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Www State Nm Us Tax

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Www State Nm Us Tax

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The Www State Nm Us Tax

Www state nm us tax 5. Www state nm us tax   Exemptions, Deductions, and Credits Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Items Related to Excluded Income Exemptions Contributions to Foreign Charitable Organizations Moving ExpensesAllocation of Moving Expenses Forms To File Contributions to Individual Retirement Arrangements Taxes of Foreign Countries and U. Www state nm us tax S. Www state nm us tax PossessionsCredit for Foreign Income Taxes Deduction for Foreign Income Taxes Deduction for Other Foreign Taxes How To Report Deductions Topics - This chapter discusses: The rules concerning items related to excluded income, Exemptions, Contributions to foreign charitable organizations, Moving expenses, Contributions to individual retirement arrangements (IRAs), Taxes of foreign countries and U. Www state nm us tax S. Www state nm us tax possessions, and How to report deductions. Www state nm us tax Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 514 Foreign Tax Credit for Individuals 521 Moving Expenses 523 Selling Your Home 590 Individual Retirement Arrangements (IRAs) 597 Information on the United States—Canada Income Tax Treaty Form (and Instructions) 1116 Foreign Tax Credit 2106 Employee Business Expenses 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion 3903 Moving Expenses Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business SS-5 Application for a Social Security Card W-7 Application for IRS Individual Taxpayer Identification Number See chapter 7 for information about getting these publications and forms. Www state nm us tax Items Related to Excluded Income U. Www state nm us tax S. Www state nm us tax citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States. Www state nm us tax If you choose to exclude foreign earned income or housing amounts, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. Www state nm us tax This includes any expenses, losses, and other normally deductible items that are allocable to the excluded income. Www state nm us tax You can deduct only those expenses connected with earning includible income. Www state nm us tax These rules apply only to items definitely related to the excluded earned income and they do not apply to other items that are not definitely related to any particular type of gross income. Www state nm us tax These rules do not apply to items such as: Personal exemptions, Qualified retirement contributions, Alimony payments, Charitable contributions, Medical expenses, Mortgage interest, or Real estate taxes on your personal residence. Www state nm us tax For purposes of these rules, your housing deduction is not treated as allocable to your excluded income, but the deduction for self- employment tax is. Www state nm us tax If you receive foreign earned income in a tax year after the year in which you earned it, you may have to file an amended return for the earlier year to properly adjust the amounts of deductions, credits, or exclusions allocable to your foreign earned income and housing exclusions. Www state nm us tax Example. Www state nm us tax In 2012, you had $90,400 of foreign earned income and $9,500 of deductions allocable to your foreign earned income. Www state nm us tax You did not have a housing exclusion. Www state nm us tax Because you excluded all of your foreign earned income, you would not have been able to claim any of the deductions on your 2012 return. Www state nm us tax In 2013, you received a $12,000 bonus for work you did abroad in 2012. Www state nm us tax You can exclude $4,700 of the bonus because the limit on the foreign earned income exclusion for 2012 was $95,100 and you have already excluded $90,400. Www state nm us tax Since you must include $7,300 of the bonus ($12,000 − $4,700) for work you did in 2012 in income, you can file an amended return for 2012 to claim $677 of the deductions. Www state nm us tax This is the deductions allocable to the foreign earned income ($9,500) multiplied by the includible portion of the foreign earned income ($7,300) and divided by the total foreign earned income for 2012 ($102,400). Www state nm us tax Exemptions You can claim an exemption for your nonresident alien spouse on your separate return, provided your spouse has no gross income for U. Www state nm us tax S. Www state nm us tax tax purposes and is not the dependent of another U. Www state nm us tax S. Www state nm us tax taxpayer. Www state nm us tax You also can claim exemptions for individuals who qualify as your dependents. Www state nm us tax To be your dependent, the individual must be a U. Www state nm us tax S. Www state nm us tax citizen, U. Www state nm us tax S. Www state nm us tax national, U. Www state nm us tax S. Www state nm us tax resident alien, or a resident of Canada or Mexico for some part of the calendar year in which your tax year begins. Www state nm us tax Children. Www state nm us tax   Children usually are citizens or residents of the same country as their parents. Www state nm us tax If you were a U. Www state nm us tax S. Www state nm us tax citizen when your child was born, your child generally is a U. Www state nm us tax S. Www state nm us tax citizen. Www state nm us tax This is true even if the child's other parent is a nonresident alien, the child was born in a foreign country, and the child lives abroad with the other parent. Www state nm us tax   If you have a legally adopted child who is not a U. Www state nm us tax S. Www state nm us tax citizen, U. Www state nm us tax S. Www state nm us tax resident, or U. Www state nm us tax S. Www state nm us tax national, the child meets the citizen requirement if you are a U. Www state nm us tax S. Www state nm us tax citizen or U. Www state nm us tax S. Www state nm us tax national and the child lived with you as a member of your household all year. Www state nm us tax Social security number. Www state nm us tax   You must include on your return the social security number (SSN) of each dependent for whom you claim an exemption. Www state nm us tax To get a social security number for a dependent, apply at a Social Security office or U. Www state nm us tax S. Www state nm us tax consulate. Www state nm us tax You must provide original or certified copies of documents to verify the dependent's age, identity, and citizenship, and complete Form SS-5. Www state nm us tax   If you do not have an SSN for a child who was born in 2013 and died in 2013, attach a copy of the child's birth certificate to your tax return. Www state nm us tax Print “Died” in column (2) of line 6c of your Form 1040 or Form 1040A. Www state nm us tax   If your dependent is a nonresident alien who is not eligible to get a social security number, you must list the dependent's individual taxpayer identification number (ITIN) instead of an SSN. Www state nm us tax To apply for an ITIN, file Form W-7 with the IRS. Www state nm us tax It usually takes 6 to 10 weeks to get an ITIN. Www state nm us tax Enter your dependent's ITIN wherever an SSN is requested on your tax return. Www state nm us tax More information. Www state nm us tax   For more information about exemptions, see Publication 501. Www state nm us tax Contributions to Foreign Charitable Organizations If you make contributions directly to a foreign church or other foreign charitable organization, you generally cannot deduct them. Www state nm us tax Exceptions are explained under Canadian, Mexican, and Israeli charities, later. Www state nm us tax You can deduct contributions to a U. Www state nm us tax S. Www state nm us tax organization that transfers funds to a charitable foreign organization if the U. Www state nm us tax S. Www state nm us tax organization controls the use of the funds by the foreign organization or if the foreign organization is just an administrative arm of the U. Www state nm us tax S. Www state nm us tax organization. Www state nm us tax Canadian, Mexican, and Israeli charities. Www state nm us tax   Under the income tax treaties with Canada, Mexico and Israel, you may be able to deduct contributions to certain Canadian, Mexican, and Israeli charitable organizations. Www state nm us tax Generally, you must have income from sources in Canada, Mexico, or Israel, and the organization must meet certain requirements. Www state nm us tax See Publication 597, Information on the United States-Canada Income Tax Treaty, and Publication 526, Charitable Contributions, for more information. Www state nm us tax Moving Expenses If you moved to a new home in 2013 because of your job or business, you may be able to deduct the expenses of your move. Www state nm us tax Generally, to be deductible, the moving expenses must have been paid or incurred in connection with starting work at a new job location. Www state nm us tax See Publication 521 for a complete discussion of the deduction for moving expenses and information about moves within the United States. Www state nm us tax Foreign moves. Www state nm us tax   A foreign move is a move in connection with the start of work at a new job location outside the United States and its possessions. Www state nm us tax A foreign move does not include a move back to the United States or its possessions. Www state nm us tax Allocation of Moving Expenses When your new place of work is in a foreign country, your moving expenses are directly connected with the income earned in that foreign country. Www state nm us tax If you exclude all or part of the income that you earn at the new location under the foreign earned income exclusion or the foreign housing exclusion, you cannot deduct the part of your moving expense that is allocable to the excluded income. Www state nm us tax Also, you cannot deduct the part of the moving expense related to the excluded income for a move from a foreign country to the United States if you receive a reimbursement that you are able to treat as compensation for services performed in the foreign country. Www state nm us tax Year to which expense is connected. Www state nm us tax   The moving expense is connected with earning the income (including reimbursements, as discussed in chapter 4 under Reimbursement of moving expenses ) either entirely in the year of the move or in 2 years. Www state nm us tax It is connected with earning the income entirely in the year of the move if you qualify for the foreign earned income exclusion under the bona fide residence test or physical presence test for at least 120 days during that tax year. Www state nm us tax   If you do not qualify under either the bona fide residence test or the physical presence test for at least 120 days during the year of the move, the expense is connected with earning the income in 2 years. Www state nm us tax The moving expense is connected with the year of the move and the following year if the move is from the United States to a foreign country. Www state nm us tax The moving expense is connected with the year of the move and the preceding year if the move is from a foreign country to the United States. Www state nm us tax Amount allocable to excluded income. Www state nm us tax   To figure the amount of your moving expense that is allocable to your excluded foreign earned income (and not deductible), you must multiply your total moving expense deduction by a fraction. Www state nm us tax The numerator (top number) of the fraction is the total of your excluded foreign earned income and housing amounts for both years and the denominator (bottom number) of the fraction is your total foreign earned income for both years. Www state nm us tax Example. Www state nm us tax On November 1, 2012, you transfer to Monaco. Www state nm us tax Your tax home is in Monaco, and you are a bona fide resident of Monaco for the entire tax year 2013. Www state nm us tax In 2012, you paid $6,000 for allowable moving expenses for your move from the United States to Monaco. Www state nm us tax You were fully reimbursed (under a nonaccountable plan) for these expenses in the same year. Www state nm us tax The reimbursement is included in your income. Www state nm us tax Your only other income consists of $16,000 wages earned in 2012 after the date of your move, and $100,100 wages earned in Monaco for 2013. Www state nm us tax Because you did not meet the bona fide residence test for at least 120 days during 2012, the year of the move, the moving expenses are for services you performed in both 2012 and the following year, 2013. Www state nm us tax Your total foreign earned income for both years is $122,100, consisting of $16,000 wages for 2012, $100,100 wages for 2013, and $6,000 moving expense reimbursement for both years. Www state nm us tax You have no housing exclusion. Www state nm us tax The total amount you can exclude is $113,190, consisting of the $97,600 full-year exclusion for 2013 and a $15,590 part-year exclusion for 2012 ($95,100 times the fraction of 60 qualifying bona fide residence days over 366 total days in the year). Www state nm us tax To find the part of your moving expenses that is not deductible, multiply your $6,000 total expenses by the fraction $113,190 over $122,100. Www state nm us tax The result, $5,562, is your nondeductible amount. Www state nm us tax    You must report the full amount of the moving expense reimbursement in the year in which you received the reimbursement. Www state nm us tax In the preceding example, this year was 2012. Www state nm us tax You attribute the reimbursement to both 2012 and 2013 only to figure the amount of foreign earned income eligible for exclusion for each year. Www state nm us tax Move between foreign countries. Www state nm us tax   If you move between foreign countries, your moving expense is allocable to income earned in the year of the move if you qualified under either the bona fide residence test or the physical presence test for a period that includes at least 120 days in the year of the move. Www state nm us tax New place of work in U. Www state nm us tax S. Www state nm us tax   If your new place of work is in the United States, the deductible moving expenses are directly connected with the income earned in the United States. Www state nm us tax If you treat a reimbursement from your employer as foreign earned income (see the discussion in chapter 4), you must allocate deductible moving expenses to foreign earned income. Www state nm us tax Storage expenses. Www state nm us tax   These expenses are attributable to work you do during the year in which you incur the storage expenses. Www state nm us tax You cannot deduct the amount allocable to excluded income. Www state nm us tax Moving Expense Attributable to Foreign Earnings in 2 Years If your moving expense deduction is attributable to your foreign earnings in 2 years (the year of the move and the following year), you should request an extension of time to file your return for the year of the move until after the end of the second year. Www state nm us tax By then, you should have all the information needed to properly figure the moving expense deduction. Www state nm us tax See Extensions under When To File and Pay in chapter 1. Www state nm us tax If you do not request an extension, you should figure the part of the moving expense that you cannot deduct because it is allocable to the foreign earned income you are excluding. Www state nm us tax You do this by multiplying the moving expense by a fraction, the numerator (top number) of which is your excluded foreign earned income for the year of the move, and the denominator (bottom number) of which is your total foreign earned income for the year of the move. Www state nm us tax Once you know your foreign earnings and exclusion for the following year, you must either: Adjust the moving expense deduction by filing an amended return for the year of the move, or Recapture any additional unallowable amount as income on your return for the following year. Www state nm us tax If, after you make the final computation, you have an additional amount of allowable moving expense deduction, you can claim this only on an amended return for the year of the move. Www state nm us tax You cannot claim it on the return for the second year. Www state nm us tax Forms To File Report your moving expenses on Form 3903. Www state nm us tax Report your moving expense deduction on line 26 of Form 1040. Www state nm us tax If you must reduce your moving expenses by the amount allocable to excluded income (as explained later under How To Report Deductions ), attach a statement to your return showing how you figured this amount. Www state nm us tax For more information about figuring moving expenses, see Publication 521. Www state nm us tax Contributions to Individual Retirement Arrangements Contributions to your individual retirement arrangements (IRAs) that are traditional IRAs or Roth IRAs are generally limited to the lesser of $5,500 ($6,500 if 50 or older) or your compensation that is includible in your gross income for the tax year. Www state nm us tax In determining compensation for this purpose, do not take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion. Www state nm us tax Do not reduce your compensation by the foreign housing deduction. Www state nm us tax If you are covered by an employer retirement plan at work, your deduction for your contributions to your traditional IRAs is generally limited based on your modified adjusted gross income. Www state nm us tax This is your adjusted gross income figured without taking into account the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Www state nm us tax Other modifications are also required. Www state nm us tax For more information on IRAs, see Publication 590. Www state nm us tax Taxes of Foreign Countries and U. Www state nm us tax S. Www state nm us tax Possessions You can take either a credit or a deduction for income taxes paid to a foreign country or a U. Www state nm us tax S. Www state nm us tax possession. Www state nm us tax Taken as a deduction, foreign income taxes reduce your taxable income. Www state nm us tax Taken as a credit, foreign income taxes reduce your tax liability. Www state nm us tax You must treat all foreign income taxes the same way. Www state nm us tax If you take a credit for any foreign income taxes, you cannot deduct any foreign income taxes. Www state nm us tax However, you may be able to deduct other foreign taxes. Www state nm us tax See Deduction for Other Foreign Taxes, later. Www state nm us tax There is no rule to determine whether it is to your advantage to take a deduction or a credit for foreign income taxes. Www state nm us tax In most cases, it is to your advantage to take foreign income taxes as a tax credit, which you subtract directly from your U. Www state nm us tax S. Www state nm us tax tax liability, rather than as a deduction in figuring taxable income. Www state nm us tax However, if foreign income taxes were imposed at a high rate and the proportion of foreign income to U. Www state nm us tax S. Www state nm us tax income is small, a lower final tax may result from deducting the foreign income taxes. Www state nm us tax In any event, you should figure your tax liability both ways and then use the one that is better for you. Www state nm us tax You can make or change your choice within 10 years from the due date for filing the tax return on which you are entitled to take either the deduction or the credit. Www state nm us tax Foreign income taxes. Www state nm us tax   These are generally income taxes you pay to any foreign country or possession of the United States. Www state nm us tax Foreign income taxes on U. Www state nm us tax S. Www state nm us tax return. Www state nm us tax   Foreign income taxes can only be taken as a credit on Form 1040, line 47, or as an itemized deduction on Schedule A. Www state nm us tax These amounts cannot be included as withheld income taxes on Form 1040, line 62. Www state nm us tax Foreign taxes paid on excluded income. Www state nm us tax   You cannot take a credit or deduction for foreign income taxes paid on earnings you exclude from tax under any of the following. Www state nm us tax Foreign earned income exclusion. Www state nm us tax Foreign housing exclusion. Www state nm us tax Possession exclusion. Www state nm us tax If your wages are completely excluded, you cannot deduct or take a credit for any of the foreign taxes paid on your wages. Www state nm us tax   If only part of your wages is excluded, you cannot deduct or take a credit for the foreign income taxes allocable to the excluded part. Www state nm us tax You find the taxes allocable to your excluded wages by applying a fraction to the foreign taxes paid on foreign earned income received during the tax year. Www state nm us tax The numerator (top number) of the fraction is your excluded foreign earned income received during the tax year minus deductible expenses allocable to that income (not including the foreign housing deduction). Www state nm us tax The denominator (bottom number) of the fraction is your total foreign earned income received during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Www state nm us tax   If foreign law taxes both earned income and some other type of income and the taxes on the other type cannot be separated, the denominator of the fraction is the total amount of income subject to foreign tax minus deductible expenses allocable to that income. Www state nm us tax    If you take a foreign tax credit for tax on income you could have excluded under your choice to exclude foreign earned income or your choice to exclude foreign housing costs, one or both of the choices may be considered revoked. Www state nm us tax Credit for Foreign Income Taxes If you take the foreign tax credit, you may have to file Form 1116 with Form 1040. Www state nm us tax Form 1116 is used to figure the amount of foreign tax paid or accrued that can be claimed as a foreign tax credit. Www state nm us tax Do not include the amount of foreign tax paid or accrued as withheld federal income taxes on Form 1040, line 62. Www state nm us tax The foreign income tax for which you can claim a credit is the amount of legal and actual tax liability you pay or accrue during the year. Www state nm us tax The amount for which you can claim a credit is not necessarily the amount withheld by the foreign country. Www state nm us tax You cannot take a foreign tax credit for income tax you paid to a foreign country that would be refunded by the foreign country if you made a claim for refund. Www state nm us tax Subsidies. Www state nm us tax   If a foreign country returns your foreign tax payments to you in the form of a subsidy, you cannot claim a foreign tax credit based on these payments. Www state nm us tax This rule applies to a subsidy provided by any means that is determined, directly or indirectly, by reference to the amount of tax, or to the base used to figure the tax. Www state nm us tax   Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Www state nm us tax A credit is also not allowed if the subsidy is given to a person related to you, or persons who participated in a transaction or a related transaction with you. Www state nm us tax Limit The foreign tax credit is limited to the part of your total U. Www state nm us tax S. Www state nm us tax tax that is in proportion to your taxable income from sources outside the United States compared to your total taxable income. Www state nm us tax The allowable foreign tax credit cannot be more than your actual foreign tax liability. Www state nm us tax Exemption from limit. Www state nm us tax   You will not be subject to this limit and will not have to file Form 1116 if you meet all three of the following requirements. Www state nm us tax Your only foreign source income for the year is passive income (dividends, interest, royalties, etc. Www state nm us tax ) that is reported to you on a payee statement (such as a Form 1099-DIV or 1099-INT). Www state nm us tax Your foreign taxes for the year that qualify for the credit are not more than $300 ($600 if you are filing a joint return) and are reported on a payee statement. Www state nm us tax You elect this procedure. Www state nm us tax If you make this election, you cannot carry back or carry over any unused foreign tax to or from this year. Www state nm us tax Separate limit. Www state nm us tax   You must figure the limit on a separate basis with regard to “passive category income” and “general category income” (see the instructions for Form 1116). Www state nm us tax Figuring the limit. Www state nm us tax   In figuring taxable income in each category, you take into account only the amount that you must include in income on your federal tax return. Www state nm us tax Do not take any excluded amount into account. Www state nm us tax   To determine your taxable income in each category, deduct expenses and losses that are definitely related to that income. Www state nm us tax   Other expenses (such as itemized deductions or the standard deduction) not definitely related to specific items of income must be apportioned to the foreign income in each category by multiplying them by a fraction. Www state nm us tax The numerator (top number) of the fraction is your gross foreign income in the separate limit category. Www state nm us tax The denominator (bottom number) of the fraction is your gross income from all sources. Www state nm us tax For this purpose, gross income includes income that is excluded under the foreign earned income provisions but does not include any other exempt income. Www state nm us tax You must use special rules for deducting interest expenses. Www state nm us tax For more information on allocating and apportioning your deductions, see Publication 514. Www state nm us tax Exemptions. Www state nm us tax   Do not take the deduction for exemptions for yourself, your spouse, or your dependents in figuring taxable income for purposes of the limit. Www state nm us tax Recapture of foreign losses. Www state nm us tax   If you have an overall foreign loss and the loss reduces your U. Www state nm us tax S. Www state nm us tax source income (resulting in a reduction of your U. Www state nm us tax S. Www state nm us tax tax liability), you must recapture the loss in later years when you have taxable income from foreign sources. Www state nm us tax This is done by treating a part of your taxable income from foreign sources in later years as U. Www state nm us tax S. Www state nm us tax source income. Www state nm us tax This reduces the numerator of the limiting fraction and the resulting foreign tax credit limit. Www state nm us tax Recapture of domestic losses. Www state nm us tax   If you have an overall domestic loss (resulting in no U. Www state nm us tax S. Www state nm us tax tax liability), you cannot claim a foreign tax credit for taxes paid during that year. Www state nm us tax You must recapture the loss in later years when you have U. Www state nm us tax S. Www state nm us tax source taxable income. Www state nm us tax This is done by treating a part of your taxable income from U. Www state nm us tax S. Www state nm us tax sources in later years as foreign source income. Www state nm us tax This increases the numerator of the limiting fraction and the resulting foreign tax credit limit. Www state nm us tax Foreign tax credit carryback and carryover. Www state nm us tax   The amount of foreign income tax not allowed as a credit because of the limit can be carried back 1 year and carried forward 10 years. Www state nm us tax   More information on figuring the foreign tax credit can be found in Publication 514. Www state nm us tax Deduction for Foreign Income Taxes Instead of taking the foreign tax credit, you can deduct foreign income taxes as an itemized deduction on Schedule A (Form 1040). Www state nm us tax You can deduct only foreign income taxes paid on income that is subject to U. Www state nm us tax S. Www state nm us tax tax. Www state nm us tax You cannot deduct foreign taxes paid on earnings you exclude from tax under any of the following. Www state nm us tax Foreign earned income exclusion. Www state nm us tax Foreign housing exclusion. Www state nm us tax Possession exclusion. Www state nm us tax Example. Www state nm us tax You are a U. Www state nm us tax S. Www state nm us tax citizen and qualify to exclude your foreign earned income. Www state nm us tax Your excluded wages in Country X are $70,000 on which you paid income tax of $10,000. Www state nm us tax You received dividends from Country X of $2,000 on which you paid income tax of $600. Www state nm us tax You can deduct the $600 tax payment because the dividends relating to it are subject to U. Www state nm us tax S. Www state nm us tax tax. Www state nm us tax Because you exclude your wages, you cannot deduct the income tax of $10,000. Www state nm us tax If you exclude only a part of your wages, see the earlier discussion under Foreign taxes paid on excluded income. Www state nm us tax Deduction for Other Foreign Taxes You can deduct real property taxes you pay that are imposed on you by a foreign country. Www state nm us tax You take this deduction on Schedule A (Form 1040). Www state nm us tax You cannot deduct other foreign taxes, such as personal property taxes, unless you incurred the expenses in a trade or business or in the production of income. Www state nm us tax On the other hand, you generally can deduct personal property taxes when you pay them to U. Www state nm us tax S. Www state nm us tax possessions. Www state nm us tax But if you claim the possession exclusion, see Publication 570. Www state nm us tax The deduction for foreign taxes other than foreign income taxes is not related to the foreign tax credit. Www state nm us tax You can take deductions for these miscellaneous foreign taxes and also claim the foreign tax credit for income taxes imposed by a foreign country. Www state nm us tax How To Report Deductions If you exclude foreign earned income or housing amounts, how you show your deductions on your tax return and how you figure the amount allocable to your excluded income depends on whether the expenses are used in figuring adjusted gross income (Form 1040, line 38) or are itemized deductions. Www state nm us tax If you have deductions used in figuring adjusted gross income, enter the total amount for each of these items on the appropriate lines and schedules of Form 1040. Www state nm us tax Generally, you figure the amount of a deduction related to the excluded income by multiplying the deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Www state nm us tax Enter the amount of the deduction(s) related to excluded income on line 44 of Form 2555. Www state nm us tax If you have itemized deductions related to excluded income, enter on Schedule A (Form 1040) only the part not related to excluded income. Www state nm us tax You figure that amount by subtracting from the total deduction the amount related to excluded income. Www state nm us tax Generally, you figure the amount that is related to the excluded income by multiplying the total deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Www state nm us tax Attach a statement to your return showing how you figured the deductible amount. Www state nm us tax Example 1. Www state nm us tax You are a U. Www state nm us tax S. Www state nm us tax citizen employed as an accountant. Www state nm us tax Your tax home is in Germany for the entire tax year. Www state nm us tax You meet the physical presence test. Www state nm us tax Your foreign earned income for the year was $122,000 and your investment income was $10,380. Www state nm us tax After excluding $97,600, your AGI is $34,780. Www state nm us tax You had unreimbursed business expenses of $2,500 for travel and entertainment in earning your foreign income, of which $500 was for meals and entertainment. Www state nm us tax These expenses are deductible only as miscellaneous deductions on Schedule A (Form 1040). Www state nm us tax You also have $500 of miscellaneous expenses that are not related to your foreign income that you enter on line 23 of Schedule A. Www state nm us tax You must fill out Form 2106. Www state nm us tax On that form, reduce your deductible meal and entertainment expenses by 50% ($250). Www state nm us tax You must reduce the remaining $2,250 of travel and entertainment expenses by 80% ($1,800) because you excluded 80% ($97,600/$122,000) of your foreign earned income. Www state nm us tax You carry the remaining total of $450 to line 21 of Schedule A. Www state nm us tax Add the $450 to the $500 that you have on line 23 and enter the total ($950) on line 24. Www state nm us tax On line 26 of Schedule A, enter $696, which is 2% of your adjusted gross income of $34,780 (line 38, Form 1040) and subtract it from the amount on line 24. Www state nm us tax Enter $254 on line 27 of Schedule A. Www state nm us tax Example 2. Www state nm us tax You are a U. Www state nm us tax S. Www state nm us tax citizen, have a tax home in Spain, and meet the physical presence test. Www state nm us tax You are self-employed and personal services produce the business income. Www state nm us tax Your gross income was $116,931, business expenses $66,895, and net income (profit) $50,036. Www state nm us tax You choose the foreign earned income exclusion and exclude $97,600 of your gross income. Www state nm us tax Since your excluded income is 83. Www state nm us tax 47% of your total income, 83. Www state nm us tax 47% of your business expenses are not deductible. Www state nm us tax Report your total income and expenses on Schedule C (Form 1040). Www state nm us tax On Form 2555 you will show the following: Line 20a, $116,931, gross income, Lines 42 and 43, $97,600, foreign earned income exclusion, and Line 44, $55,837 (83. Www state nm us tax 47% × $66,895) business expenses attributable to the exclusion. Www state nm us tax In this situation (Example 2), you cannot use Form 2555-EZ since you had self-employment income and business expenses. Www state nm us tax Example 3. Www state nm us tax Assume in Example 2 that both capital and personal services combine to produce the business income. Www state nm us tax No more than 30% of your net income, or $15,011, assuming that this amount is a reasonable allowance for your services, is considered earned and can be excluded. Www state nm us tax Your exclusion of $15,011 is 12. Www state nm us tax 84% of your gross income ($15,011 ÷ $116,931). Www state nm us tax Because you excluded 12. Www state nm us tax 84% of your total income, $8,589 (. Www state nm us tax 1284 x $66,895) of your business expenses is attributable to the excluded income and is not deductible. Www state nm us tax Example 4. Www state nm us tax You are a U. Www state nm us tax S. Www state nm us tax citizen, have a tax home in Brazil, and meet the physical presence test. Www state nm us tax You are self-employed and both capital and personal services combine to produce business income. Www state nm us tax Your gross income was $146,000, business expenses were $172,000, and your net loss was $26,000. Www state nm us tax A reasonable allowance for the services you performed for the business is $77,000. Www state nm us tax Because you incurred a net loss, the earned income limit of 30% of your net profit does not apply. Www state nm us tax The $77,000 is foreign earned income. Www state nm us tax If you choose to exclude the $77,000, you exclude 52. Www state nm us tax 74% of your gross income ($77,000 ÷ $146,000), and 52. Www state nm us tax 74% of your business expenses ($90,713) is attributable to that income and is not deductible. Www state nm us tax Show your total income and expenses on Schedule C (Form 1040). Www state nm us tax On Form 2555, exclude $77,000 and show $90,713 on line 44. Www state nm us tax Subtract line 44 from line 43, and enter the difference as a negative (in parentheses) on line 45. Www state nm us tax Because this amount is negative, enter it as a positive (no parentheses) on line 21, Form 1040, and combine it with your other income to arrive at total income on line 22 of Form 1040. Www state nm us tax In this situation (Example 4), you would probably not want to choose the foreign earned income exclusion if this was the first year you were eligible. Www state nm us tax If you had chosen the exclusion in an earlier year, you might want to revoke the choice for this year. Www state nm us tax To do so would mean that you could not claim the exclusion again for the next 5 tax years without IRS approval. Www state nm us tax See Choosing the Exclusion in chapter 4. Www state nm us tax Example 5. Www state nm us tax You are a U. Www state nm us tax S. Www state nm us tax citizen, have a tax home in Panama, and meet the bona fide residence test. Www state nm us tax You have been performing services for clients as a partner in a firm that provides services exclusively in Panama. Www state nm us tax Capital investment is not material in producing the partnership's income. Www state nm us tax Under the terms of the partnership agreement, you are to receive 50% of the net profits. Www state nm us tax The partnership received gross income of $244,000 and incurred operating expenses of $98,250. Www state nm us tax Of the net profits of $145,750, you received $72,875 as your distributive share. Www state nm us tax You choose to exclude $97,600 of your share of the gross income. Www state nm us tax Because you exclude 80% ($97,600 ÷ $122,000) of your share of the gross income, you cannot deduct $39,300, 80% of your share of the operating expenses (. Www state nm us tax 80 × $49,125). Www state nm us tax Report $72,875, your distributive share of the partnership net profit, on Schedule E (Form 1040), Supplemental Income and Loss. Www state nm us tax On Form 2555, show $97,600 on line 42 and show $39,300 on line 44. Www state nm us tax Your exclusion on Form 2555 is $58,300. Www state nm us tax In this situation (Example 5), you cannot use Form 2555-EZ since you had earned income other than salaries and wages and you had business expenses. Www state nm us tax Prev  Up  Next   Home   More Online Publications