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Are you required to claim foreign income exclusion?

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    Are you required to claim foreign income exclusion?

    Help! I have found some information but need help.

    I have a missionary taxpayer in France who qualifies for foreign earned income exclusion on most of his income so his tax return shows no income tax (on about $50,000 in income).

    Since his income is self employment income, we have been filing a schedule C every year & paying SE tax on the income.

    He & his wife have 5 children & every year up until 2015 have been claiming additional child tax credit based on 1/2 of his SE deduction per form 8812. Lacerte Individual tax has been doing a great job on doing this correctly every year.

    Now the instructions for form 8812 under "What's new" now says if you file Form 2555 or 2555-EZ, you cannot claim the additional child tax credit. Again Lacerte is on top of everything & preparing the tax return correctly causing the taxpayer to not claim about $3,000 refundable child tax credit any more (1/2 of SE tax).

    My question is this:

    (1) Are we required to claim foreign income exclusion (or is it optional)?

    (2) I think all his missionary income is paid thru a sponsoring church's here in the U.S. or will it matter if income is from U.S., France, ETC?

    If we do not claim the foreign income exclusion, the taxpayer's income tax will still be -0-, the SE tax will still be around $6,000, & then he would be able to claim $5,000 refundable child tax credit (not just the $3,000 like in prior years)!

    (3) If we were to be able to not claim the foreign income exclusion, will the taxpayer then be eligible to claim earned income credit?

    I really would appreciate all information & ideas you guys are so good at.
    mikeburg

    #2
    This is new to me, but this is what I read:


    1) No, it is not required, it is an election. However, if you elect out of it, you can not use the Foreign Earned Income Exclusion for the next 5 years.




    2) I don't think it matters where the income is from.


    3) I don't see why not. ยง32(c)(1)(C) says EIC can't be given to a person "who claims the benefits of" of the Foreign Earned Income Exclusion. That seems to indicate a person who does not claim it, is eligible for EIC (assuming they meet the other qualifying criteria).

    Comment


      #3
      1. per TaxGuyBill

      2. By definition if the service is performed in a foreign country, the source of the income for that service is not relevant. It is considered foreign income.

      3. If not specifically excluded from taking the credit, you should be able to take the credit.

      Comment


        #4
        Again, thank so much.

        Thank you for your ideas. mikeburg

        Comment

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