Foreign Tax Blues

February 29, 2012 7:46 AM

Help me with my complicated foreign tax situation please!

Hi. I know you are not my accountant, but if you have any experience filing taxes with foreign earned income, I'd love to hear from you!

We lived in two different (non-US) countries in 2011, so we were never resident in the US. But we have income from both countries. When we lived in the US, we always used Turbo Tax, but the word on the street is that Turbo Tax is awful for foreign-earned income.

Is my only alternative to get an accountant who knows what they're doing (currently in the UK)? Our income for the year is so low (probably less than $30,000) that it does not seem worth it to pay an accountant. Is there any way I can figure this out myself, or is there some software that will do it (properly) for me?

Many thanks!

posted by EtTuHealy to work & money (5 answers total)

I'm assuming you're talking about how to file your US income tax return. This isn't tax advice, but if you're asking about how to do UK taxes, what I'm going to say will be of no use.

I've filed taxes with foreign earned income. I did not use software and I did it myself. I got everything I needed from the IRS website, and it was very straightforward.

You say that you were never resident in the US. If this is accurate, then you can exclude up to about $95000 of your foreign earned income. You won't pay US income taxes on this. Note that this applies only to "earned" income, so you do need to include in your income stuff like interest on your foreign bank accounts. But you'll also get a credit for any foreign tax paid on that income, and in many cases, overseas tax rates are higher than your US rate, so you don't owe any US tax on unearned income after the credit is applied.

Start here, on the IRS website. Also check out this IRS pub.

Unless you have an extremely complex tax situation involving investments, property, carried forward losses, etc, I would not get a tax accountant. Very few tax accountants in the UK will have sufficient expertise with US tax law that you can feel confident hiring them. You'd have more luck engaging a US tax accountant and coordinating with them from overseas.
posted by MoonOrb at 8:57 AM on February 29, 2012 [1 favorite]

I used TurboTax for foreign-earned income just fine.
posted by queens86 at 9:22 AM on February 29, 2012

I too have used TurboTax without a problem (US citizen living in France). You can't send it online – you have to print out the forms and mail them in yourself, but it is really, seriously practical for getting stuff filled in correctly, especially if you're careful about answers to questions. Don't be afraid to backtrack if/when you realize you've answered a question wrong. Some of them (and this is the IRS, not TurboTax) are worded in such a way that you think it might apply, then you realize it doesn't.

MoonOrb's links are helpful too, check those out – the IRS is pretty clear about things.
posted by fraula at 10:27 AM on February 29, 2012

Sorry, I should have specified – with the free, online versions you have to print it out. If you've paid for the software, though, it should let you send it online without a problem.
posted by fraula at 10:28 AM on February 29, 2012

TurboTax online allows you to start and work on your return for free before you buy it--give it a go and see how it looks for you.

I played around with it a bit when I had an extremely complicated return one year (partial year abroad, foreign earned income, foreign and US-based freelance income), and ended up going with a local accountant. However, your situation sounds much more straightforward, and I think TurboTax will probably be a good fit.

If you're still hopelessly lost after that, meMail me and I can give you the info for the accountant I used. Total fees for my complicated return were around $450.
posted by homodachi at 11:32 AM on February 29, 2012