in a foreign country and you must be a U.S. citizen or a resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect. You must be a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or you must be a U.S. citizen or resident and be physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

Your tax home must be in the foreign country or countries throughout your period of residence or presence. For this purpose, your period of physical presence is the 330 full days during which you are present in a foreign country, not the 12 consecutive months during which those days occur.

 

Is it true that my foreign earned income exclusion cannot exceed my foreign earned income?

Yes. The amount of the exclusion is limited each year to the amount of your foreign earned income after reducing that income by the foreign housing exclusion. The foreign earned income must be earned during the part of the tax year that you have your tax home abroad and meet either the bona fide residence test or the physical presence test.

 

My wife and I are both employed, reside together, and file a joint return. We meet the qualifications for claiming the foreign earned income exclusion. Do we each figure a separate foreign earned income exclusion and foreign housing exclusion?

You figure your foreign earned income exclusion separately since you both have foreign earned income. The amount of the exclusion for each of you cannot exceed your separate foreign earned incomes.

If you each have a housing amount, you can figure your housing exclusion either separately or jointly.

 

I am going abroad this year and expect to qualify for the foreign earned income exclusion. How can I secure an extension of time to file my return, when should I file my return, and what forms are required?

a) You should file Form 2350 by the due date of your return to request an extension of time to file. Form 2350 is a special form for those U.S. citizens or residents abroad who expect to qualify under either the bona fide residence test or physical presence test and would like to have an extension of time to delay filing until after they have qualified.

b) If the extension is granted, you should file your return after you qualify, but by the approved extension date.

c) You must file your Form 1040 with Form 2555 (or Form 2555-EZ).

 

My entire income qualifies for the foreign earned income exclusion. Must I file a tax return?

Generally, every U.S. citizen or resident must file a U.S. income tax return unless total income without regard to the foreign earned income exclusion is below your standard deduction (depending on your filing status).

 

I was sent abroad by my company in November of last year. I plan to secure an extension of time on Form 2350 to file my tax return for last year because I expect to qualify for the foreign earned income exclusion under the physical presence test. However, if my company recalls me to the United States before the end of the qualifying period and I find I will not qualify for the exclusion, how and when should I file my return?

If your regular filing date has passed, you should file a return, Form 1040, as soon as possible for last year. Include a statement with this return noting that you have returned to the United States and will not qualify for the foreign earned income exclusion. You must report your worldwide income on the return. If you paid a foreign tax on the income earned abroad, you may be able to either deduct this tax or claim it as a credit against your U.S. income tax.

However, if you pay the tax due after the regular due date, interest will be charged from the regular due date until the date the tax is paid.

 

I have been a bona fide resident of a foreign country for over 5 years. Is it necessary for me to pay estimated tax?

U.S. taxpayers overseas have the same requirements for paying estimated tax as those in the United States. Overseas taxpayers should not include in their estimated income any income they receive that is, or will be, exempt from U.S. taxation.

Overseas taxpayers can deduct their estimated housing deduction in figuring their estimated tax. The first instalment of estimated tax is due on April 15 of the year for which the tax is paid.

 

I have met the test for physical presence in a foreign country and am filing returns for 2 years. Must I file a separate Form 2555 (or Form 2555-EZ) with each return?

Yes. A Form 2555 (or Form 2555-EZ) must be filed with each Form 1040 tax return on which the benefits of income earned abroad are claimed.

 

Does a Form 2555 (or 2555-EZ) with a Schedule C or Form W-2 attached constitute a return?

No. The Form 2555 (or 2555-EZ), Schedule C, and Form W-2 are merely attachments and do not relieve you of the requirement to file a Form 1040 to show the sources of income reported and the exclusions or deductions claimed.

 

On Form 2350, Application for Extension of Time to File U.S. Income Tax Return, I stated that I would qualify under the physical presence test. If I qualify under the bona fide residence test, can I file my return on that basis?

Yes. You can claim the foreign earned income exclusion and the foreign housing exclusion or deduction under either test as long as you meet the qualification requirements. You are not bound by the test indicated in the application for extension of time. You must be sure, however, that you file the Form 1040 return by the date approved on Form 2350, since a return filed after that date may be subject to a failure to file penalty.

If you will not qualify under the bona fide residence test until a date later than the extension granted under the physical presence rule, apply for a new extension to a date 30 days beyond the date you expect to qualify as a bona fide resident.

 

I am a U.S. citizen who worked in the United States for 6 months last year. I accepted employment overseas in July of last year and expect to qualify for the foreign earned income exclusion. Should I file a return and pay tax on the income earned in the United States during the first 6 months and then, when I qualify, file another return covering the last 6 months of the year?

No. You have the choice of one of the following two methods of filing your return:

a) You can file your return when due under the regular filing rules, report all your income without excluding your foreign earned income, and pay the tax due. After you have qualified for the exclusion, you can file an amended return, Form 1040X, accompanied by Form 2555 (or 2555-EZ), for a refund of any excess tax paid.

b) You can postpone the filing of your tax return by applying on Form 2350 for an extension of time to file to a date 30 days beyond the date you expect to qualify under either the bona fide residence test or the physical presence test, then file your return reflecting the exclusion of foreign earned income. This allows you to file only once and saves you from paying the tax and waiting for a refund. However, interest is charged on any tax due on the postponed tax return, but interest is not paid on refunds paid within 45 days after the return is filed. (If you have moving expenses that are for services performed in two years, you can be granted an extension to 90 days beyond the close of the year following the year of first arrival in the foreign country.)

 

I am an employee of the U.S. Government working abroad. Can all or part of my government income earned abroad qualify for the foreign earned income exclusion?

No. The foreign earned income exclusion applies to your foreign earned income. Amounts paid by the United States or its agencies to their employees are not treated, for this purpose, as foreign earned income.

 

I qualify under the bona fide residence test. Does my foreign earned income include my U.S. dividends and the interest I receive on a foreign bank account?

No. The only income that is foreign earned income is income from the performance of personal services abroad. Investment income is not earned income. However, you must include it in gross income reported on your Form 1040.

 

My company pays my foreign income tax on my foreign earnings. Is this taxable compensation?

Yes. The amount is compensation for services performed. The tax paid by your company should be reported on line 7 of Form 1040 and in item 22(f) of Part IV, Form 2555 (or line 17 of Part IV, Form 2555-EZ).

 

I live in an apartment in a foreign city for which my employer pays the rent. Should I include in my income the cost to my employer ($1,200 a month) or the fair market value of equivalent housing in the United States ($800 a month)?

No. You must include in income the fair market value (FMV) of the facility provided, where it is provided. This will usually be the rent your employer pays.

 

My U.S. employer pays my salary into my U.S. bank account. Is this income considered earned in the United States or is it considered foreign earned income?

If you performed the services to earn this salary outside the United States, your salary is considered earned abroad. It does not matter that you are paid by a U.S. employer or that your salary is deposited in a U.S. bank account in the United States. The source of salary, wages, commissions, and other personal service income is the place where you perform the services.

 

What is considered a foreign country?

For the purposes of the foreign earned income exclusion and the foreign housing exclusion or deduction, any territory under the sovereignty of a country other than the United States is a foreign country. Possessions of the United States are not treated as foreign countries.

 

What is meant by the source of earned income?

The word “source” refers to the place where the work or personal services that produce earned income are performed. In other words, income received for work in a foreign country has its source in that country. The foreign earned income exclusion and the foreign housing exclusion or deductions are limited to earned income from sources within foreign countries.

 

I qualify for the foreign earned income exclusion and earned more than $92,000 during the year. Am I entitled to the maximum $92,000 exclusion?

Although you qualify for the foreign earned income exclusion, you may not have met either the bona fide residence test or the physical presence test for your entire tax year. If you did not meet either of these tests for your entire tax year, you must prorate the $92,000 maximum exclusion based on the number of days that you did meet either test during the year.

 

In 2008 I qualified to exclude my foreign earned income, but I did not claim this exclusion on the return I filed in 2008. I paid all outstanding taxes with the return. Can I file a claim for refund now?

It is too late to claim this refund since a claim for refund must be filed within 3 years from the date the return was filed or 2 years from the date the tax was paid, whichever is later. A return filed before the due date is considered filed on the due date.

 

I recently came to Country X to work for the Orange Tractor Co. and I expect to be here for 5 or 6 years. I understand that upon the completion of 1 full year I will qualify under the bona fide residence test. Is this correct?

Not necessarily. The law provides that to qualify under this test for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, a person must be a “bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire taxable year.”

If, like most U.S. citizens, you file your return on a calendar year basis, the taxable year referred to in the law would be from January 1 to December 31 of any particular year. Unless you established residence in Country X on January 1, it would be more than 1 year before you could qualify as a bona fide resident of a foreign country. Once you have completed your qualifying period, however, you are entitled to exclude the income or to claim the housing exclusion or deduction from the date you established bona fide residence.

 

I understand the physical presence test to be simply a matter of being physically present in a foreign country for at least 330 days within 12 consecutive months; but what are the criteria of the bona fide residence test?

To be a bona fide resident of a foreign country, you must show that you entered a foreign country intending to remain there for an indefinite or prolonged period and, to that end, you are making your home in that country. Consideration is given to the type of quarters occupied, whether your family went with you, the type of visa, the employment agreement, and any other factor pertinent to show whether your stay in the foreign country is indefinite or prolonged.

To claim the foreign earned income exclusion or foreign housing exclusion or deduction under this test, the period of foreign residence must include 1 full tax year (usually January 1–December 31), but once you meet this time requirement, you figure the exclusions and the deduction from the date the residence actually began.

 

To meet the qualification of “an uninterrupted period which includes an entire taxable year” do I have to be physically present in a foreign country for the entire year?

No. Uninterrupted refers to the bona fide residence proper and not to the physical presence of the individual. During the period of bona fide residence in a foreign country, even during the first full year, you can leave the country for brief and

 

Due to illness, I returned to the United States before I completed my qualifying period to claim the foreign earned income exclusion. Can I figure the exclusion for the period I resided abroad?

No. You are not entitled to any exclusion of foreign earned income since you did not complete your qualifying period under either the bona fide residence test or physical presence test. If you paid foreign tax on the income earned abroad, you may be able to claim that tax as a deduction or as a credit against your U.S. tax.

 

Can a resident alien of the United States qualify for an exclusion or deduction under the bona fide residence test or the physical presence test?

Resident aliens of the United States can qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction if they meet the requirements of the physical presence test. Certain resident aliens can qualify under the bona fide residence test.

 

I am a U.S. citizen and, because I expect to qualify for the foreign earned income exclusion, all my foreign income (which consists solely of salary) will be exempt from U.S. tax. Do I get any tax benefit from income tax I paid on this salary to a foreign country during the tax year?

No. You cannot take either a tax credit or a tax deduction for foreign income taxes paid on income that is exempt from U.S. tax because of the foreign earned income exclusion.

 

I am a U.S. citizen stationed abroad. I made a personal loan to a nonresident alien who later went bankrupt. Can I claim a bad debt loss for this money?

Yes. The loss should be reported as a short-term capital loss on Schedule D (Form 1040). You have the burden of proving the validity of the loan, the subsequent bankruptcy, and the recovery or non-recovery from the loan.

 

I am a retired U.S. citizen living in Europe. My only income is from U.S. sources on which I pay U.S. taxes. I am taxed on the same income in the foreign country where I reside. How do I avoid double taxation?

If you reside in a country that has an income tax treaty with the United States, that country may allow a credit against the tax you owe them for the U.S. tax paid on U.S. source income. Non-treaty countries, depending on their laws, may give the same type of credit against the tax you owe them for the U.S. tax paid on U.S. source income.

If double taxation exists and you cannot resolve the problem with the tax authorities of the foreign country, you can contact the Internal Revenue Service, International Section, P.O. Box 920, Bensalem, PA 19020-8518.

 

My total income after claiming the foreign earned income and housing exclusions consists of $15,000 taxable wages. Am I entitled to claim the refundable earned income credit?

No. If you claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you cannot claim the earned income credit.

 

Last May my employer transferred me to our office in Puerto Rico. I understand that my salary earned in Puerto Rico is tax exempt. Is this correct?

As long as your employer is not the U.S. Government, all income from sources within Puerto Rico is exempt from U.S. tax if you are a bona fide resident of Puerto Rico during the entire tax year. The income you received from Puerto Rican sources the year you moved to Puerto Rico is not exempt. The tax paid to Puerto Rico in the year you moved to Puerto Rico can be claimed as a foreign tax credit on Form 1116.

 

I am a U.S. citizen married to a nonresident alien. I believe I qualify to use the head of household tax rates. Can I use the head of household tax rates?

Yes. Although your nonresident alien spouse cannot qualify you as a head of household, you can qualify if (a) or (b) applies:

a) You paid more than half the cost of keeping up a home that was the principal home for the whole year for your mother or father for whom you can claim an exemption (your parent does not have to have lived with you), or

b) You paid more than half the cost of keeping up the home in which you lived and in which one of the following also lived for more than half the year:

  • Your unmarried child, grandchild, stepchild, foster child, or adopted child. A foster child will qualify you for this status only if you can claim an exemption for the child.
  • Your married child, grandchild, stepchild, or adopted child for whom you can claim an exemption, or for whom you could claim an exemption except that you signed a statement allowing the non-custodial parent to claim the exemption. Any relative listed below for whom you can claim an exemption.
      • Parent
      • Father-in-law
      • Grandparent
      • Brother-in-law
      • Brother
      • Sister-in-law
      • Half-brother
      • Half-sister
      • Sister
      • Son-in-law
      • Stepbrother
      • Daughter-in-law, or
      • Stepsister
      • If related by blood:
      • Stepmother
      • Uncle
      • Stepfather
      • Aunt
      • Mother-in-law
      • Nephew
      • Niece

If your spouse was a nonresident alien at any time during the year and you do not choose to treat your nonresident spouse as a resident alien, then you are treated as unmarried for head of household purposes. You must have another qualifying relative and meet the other tests to be eligible to file as head of household. You can use the head of household column in the Tax Table or the head of household Tax Rate Schedule.

It may be advantageous to choose to treat your nonresident alien spouse as a U.S. resident and file a joint income tax return. Once you make the choice, however, you must report the worldwide income of both yourself and your spouse.

 

I am a U.S. citizen married to a nonresident alien who has no income from U.S. sources. Can I claim an exemption for my spouse on my U.S. tax return?

Yes. You can claim an exemption for your nonresident alien spouse on your tax return if your spouse has no income from sources within the United States and is not the dependent of another U.S. taxpayer.

You must use the married filing separately column in the Tax Table or the Tax Rate Schedule for married individuals filing a separate return unless you qualify as a head of household.

A U.S. citizen or resident married to a nonresident alien also can choose to treat the nonresident alien as a U.S. resident for all federal income tax purposes. This allows you to file a joint return but also subjects the alien’s worldwide income to U.S. income tax.

 

What exemptions can be claimed by a U.S. citizen for a nonresident alien spouse who was blind and 65 years of age? The spouse did not have income from U.S. sources and was not a dependent of another U.S. taxpayer.

A U.S. taxpayer can generally claim one exemption for his or her spouse. In addition, if the U.S. taxpayer does not itemise deductions on Schedule A (Form 1040), the taxpayer may be entitled to a higher standard deduction if his or her spouse is age 65 or older or is blind at the end of the year.

 

I spend $375 a month to support my parents who live in Italy. I am sure this provides the bulk of their support. Can I claim exemptions for them?

It depends on whether they are U.S. citizens or residents. If your parents are not U.S. citizens or residents, you cannot claim exemptions for them even if you provide most of their support. To qualify as a dependent, a person generally must be either a citizen or national of the United States or a resident of the United States, Canada, or Mexico for some part of the tax year. The other tests of dependency also must be met.

 

Should I prorate my own personal exemption and the exemptions for my spouse and dependents, since I expect to exclude part of my income?

No. Do not prorate exemptions for yourself, your spouse, and your dependents. Claim the full amount for each exemption permitted.

 

Are U.S. social security benefits taxable?

Benefits received by U.S. citizens and resident aliens may be taxable, depending on the total amount of income and the filing status of the taxpayer. Under certain treaties, U.S. social security benefits are exempt from U.S. tax if taxed by the country of residence.

Benefits similar to social security received from other countries by U.S. citizens or residents may be taxable. (Refer to our tax treaties with various countries for any benefit granted by the treaty.)

 

As a U.S. citizen or resident, how do I figure the amount of my U.S. social security benefits to include in gross income?

See Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure if any of your benefits are includible in income.

 

How can I get my employer to stop withholding federal income taxes from wages while I am overseas and eligible for the foreign earned income exclusion?

File a statement in duplicate with your employer stating that withholding should be reduced because you meet the bona fide residence test or physical presence test. See also the following question.

 

Does the Internal Revenue Service provide forms to be used by employees requesting employers to stop withholding income tax from wages they expect to be excluded as income earned abroad?

Yes. Form 673 is a sample statement that can be used by individuals who expect to qualify under the bona fide residence test or the physical presence test. You can get this form by writing to the Internal Revenue Service, International Section, P.O. Box 920, Bensalem, PA 19020-8518.

 

I am a U.S. citizen residing overseas, and I receive a dividend and interest income from U.S. sources from which tax is being withheld at a rate of 30%. How can I have this situation corrected?

File Form W-9 (indicating that you are a U.S. citizen) with the withholding agents who are paying you the dividends and interest. This is their authority to stop withholding the 30% income tax at the source on payments due you.

 

As a U.S. citizen receiving a dividend and interest income from the United States from which tax has been withheld, do I report the net dividend and interest income on my return, or do I report the gross amount and take credit for the tax withheld?

You must report the gross amount of the income received and take a tax credit for the tax withheld. This is to your advantage since the tax withheld is deducted in full from the tax due. It is also advisable to attach a statement to your return explaining this tax credit so there will be no question as to the amount of credit allowable.

 

Can I claim a foreign tax credit even though I do not itemise deductions?

Yes. You can claim the foreign tax credit even though you do not itemise deductions.

 

I had to pay customs duty on a few things I brought back with me from Europe last summer. Can I include customs fees with my other deductible taxes?

No. Customs duties, like federal excise taxes, are not deductible.

 

Some taxes paid in the United States are not deductible if I itemise my deductions. Which ones are they?

Sales taxes, as well as the state and local taxes, levied specifically on cigarettes, tobacco, and alcoholic beverages are not deductible. In addition, no deduction can be taken for drivers’ licenses or gasoline taxes. Auto registration fees cannot be deducted except when they qualify as personal property taxes. To qualify as personal property taxes they must be based on the value of the auto.

Some state and local taxes are deductible, such as those on personal property, real estate, and income.

 

What types of foreign taxes are deductible?

Generally, real estate and foreign income taxes are deductible as itemized deductions. Foreign income taxes are deductible only if you do not claim the foreign tax credit. Foreign income taxes paid on excluded income are not deductible as an itemized deduction.

Note. Foreign income taxes are usually claimed under the credit provisions, if they apply, because this is more advantageous in most cases.

 

I taught and lectured abroad under taxable grants. What expenses can I deduct?

You may be able to deduct your travel, meals, and lodging expenses if you are temporarily absent from your regular place of employment. For more information about deducting travel, meals, and lodging expenses, get Publication 463.

 

I am a professor who is teaching abroad while on sabbatical leave from my position in the United States. What records am I required to keep to prove my expenses? How do I allocate my meals and lodging if my wife and children live with me in an apartment and my wife does the cooking?

Keep a day-to-day record of expenses, with receipts where possible. Allocate meals by dividing the total expense by the number in your family and take your proportionate share. Generally, your deduction for rent will be limited to the amount you would have paid had you been abroad alone.

 

Does the June 15 extended due date for filing my return because both my tax home and my abode are outside the United States and Puerto Rico on the regular due date relieve me from having to pay interest on tax not paid by April 15?

No. An extension, whether an automatic extension or one requested in writing, does not relieve you of the payment of interest on the tax due as of April 15 following the year for which the return is filed. The interest should be included in your payment.

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