A Guide to Form 2555 for Expats
As an American expat, you shouldn’t be taxed twice on income earned outside of the United States. To avoid double taxation, you should learn about IRS Form 2555 and how filing it may help you.
IRS Form 2555 allows certain American expatriates living outside the U.S. to reduce their tax liability by claiming the foreign earned income exclusion and the foreign housing exclusion. Only those that meet either the bona fide residence test or the physical presence test are eligible to file Form 2555. Because this form requires detailed information about your foreign employment and other matters, it’s wise to consult an experienced tax CPA for help. The deadline to file IRS Form 2555 is Tax Day. Miss the due date, and you might end up paying taxes twice on the same income.
We’re here to help American expats claim the deductions available to them while living overseas. To learn more about the tax accountants for American expatriates at US Tax Help, call us today at (541) 362-9127.
What is IRS Form 2555?
IRS Form 2555 is used by expats to claim the foreign earned income and the foreign housing exclusions. In doing so, American expatriates can substantially reduce their tax liability to the United States while living abroad.
The United States operates within a citizenship-based taxation system. That means, as long as you retain your American citizenship, you’ll have to pay taxes to the IRS despite living abroad. Not all countries have the same rules for tax liability as the U.S. and instead require residents to pay taxes, even if they are not citizens. This might mean American expats have to pay income taxes twice, depending on where they live.
To account for this and prevent double taxation, the IRS lets certain expats claim the foreign earned income exclusion by filing Form 2555. Our tax accountants for American expatriates can help you complete Form 2555 and exclude your foreign income, reducing your tax liability to the United States.
Expats can also use Form 2555 to claim the foreign housing exclusion, which allows expats to deduct certain housing costs like rent from their annual income, also reducing their taxable income.
In 2023, the foreign earned income exclusion is $120,000. For some American expatriates, that may be their entire income. In any case, filing IRS Form 2555 and claiming the available deductions can greatly reduce your taxable income.
Can All Expats File Form 2555?
Not all expats can file IRS Form 2555. In order to be eligible for the foreign earned income exclusion and the foreign housing exclusion, you must meet either the bona fide residence test or the physical presence test.
Bona Fide Residence Test
The IRS uses the bona fide residence test to determine if an expat can file Form 2555. To be a bona fide resident of another country, you must maintain a residence there for an entire tax year. While you can travel out of a foreign country for a bit, you must do so with the purpose of returning to your permanent residence there.
Physical Presence Test
To meet the physical presence test, U.S. expats must be physically present in a foreign country for most of a tax year. That adds up to about 330 full days out of 365. Our tax CPAs can help you determine whether you meet the IRS’s physical presence test and are eligible to file Form 2555.
What Information Do Expats Need to Complete Form 2555?
IRS Form 2555 is a lengthy document that requires much detailed information. Any mistakes on Form 2555 could delay your deduction or cause a larger issue with your tax return. To ensure you provide the necessary information and successfully complete Form 2555, you can seek help from our tax accountants for American expatriates.
You will need to provide many details when claiming the foreign earned income exclusion or the foreign housing exclusion on Form 2555. The following information may be required for expats filing IRS Form 2555:
- Foreign address
- Foreign employer’s name
- Foreign employer’s address
- Occupation at a foreign company
- Total foreign wages
- Date foreign residence began
- Previous filings of Form 2555
Claiming the foreign earned income exclusion or the foreign housing exclusion can greatly reduce an expat’s tax liability to the United States while living abroad. However, not providing the necessary information on Form 2555 or including the proper supplemental materials might harm your chances of success. Because Form 2555 can be complicated, it often benefits expatriates to get assistance from our skilled tax CPAs.
What is the Deadline to File Form 2555 with the IRS?
IRS Form 2555 can be filed alongside your annual tax return on Tax Day. While failure to file by the deadline won’t result in any financial penalties from the IRS, you won’t be able to reduce your tax liability. If you don’t file Form 2555 on time, you may be doubly taxed on your foreign earned income.
The deadline to file Form 2555 is Tax Day. Our tax CPAs can submit this form alongside your annual tax return and other tax forms due at the same time. The IRS allows for an automatic two-month extension for expats that do not submit Form 2555 on time. If you still don’t file by the extended deadline and do not request a special extension, you may be unable to claim the foreign earned income exclusion or the foreign housing exclusion.
Depending on the tax guidelines of your current country of residence, you might be taxed twice on your income if you don’t file Form 2555 with the IRS. This is clearly not ideal for American expats, who shouldn’t have to pay taxes on a significant portion of their foreign income to the IRS. Let our tax accountants for American expatriates help you file IRS Form 2555 by Tax Day to prevent this from happening.
Ask Our Tax CPAs About Form 2555 Today
If you need assistance filing Form 2555, our tax CPAs can help. To learn more about the tax accountants for American expatriates at US Tax Help, call us today at (541) 362-9127.