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E File Tax Returns

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E File Tax Returns

E file tax returns 3. E file tax returns   Exclusions From Gross Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident AliensForeign Earned Income and Housing Amount Nonresident AliensInterest Income Dividend Income Services Performed for Foreign Employer Gambling Winnings From Dog or Horse Racing Gain From the Sale of Your Main Home Scholarships and Fellowship GrantsExpenses that do not qualify. E file tax returns Introduction Resident and nonresident aliens are allowed exclusions from gross income if they meet certain conditions. E file tax returns An exclusion from gross income is generally income you receive that is not included in your U. E file tax returns S. E file tax returns income and is not subject to U. E file tax returns S. E file tax returns tax. E file tax returns This chapter covers some of the more common exclusions allowed to resident and nonresident aliens. E file tax returns Topics - This chapter discusses: Nontaxable interest, Nontaxable dividends, Certain compensation paid by a foreign employer, Gain from sale of home, and Scholarships and fellowship grants. E file tax returns Useful Items - You may want to see: Publication 54 Tax Guide for U. E file tax returns S. E file tax returns Citizens and Resident Aliens Abroad 523 Selling Your Home See chapter 12 for information about getting these publications. E file tax returns Resident Aliens Resident aliens may be able to exclude the following items from their gross income. E file tax returns Foreign Earned Income and Housing Amount If you are physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months, you may qualify for the foreign earned income exclusion. E file tax returns The exclusion is $97,600 in 2013. E file tax returns In addition, you may be able to exclude or deduct certain foreign housing amounts. E file tax returns You may also qualify if you are a bona fide resident of a foreign country and you are a citizen or national of a country with which the United States has an income tax treaty. E file tax returns For more information, see Publication 54. E file tax returns Foreign country. E file tax returns    A foreign country is any territory under the sovereignty of a government other than that of the United States. E file tax returns   The term “foreign country” includes the country's territorial waters and airspace, but not international waters and the airspace above them. E file tax returns It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. E file tax returns   The term “foreign country” does not include U. E file tax returns S. E file tax returns possessions or territories. E file tax returns It does not include the Antarctic region. E file tax returns Nonresident Aliens Nonresident aliens can exclude the following items from their gross income. E file tax returns Interest Income Interest income that is not connected with a U. E file tax returns S. E file tax returns trade or business is excluded from income if it is from: Deposits (including certificates of deposit) with persons in the banking business, Deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law (if the interest paid or credited can be deducted by the association), and Amounts held by an insurance company under an agreement to pay interest on them. E file tax returns State and local government obligations. E file tax returns   Interest on obligations of a state or political subdivision, the District of Columbia, or a U. E file tax returns S. E file tax returns possession, generally is not included in income. E file tax returns However, interest on certain private activity bonds, arbitrage bonds, and certain bonds not in registered form is included in income. E file tax returns Portfolio interest. E file tax returns   Interest and original issue discount that qualifies as portfolio interest is not subject to NRA withholding. E file tax returns To qualify as portfolio interest, the interest must be paid on obligations issued after July 18, 1984, and otherwise subject to NRA withholding. E file tax returns Note. E file tax returns For obligations issued after March 18, 2012, portfolio interest does not include interest paid on debt that is not in registered form. E file tax returns Before March 19, 2012, portfolio interest included interest on certain registered and nonregistered (bearer) bonds if the obligations meet the requirements described below. E file tax returns Obligations in registered form. E file tax returns   Portfolio interest includes interest paid on an obligation that is in registered form, and for which you have received documentation that the beneficial owner of the obligation is not a United States person. E file tax returns   Generally, an obligation is in registered form if: (i) the obligation is registered as to both principal and any stated interest with the issuer (or its agent) and any transfer of the obligation may be effected only by surrender of the old obligation and reissuance to the new holder; (ii) the right to principal and stated interest with respect to the obligation may be transferred only through a book entry system maintained by the issuer or its agent; or (iii) the obligation is registered as to both principal and stated interest with the issuer or its agent and can be transferred both by surrender and reissuance and through a book entry system. E file tax returns   An obligation that would otherwise be considered to be in registered form is not considered to be in registered form as of a particular time if it can be converted at any time in the future into an obligation that is not in registered form. E file tax returns For more information on whether obligations are considered to be in registered form, see Portfolio interest in Publication 515. E file tax returns Obligations not in registered form. E file tax returns    For obligations issued before March 19, 2012, interest on an obligation that is not in registered form (bearer obligation) is portfolio interest if the obligation is foreign-targeted. E file tax returns A bearer obligation is foreign-targeted if: There are arrangements to ensure that the obligation will be sold, or resold in connection with the original issue, only to a person who is not a United States person, Interest on the obligation is payable only outside the United States and its possessions, and The face of the obligation contains a statement that any United States person who holds the obligation will be subject to limits under the United States income tax laws. E file tax returns   Documentation is not required for interest on bearer obligations to qualify as portfolio interest. E file tax returns In some cases, however, you may need documentation for purposes of Form 1099 reporting and backup withholding. E file tax returns Interest that does not qualify as portfolio interest. E file tax returns   Payments to certain persons and payments of contingent interest do not qualify as portfolio interest. E file tax returns You must withhold at the statutory rate on such payments unless some other exception, such as a treaty provision, applies. E file tax returns Contingent interest. E file tax returns   Portfolio interest does not include contingent interest. E file tax returns Contingent interest is either of the following: Interest that is determined by reference to: Any receipts, sales, or other cash flow of the debtor or related person, Income or profits of the debtor or related person, Any change in value of any property of the debtor or a related person, or Any dividend, partnership distributions, or similar payments made by the debtor or a related person. E file tax returns For exceptions, see Internal Revenue Code section 871(h)(4)(C). E file tax returns Any other type of contingent interest that is identified by the Secretary of the Treasury in regulations. E file tax returns Related persons. E file tax returns   Related persons include the following. E file tax returns Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. E file tax returns ), and lineal descendants (children, grandchildren, etc. E file tax returns ). E file tax returns Any person who is a party to any arrangement undertaken for the purpose of avoiding the contingent interest rules. E file tax returns Certain corporations, partnerships, and other entities. E file tax returns For details, see Nondeductible Loss in chapter 2 of Publication 544. E file tax returns Exception for existing debt. E file tax returns   Contingent interest does not include interest paid or accrued on any debt with a fixed term that was issued: On or before April 7, 1993, or After April 7, 1993, pursuant to a written binding contract in effect on that date and at all times thereafter before that debt was issued. E file tax returns Dividend Income The following dividend income is exempt from the 30% tax. E file tax returns Certain dividends paid by foreign corporations. E file tax returns   There is no 30% tax on U. E file tax returns S. E file tax returns source dividends you receive from a foreign corporation. E file tax returns See Second exception under Dividends in chapter 2 for how to figure the amount of U. E file tax returns S. E file tax returns source dividends. E file tax returns Certain interest-related dividends. E file tax returns   There is no 30% tax on interest-related dividends from sources within the United States that you receive from a mutual fund or other regulated investment company in 2013. E file tax returns The mutual fund will designate in writing which dividends are interest-related dividends. E file tax returns Certain short-term capital gain dividends. E file tax returns   There may not be any 30% tax on certain short-term capital gain dividends from sources within the United States that you receive from a mutual fund or other regulated investment company. E file tax returns The mutual fund will designate in writing which dividends are short-term capital gain dividends. E file tax returns This tax relief will not apply to you if you are present in the United States for 183 days or more during your tax year. E file tax returns Services Performed for Foreign Employer If you were paid by a foreign employer, your U. E file tax returns S. E file tax returns source income may be exempt from U. E file tax returns S. E file tax returns tax, but only if you meet one of the situations discussed next. E file tax returns Employees of foreign persons, organizations, or offices. E file tax returns   Income for personal services performed in the United States as a nonresident alien is not considered to be from U. E file tax returns S. E file tax returns sources and is tax exempt if you meet all three of the following conditions. E file tax returns You perform personal services as an employee of or under a contract with a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in a trade or business in the United States; or you work for an office or place of business maintained in a foreign country or possession of the United States by a U. E file tax returns S. E file tax returns corporation, a U. E file tax returns S. E file tax returns partnership, or a U. E file tax returns S. E file tax returns citizen or resident. E file tax returns You perform these services while you are a nonresident alien temporarily present in the United States for a period or periods of not more than a total of 90 days during the tax year. E file tax returns Your pay for these services is not more than $3,000. E file tax returns If you do not meet all three conditions, your income from personal services performed in the United States is U. E file tax returns S. E file tax returns source income and is taxed according to the rules in chapter 4. E file tax returns   If your pay for these services is more than $3,000, the entire amount is income from a trade or business within the United States. E file tax returns To find if your pay is more than $3,000, do not include any amounts you get from your employer for advances or reimbursements of business travel expenses, if you were required to and did account to your employer for those expenses. E file tax returns If the advances or reimbursements are more than your expenses, include the excess in your pay for these services. E file tax returns   A day means a calendar day during any part of which you are physically present in the United States. E file tax returns Example 1. E file tax returns During 2013, Henry Smythe, a nonresident alien from a nontreaty country, worked for an overseas office of a U. E file tax returns S. E file tax returns partnership. E file tax returns Henry, who uses the calendar year as his tax year, was temporarily present in the United States for 60 days during 2013 performing personal services for the overseas office of the partnership. E file tax returns That office paid him a total gross salary of $2,800 for those services. E file tax returns During 2013, he was not engaged in a trade or business in the United States. E file tax returns The salary is not considered U. E file tax returns S. E file tax returns source income and is exempt from U. E file tax returns S. E file tax returns tax. E file tax returns Example 2. E file tax returns The facts are the same as in Example 1, except that Henry's total gross salary for the services performed in the United States during 2013 was $4,500. E file tax returns He received $2,875 in 2013, and $1,625 in 2014. E file tax returns During 2013, he was engaged in a trade or business in the United States because the compensation for his personal services in the United States was more than $3,000. E file tax returns Henry's salary is U. E file tax returns S. E file tax returns source income and is taxed under the rules in chapter 4. E file tax returns Crew members. E file tax returns   Compensation for services performed by a nonresident alien in connection with the individual's temporary presence in the United States as a regular crew member of a foreign vessel (for example, a boat or ship) engaged in transportation between the United States and a foreign country or U. E file tax returns S. E file tax returns possession is not U. E file tax returns S. E file tax returns source income and is exempt from U. E file tax returns S. E file tax returns tax. E file tax returns This exemption does not apply to compensation for services performed on foreign aircraft. E file tax returns Students and exchange visitors. E file tax returns   Nonresident alien students and exchange visitors present in the United States under “F,” “J,” or “Q” visas can exclude from gross income pay received from a foreign employer. E file tax returns   This group includes bona fide students, scholars, trainees, teachers, professors, research assistants, specialists, or leaders in a field of specialized knowledge or skill, or persons of similar description. E file tax returns It also includes the alien's spouse and minor children if they come with the alien or come later to join the alien. E file tax returns   A nonresident alien temporarily present in the United States under a “J” visa includes an alien individual entering the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. E file tax returns Foreign employer. E file tax returns   A foreign employer is: A nonresident alien individual, foreign partnership, or foreign corporation, or An office or place of business maintained in a foreign country or in a U. E file tax returns S. E file tax returns possession by a U. E file tax returns S. E file tax returns corporation, a U. E file tax returns S. E file tax returns partnership, or an individual who is a U. E file tax returns S. E file tax returns citizen or resident. E file tax returns   The term “foreign employer” does not include a foreign government. E file tax returns Pay from a foreign government that is exempt from U. E file tax returns S. E file tax returns income tax is discussed in chapter 10. E file tax returns Income from certain annuities. E file tax returns   Do not include in income any annuity received under a qualified annuity plan or from a qualified trust exempt from U. E file tax returns S. E file tax returns income tax if you meet both of the following conditions. E file tax returns You receive the annuity only because: You performed personal services outside the United States while you were a nonresident alien, or You performed personal services inside the United States while you were a nonresident alien and you met the three conditions, described earlier, under Employees of foreign persons, organizations, or offices . E file tax returns At the time the first amount is paid as an annuity under the plan (or by the trust), 90% or more of the employees for whom contributions or benefits are provided under the annuity plan (or under the plan of which the trust is a part) are U. E file tax returns S. E file tax returns citizens or residents. E file tax returns   If the annuity qualifies under condition (1) but not condition (2) above, you do not have to include the amount in income if: You are a resident of a country that gives a substantially equal exclusion to U. E file tax returns S. E file tax returns citizens and residents, or You are a resident of a beneficiary developing country under Title V of the Trade Act of 1974. E file tax returns   If you are not sure whether the annuity is from a qualified annuity plan or qualified trust, ask the person who made the payment. E file tax returns Income affected by treaties. E file tax returns   Income of any kind that is exempt from U. E file tax returns S. E file tax returns tax under a treaty to which the United States is a party is excluded from your gross income. E file tax returns Income on which the tax is only limited by treaty, however, is included in gross income. E file tax returns See chapter 9. E file tax returns Gambling Winnings From Dog or Horse Racing You can exclude from your gross income winnings from legal wagers initiated outside the United States in a parimutuel pool with respect to a live horse or dog race in the United States. E file tax returns Gain From the Sale of Your Main Home If you sold your main home, you may be able to exclude up to $250,000 of the gain on the sale of your home. E file tax returns If you are married and file a joint return, you may be able to exclude up to $500,000. E file tax returns For information on the requirements for this exclusion, see Publication 523. E file tax returns This exclusion does not apply to nonresident aliens who are subject to the expatriation tax rules discussed in chapter 4. E file tax returns Scholarships and Fellowship Grants If you are a candidate for a degree, you may be able to exclude from your income part or all of the amounts you receive as a qualified scholarship. E file tax returns The rules discussed here apply to both resident and nonresident aliens. E file tax returns If a nonresident alien receives a grant that is not from U. E file tax returns S. E file tax returns sources, it is not subject to U. E file tax returns S. E file tax returns tax. E file tax returns See Scholarships, Grants, Prizes, and Awards in chapter 2 to determine whether your grant is from U. E file tax returns S. E file tax returns sources. E file tax returns A scholarship or fellowship is excludable from income only if: You are a candidate for a degree at an eligible educational institution, and You use the scholarship or fellowship to pay qualified education expenses. E file tax returns Candidate for a degree. E file tax returns   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. E file tax returns Eligible educational institution. E file tax returns   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. E file tax returns Qualified education expenses. E file tax returns   These are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. E file tax returns These items must be required of all students in your course of instruction. E file tax returns However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses. E file tax returns Expenses that do not qualify. E file tax returns   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. E file tax returns This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. E file tax returns Scholarship or fellowship amounts used to pay these costs are taxable. E file tax returns Amounts used to pay expenses that do not qualify. E file tax returns   A scholarship amount used to pay any expense that does not qualify is taxable, even if the expense is a fee that must be paid to the institution as a condition of enrollment or attendance. E file tax returns Payment for services. E file tax returns   You cannot exclude from income the portion of any scholarship, fellowship, or tuition reduction that represents payment for past, present, or future teaching, research, or other services. E file tax returns This is true even if all candidates for a degree are required to perform the services as a condition for receiving the degree. E file tax returns Example. E file tax returns On January 7, Maria Gomez is notified of a scholarship of $2,500 for the spring semester. E file tax returns As a condition for receiving the scholarship, Maria must serve as a part-time teaching assistant. E file tax returns Of the $2,500 scholarship, $1,000 represents payment for her services. E file tax returns Assuming that Maria meets all other conditions, she can exclude no more than $1,500 from income as a qualified scholarship. E file tax returns Prev  Up  Next   Home   More Online Publications
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The E File Tax Returns

E file tax returns 5. E file tax returns   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. E file tax returns S. E file tax returns 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. E file tax returns S. E file tax returns possessions, and How to report deductions. E file tax returns 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. E file tax returns Items Related to Excluded Income U. E file tax returns S. E file tax returns citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States. E file tax returns 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. E file tax returns This includes any expenses, losses, and other normally deductible items that are allocable to the excluded income. E file tax returns You can deduct only those expenses connected with earning includible income. E file tax returns 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. E file tax returns 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. E file tax returns 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. E file tax returns 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. E file tax returns Example. E file tax returns In 2012, you had $90,400 of foreign earned income and $9,500 of deductions allocable to your foreign earned income. E file tax returns You did not have a housing exclusion. E file tax returns 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. E file tax returns In 2013, you received a $12,000 bonus for work you did abroad in 2012. E file tax returns 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. E file tax returns 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. E file tax returns 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). E file tax returns Exemptions You can claim an exemption for your nonresident alien spouse on your separate return, provided your spouse has no gross income for U. E file tax returns S. E file tax returns tax purposes and is not the dependent of another U. E file tax returns S. E file tax returns taxpayer. E file tax returns You also can claim exemptions for individuals who qualify as your dependents. E file tax returns To be your dependent, the individual must be a U. E file tax returns S. E file tax returns citizen, U. E file tax returns S. E file tax returns national, U. E file tax returns S. E file tax returns resident alien, or a resident of Canada or Mexico for some part of the calendar year in which your tax year begins. E file tax returns Children. E file tax returns   Children usually are citizens or residents of the same country as their parents. E file tax returns If you were a U. E file tax returns S. E file tax returns citizen when your child was born, your child generally is a U. E file tax returns S. E file tax returns citizen. E file tax returns 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. E file tax returns   If you have a legally adopted child who is not a U. E file tax returns S. E file tax returns citizen, U. E file tax returns S. E file tax returns resident, or U. E file tax returns S. E file tax returns national, the child meets the citizen requirement if you are a U. E file tax returns S. E file tax returns citizen or U. E file tax returns S. E file tax returns national and the child lived with you as a member of your household all year. E file tax returns Social security number. E file tax returns   You must include on your return the social security number (SSN) of each dependent for whom you claim an exemption. E file tax returns To get a social security number for a dependent, apply at a Social Security office or U. E file tax returns S. E file tax returns consulate. E file tax returns You must provide original or certified copies of documents to verify the dependent's age, identity, and citizenship, and complete Form SS-5. E file tax returns   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. E file tax returns Print “Died” in column (2) of line 6c of your Form 1040 or Form 1040A. E file tax returns   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. E file tax returns To apply for an ITIN, file Form W-7 with the IRS. E file tax returns It usually takes 6 to 10 weeks to get an ITIN. E file tax returns Enter your dependent's ITIN wherever an SSN is requested on your tax return. E file tax returns More information. E file tax returns   For more information about exemptions, see Publication 501. E file tax returns Contributions to Foreign Charitable Organizations If you make contributions directly to a foreign church or other foreign charitable organization, you generally cannot deduct them. E file tax returns Exceptions are explained under Canadian, Mexican, and Israeli charities, later. E file tax returns You can deduct contributions to a U. E file tax returns S. E file tax returns organization that transfers funds to a charitable foreign organization if the U. E file tax returns S. E file tax returns organization controls the use of the funds by the foreign organization or if the foreign organization is just an administrative arm of the U. E file tax returns S. E file tax returns organization. E file tax returns Canadian, Mexican, and Israeli charities. E file tax returns   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. E file tax returns Generally, you must have income from sources in Canada, Mexico, or Israel, and the organization must meet certain requirements. E file tax returns See Publication 597, Information on the United States-Canada Income Tax Treaty, and Publication 526, Charitable Contributions, for more information. E file tax returns 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. E file tax returns Generally, to be deductible, the moving expenses must have been paid or incurred in connection with starting work at a new job location. E file tax returns See Publication 521 for a complete discussion of the deduction for moving expenses and information about moves within the United States. E file tax returns Foreign moves. E file tax returns   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. E file tax returns A foreign move does not include a move back to the United States or its possessions. E file tax returns 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. E file tax returns 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. E file tax returns 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. E file tax returns Year to which expense is connected. E file tax returns   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. E file tax returns 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. E file tax returns   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. E file tax returns 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. E file tax returns 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. E file tax returns Amount allocable to excluded income. E file tax returns   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. E file tax returns 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. E file tax returns Example. E file tax returns On November 1, 2012, you transfer to Monaco. E file tax returns Your tax home is in Monaco, and you are a bona fide resident of Monaco for the entire tax year 2013. E file tax returns In 2012, you paid $6,000 for allowable moving expenses for your move from the United States to Monaco. E file tax returns You were fully reimbursed (under a nonaccountable plan) for these expenses in the same year. E file tax returns The reimbursement is included in your income. E file tax returns 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. E file tax returns 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. E file tax returns 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. E file tax returns You have no housing exclusion. E file tax returns 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). E file tax returns 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. E file tax returns The result, $5,562, is your nondeductible amount. E file tax returns    You must report the full amount of the moving expense reimbursement in the year in which you received the reimbursement. E file tax returns In the preceding example, this year was 2012. E file tax returns You attribute the reimbursement to both 2012 and 2013 only to figure the amount of foreign earned income eligible for exclusion for each year. E file tax returns Move between foreign countries. E file tax returns   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. E file tax returns New place of work in U. E file tax returns S. E file tax returns   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. E file tax returns 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. E file tax returns Storage expenses. E file tax returns   These expenses are attributable to work you do during the year in which you incur the storage expenses. E file tax returns You cannot deduct the amount allocable to excluded income. E file tax returns 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. E file tax returns By then, you should have all the information needed to properly figure the moving expense deduction. E file tax returns See Extensions under When To File and Pay in chapter 1. E file tax returns 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. E file tax returns 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. E file tax returns 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. E file tax returns 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. E file tax returns You cannot claim it on the return for the second year. E file tax returns Forms To File Report your moving expenses on Form 3903. E file tax returns Report your moving expense deduction on line 26 of Form 1040. E file tax returns 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. E file tax returns For more information about figuring moving expenses, see Publication 521. E file tax returns 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. E file tax returns 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. E file tax returns Do not reduce your compensation by the foreign housing deduction. E file tax returns 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. E file tax returns 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. E file tax returns Other modifications are also required. E file tax returns For more information on IRAs, see Publication 590. E file tax returns Taxes of Foreign Countries and U. E file tax returns S. E file tax returns Possessions You can take either a credit or a deduction for income taxes paid to a foreign country or a U. E file tax returns S. E file tax returns possession. E file tax returns Taken as a deduction, foreign income taxes reduce your taxable income. E file tax returns Taken as a credit, foreign income taxes reduce your tax liability. E file tax returns You must treat all foreign income taxes the same way. E file tax returns If you take a credit for any foreign income taxes, you cannot deduct any foreign income taxes. E file tax returns However, you may be able to deduct other foreign taxes. E file tax returns See Deduction for Other Foreign Taxes, later. E file tax returns There is no rule to determine whether it is to your advantage to take a deduction or a credit for foreign income taxes. E file tax returns In most cases, it is to your advantage to take foreign income taxes as a tax credit, which you subtract directly from your U. E file tax returns S. E file tax returns tax liability, rather than as a deduction in figuring taxable income. E file tax returns However, if foreign income taxes were imposed at a high rate and the proportion of foreign income to U. E file tax returns S. E file tax returns income is small, a lower final tax may result from deducting the foreign income taxes. E file tax returns In any event, you should figure your tax liability both ways and then use the one that is better for you. E file tax returns 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. E file tax returns Foreign income taxes. E file tax returns   These are generally income taxes you pay to any foreign country or possession of the United States. E file tax returns Foreign income taxes on U. E file tax returns S. E file tax returns return. E file tax returns   Foreign income taxes can only be taken as a credit on Form 1040, line 47, or as an itemized deduction on Schedule A. E file tax returns These amounts cannot be included as withheld income taxes on Form 1040, line 62. E file tax returns Foreign taxes paid on excluded income. E file tax returns   You cannot take a credit or deduction for foreign income taxes paid on earnings you exclude from tax under any of the following. E file tax returns Foreign earned income exclusion. E file tax returns Foreign housing exclusion. E file tax returns Possession exclusion. E file tax returns If your wages are completely excluded, you cannot deduct or take a credit for any of the foreign taxes paid on your wages. E file tax returns   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. E file tax returns 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. E file tax returns 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). E file tax returns 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). E file tax returns   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. E file tax returns    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. E file tax returns Credit for Foreign Income Taxes If you take the foreign tax credit, you may have to file Form 1116 with Form 1040. E file tax returns Form 1116 is used to figure the amount of foreign tax paid or accrued that can be claimed as a foreign tax credit. E file tax returns Do not include the amount of foreign tax paid or accrued as withheld federal income taxes on Form 1040, line 62. E file tax returns 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. E file tax returns The amount for which you can claim a credit is not necessarily the amount withheld by the foreign country. E file tax returns 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. E file tax returns Subsidies. E file tax returns   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. E file tax returns 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. E file tax returns   Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. E file tax returns 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. E file tax returns Limit The foreign tax credit is limited to the part of your total U. E file tax returns S. E file tax returns tax that is in proportion to your taxable income from sources outside the United States compared to your total taxable income. E file tax returns The allowable foreign tax credit cannot be more than your actual foreign tax liability. E file tax returns Exemption from limit. E file tax returns   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. E file tax returns Your only foreign source income for the year is passive income (dividends, interest, royalties, etc. E file tax returns ) that is reported to you on a payee statement (such as a Form 1099-DIV or 1099-INT). E file tax returns 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. E file tax returns You elect this procedure. E file tax returns If you make this election, you cannot carry back or carry over any unused foreign tax to or from this year. E file tax returns Separate limit. E file tax returns   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). E file tax returns Figuring the limit. E file tax returns   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. E file tax returns Do not take any excluded amount into account. E file tax returns   To determine your taxable income in each category, deduct expenses and losses that are definitely related to that income. E file tax returns   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. E file tax returns The numerator (top number) of the fraction is your gross foreign income in the separate limit category. E file tax returns The denominator (bottom number) of the fraction is your gross income from all sources. E file tax returns For this purpose, gross income includes income that is excluded under the foreign earned income provisions but does not include any other exempt income. E file tax returns You must use special rules for deducting interest expenses. E file tax returns For more information on allocating and apportioning your deductions, see Publication 514. E file tax returns Exemptions. E file tax returns   Do not take the deduction for exemptions for yourself, your spouse, or your dependents in figuring taxable income for purposes of the limit. E file tax returns Recapture of foreign losses. E file tax returns   If you have an overall foreign loss and the loss reduces your U. E file tax returns S. E file tax returns source income (resulting in a reduction of your U. E file tax returns S. E file tax returns tax liability), you must recapture the loss in later years when you have taxable income from foreign sources. E file tax returns This is done by treating a part of your taxable income from foreign sources in later years as U. E file tax returns S. E file tax returns source income. E file tax returns This reduces the numerator of the limiting fraction and the resulting foreign tax credit limit. E file tax returns Recapture of domestic losses. E file tax returns   If you have an overall domestic loss (resulting in no U. E file tax returns S. E file tax returns tax liability), you cannot claim a foreign tax credit for taxes paid during that year. E file tax returns You must recapture the loss in later years when you have U. E file tax returns S. E file tax returns source taxable income. E file tax returns This is done by treating a part of your taxable income from U. E file tax returns S. E file tax returns sources in later years as foreign source income. E file tax returns This increases the numerator of the limiting fraction and the resulting foreign tax credit limit. E file tax returns Foreign tax credit carryback and carryover. E file tax returns   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. E file tax returns   More information on figuring the foreign tax credit can be found in Publication 514. E file tax returns 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). E file tax returns You can deduct only foreign income taxes paid on income that is subject to U. E file tax returns S. E file tax returns tax. E file tax returns You cannot deduct foreign taxes paid on earnings you exclude from tax under any of the following. E file tax returns Foreign earned income exclusion. E file tax returns Foreign housing exclusion. E file tax returns Possession exclusion. E file tax returns Example. E file tax returns You are a U. E file tax returns S. E file tax returns citizen and qualify to exclude your foreign earned income. E file tax returns Your excluded wages in Country X are $70,000 on which you paid income tax of $10,000. E file tax returns You received dividends from Country X of $2,000 on which you paid income tax of $600. E file tax returns You can deduct the $600 tax payment because the dividends relating to it are subject to U. E file tax returns S. E file tax returns tax. E file tax returns Because you exclude your wages, you cannot deduct the income tax of $10,000. E file tax returns If you exclude only a part of your wages, see the earlier discussion under Foreign taxes paid on excluded income. E file tax returns Deduction for Other Foreign Taxes You can deduct real property taxes you pay that are imposed on you by a foreign country. E file tax returns You take this deduction on Schedule A (Form 1040). E file tax returns 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. E file tax returns On the other hand, you generally can deduct personal property taxes when you pay them to U. E file tax returns S. E file tax returns possessions. E file tax returns But if you claim the possession exclusion, see Publication 570. E file tax returns The deduction for foreign taxes other than foreign income taxes is not related to the foreign tax credit. E file tax returns You can take deductions for these miscellaneous foreign taxes and also claim the foreign tax credit for income taxes imposed by a foreign country. E file tax returns 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. E file tax returns 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. E file tax returns 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. E file tax returns Enter the amount of the deduction(s) related to excluded income on line 44 of Form 2555. E file tax returns If you have itemized deductions related to excluded income, enter on Schedule A (Form 1040) only the part not related to excluded income. E file tax returns You figure that amount by subtracting from the total deduction the amount related to excluded income. E file tax returns 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. E file tax returns Attach a statement to your return showing how you figured the deductible amount. E file tax returns Example 1. E file tax returns You are a U. E file tax returns S. E file tax returns citizen employed as an accountant. E file tax returns Your tax home is in Germany for the entire tax year. E file tax returns You meet the physical presence test. E file tax returns Your foreign earned income for the year was $122,000 and your investment income was $10,380. E file tax returns After excluding $97,600, your AGI is $34,780. E file tax returns 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. E file tax returns These expenses are deductible only as miscellaneous deductions on Schedule A (Form 1040). E file tax returns You also have $500 of miscellaneous expenses that are not related to your foreign income that you enter on line 23 of Schedule A. E file tax returns You must fill out Form 2106. E file tax returns On that form, reduce your deductible meal and entertainment expenses by 50% ($250). E file tax returns 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. E file tax returns You carry the remaining total of $450 to line 21 of Schedule A. E file tax returns Add the $450 to the $500 that you have on line 23 and enter the total ($950) on line 24. E file tax returns 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. E file tax returns Enter $254 on line 27 of Schedule A. E file tax returns Example 2. E file tax returns You are a U. E file tax returns S. E file tax returns citizen, have a tax home in Spain, and meet the physical presence test. E file tax returns You are self-employed and personal services produce the business income. E file tax returns Your gross income was $116,931, business expenses $66,895, and net income (profit) $50,036. E file tax returns You choose the foreign earned income exclusion and exclude $97,600 of your gross income. E file tax returns Since your excluded income is 83. E file tax returns 47% of your total income, 83. E file tax returns 47% of your business expenses are not deductible. E file tax returns Report your total income and expenses on Schedule C (Form 1040). E file tax returns 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. E file tax returns 47% × $66,895) business expenses attributable to the exclusion. E file tax returns In this situation (Example 2), you cannot use Form 2555-EZ since you had self-employment income and business expenses. E file tax returns Example 3. E file tax returns Assume in Example 2 that both capital and personal services combine to produce the business income. E file tax returns 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. E file tax returns Your exclusion of $15,011 is 12. E file tax returns 84% of your gross income ($15,011 ÷ $116,931). E file tax returns Because you excluded 12. E file tax returns 84% of your total income, $8,589 (. E file tax returns 1284 x $66,895) of your business expenses is attributable to the excluded income and is not deductible. E file tax returns Example 4. E file tax returns You are a U. E file tax returns S. E file tax returns citizen, have a tax home in Brazil, and meet the physical presence test. E file tax returns You are self-employed and both capital and personal services combine to produce business income. E file tax returns Your gross income was $146,000, business expenses were $172,000, and your net loss was $26,000. E file tax returns A reasonable allowance for the services you performed for the business is $77,000. E file tax returns Because you incurred a net loss, the earned income limit of 30% of your net profit does not apply. E file tax returns The $77,000 is foreign earned income. E file tax returns If you choose to exclude the $77,000, you exclude 52. E file tax returns 74% of your gross income ($77,000 ÷ $146,000), and 52. E file tax returns 74% of your business expenses ($90,713) is attributable to that income and is not deductible. E file tax returns Show your total income and expenses on Schedule C (Form 1040). E file tax returns On Form 2555, exclude $77,000 and show $90,713 on line 44. E file tax returns Subtract line 44 from line 43, and enter the difference as a negative (in parentheses) on line 45. E file tax returns 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. E file tax returns 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. E file tax returns If you had chosen the exclusion in an earlier year, you might want to revoke the choice for this year. E file tax returns To do so would mean that you could not claim the exclusion again for the next 5 tax years without IRS approval. E file tax returns See Choosing the Exclusion in chapter 4. E file tax returns Example 5. E file tax returns You are a U. E file tax returns S. E file tax returns citizen, have a tax home in Panama, and meet the bona fide residence test. E file tax returns You have been performing services for clients as a partner in a firm that provides services exclusively in Panama. E file tax returns Capital investment is not material in producing the partnership's income. E file tax returns Under the terms of the partnership agreement, you are to receive 50% of the net profits. E file tax returns The partnership received gross income of $244,000 and incurred operating expenses of $98,250. E file tax returns Of the net profits of $145,750, you received $72,875 as your distributive share. E file tax returns You choose to exclude $97,600 of your share of the gross income. E file tax returns 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 (. E file tax returns 80 × $49,125). E file tax returns Report $72,875, your distributive share of the partnership net profit, on Schedule E (Form 1040), Supplemental Income and Loss. E file tax returns On Form 2555, show $97,600 on line 42 and show $39,300 on line 44. E file tax returns Your exclusion on Form 2555 is $58,300. E file tax returns 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. E file tax returns Prev  Up  Next   Home   More Online Publications