| Instructions for Form 2555 |
2003 Tax Year |
Specific Instructions
This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
To meet this test, you must be one of the following:
- A U.S. citizen who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an
entire tax
year (January 1–December 31, if you file a calendar year return) or
- A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect
and who is a
bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January
1–December 31, if you file a calendar year return). See Pub. 901, U.S. Tax Treaties, for a list of countries with which the United
States has an income tax treaty in effect.
No specific rule determines if you are a bona fide resident of a foreign country because the determination involves your intention
about the length
and nature of your stay. Evidence of your intention may be your words and acts. If these conflict, your acts carry more weight
than your words.
Generally, if you go to a foreign country for a definite, temporary purpose and return to the United States after you accomplish
it, you are not a
bona fide resident of the foreign country. If accomplishing the purpose requires an extended, indefinite stay, and you make
your home in the foreign
country, you may be a bona fide resident. See Pub. 54 for more information and examples.
Lines 13a and 13b.
If you submitted a statement of nonresidence to the authorities of a foreign country in which you earned income and the authorities hold
that you are not subject to their income tax laws by reason of nonresidency in the foreign country, you are not considered
a bona fide resident of
that country.
If you submitted such a statement and the authorities have not made an adverse determination of your nonresident status,
you are not considered a
bona fide resident of that country.
To meet this test, you must be a U.S. citizen or resident alien who is physically present in a foreign country, or countries,
for at least 330
full days during any period of 12 months in a row. A full day means the 24-hour period that starts at midnight.
To figure the minimum of 330 full days' presence, add all separate periods you were present in a foreign country during the
12-month period shown
on line 16. The 330 full days may be interrupted by periods when you are traveling over international waters or are otherwise
not in a foreign
country. See Pub. 54 for more information and examples.
Note:
A nonresident alien who, with a U.S. citizen or U.S. resident alien spouse, chooses to be taxed as a resident of the United
States may qualify
under this test if the time requirements are met. See Pub. 54 for details on how to make this choice.
Enter in this part the total foreign earned income you earned and received (including income constructively received) during the tax
year. If you are a cash basis taxpayer, report on Form 1040 all income you received during the tax year regardless of when
you earned it.
Income is earned in the tax year you perform the services for which you receive the pay. But if you are a cash basis taxpayer and,
because of your employer's payroll periods, you received your last salary payment for 2002 in 2003, that income may be treated
as earned in 2003. If
you cannot treat that salary payment as income earned in 2003, the rules explained under Income earned in prior year on page 3 apply. See
Pub. 54 for more details.
Foreign earned income for this purpose means wages, salaries, professional fees, and other compensation received for personal services
you performed in a foreign country during the period for which you meet the tax home test and either the bona fide residence
test or the physical
presence test. It also includes noncash income (such as a home or car) and allowances or reimbursements.
Foreign earned income does not include amounts that are actually a distribution of corporate earnings or profits rather than a
reasonable allowance as compensation for your personal services. It also does not include the following types of income.
- Pension and annuity income (including social security and railroad retirement benefits treated as social security).
- Interest, ordinary dividends, capital gains, alimony, etc.
- Portion of 2002 moving expense deduction allocable to 2003 that is included in your 2003 gross income. For details, see Moving Expense
Attributable to Foreign Earnings in 2 Years under Moving Expenses in
Pub. 54.
- Amounts paid to you by the U.S. Government or any of its agencies if you were an employee of the U.S. Government or any of
its
agencies.
- Amounts received after the end of the tax year following the tax year in which you performed the services.
- Amounts you must include in gross income because of your employer's contributions to a nonexempt employees' trust or to a
nonqualified
annuity contract.
Income received in prior year.
Foreign earned income received in 2002 for services you performed in 2003 may be excluded from your 2002 gross income
if, and to the extent, the
income would have been excludable if you had received it in 2003. To claim the additional exclusion, you must amend your 2002
tax return. To do this,
file Form 1040X.
Income earned in prior year.
Foreign earned income received in 2003 for services you performed in 2002 may be excluded from your 2003 gross income
if, and to the extent, the
income would have been excludable if you had received it in 2002.
If you are excluding income under this rule, do not include this income in Part IV. Instead, attach a statement to Form 2555 showing how
you figured the exclusion. Enter the amount that would have been excludable in 2002 on Form 2555 to the left of line 43. Next
to the amount enter
“ Exclusion of Income Earned in 2002.” Include it in the total reported on line 43.
Note:
If you claimed any deduction, credit, or exclusion on your 2002 return that is definitely related to the 2002 foreign earned
income you are
excluding under this rule, you may have to amend your 2002 income tax return to adjust the amount you claimed. To do this,
file Form 1040X.
Line 20.
If you engaged in an unincorporated trade or business in which both personal services and capital were material income-producing
factors, a
reasonable amount of compensation for your personal services will be considered earned income. The amount treated as earned
income, however, may not
be more than 30% of your share of the net profits from the trade or business after subtracting the deduction for one-half
of self-employment tax.
If capital is not an income-producing factor and personal services produced the business income, the 30% rule does
not apply. Your entire gross
income is earned income.
Line 25.
Enter the value of meals and/or lodging provided by, or on behalf of, your employer that is excludable from your income
under section 119. To be
excludable, the meals and lodging must have been provided for your employer's convenience and on your employer's business
premises. In addition, you
must have been required to accept the lodging as a condition of your employment. If you lived in a camp provided by, or on
behalf of, your employer,
the camp may be considered part of your employer's business premises. See Exclusion of Meals and Lodging in Pub. 54 for details.
Line 28.
Enter the total reasonable expenses paid or incurred during the tax year by you, or on your behalf, for your foreign
housing and the housing of
your spouse and dependents if they lived with you. You may also include the reasonable expenses of a second foreign household (defined
below). Housing expenses are considered reasonable to the extent they are not lavish or extravagant under the circumstances.
Housing expenses include rent, utilities (other than telephone charges), real and personal property insurance, nonrefundable
fees paid to obtain a
lease, rental of furniture and accessories, residential parking, and household repairs. You may also include the fair rental
value of housing provided
by, or on behalf of, your employer if you have not excluded it on line 25.
Do not include deductible interest and taxes, any amount deductible by a tenant-stockholder in connection with cooperative
housing, the cost of
buying or improving a house, principal payments on a mortgage, or depreciation on the house. Also, do not include the cost
of domestic labor, pay
television, or the cost of buying furniture or accessories.
Include expenses for housing only during periods for which:
- The value of your housing is not excluded from gross income under section 119 (unless you maintained a second foreign household
as defined
below) and
- You meet the tax home test and either the bona fide residence or physical presence test.
Second foreign household.
If you maintained a separate foreign household for your spouse and dependents at a place other than your tax home
because the living conditions at
your tax home were dangerous, unhealthful, or otherwise adverse, you may include the expenses of the second household on line
28.
Married couples.
The following rules apply if both you and your spouse qualify for the tax benefits of Form 2555:
If you and your spouse lived in the same foreign household and file a joint return, you can figure your housing amounts
(line 31) either separately
or jointly. If you file separate returns, you must figure your housing amounts separately. In figuring your housing amounts
separately, you can
allocate your qualified housing expenses (line 28) between yourselves in any proportion you wish, but each spouse claiming
a housing amount must use
his or her full base amount housing amount (line 30). In figuring your housing amount jointly, either spouse (but not both)
can claim the housing
exclusion or housing deduction. However, if you and your spouse have different periods of residence or presence and the one
with the shorter period of
residence or presence claims the exclusion or deduction, you can claim as housing expenses only the expenses for that shorter
period. The spouse
claiming the exclusion or deduction may aggregate the housing expenses of both spouses and subtract his or her base housing
amount.
If you and your spouse lived in separate foreign households, you each may claim qualified expenses for your own household
only if:
- Your tax homes were not within a reasonable commuting distance of each other and
- Each spouse's household was not within a reasonable commuting distance of the other spouse's tax home.
Otherwise, only one spouse may claim his or her housing exclusion or deduction. This is true even if you and your
spouse file separate returns.
See Pub. 54 for additional information.
Line 29.
Enter the number of days in your qualifying period that fall within your 2003 tax year. Your qualifying period is
the period during which you meet
the tax home test and either the bona fide residence or the physical presence test.
Example. You establish a tax home and bona fide residence in a foreign country on August 14, 2003. You maintain the tax home and
residence until January 31, 2005. You are a calendar year taxpayer. The number of days in your qualifying period that fall
within your 2003 tax year
is 140 (August 14 through December 31, 2003).
Nontaxable U.S. Government allowances.
If you or your spouse received a nontaxable housing allowance as a military or civilian employee of the U.S. Government,
see Pub. 54 for
information on how that allowance may affect your housing exclusion or deduction.
Line 32.
Enter any amount your employer paid or incurred on your behalf that is foreign earned income included in your gross
income for the tax year
(without regard to section 911).
Examples of employer-provided amounts are:
- Wages and salaries received from your employer.
- The fair market value of compensation provided in kind (such as the fair rental value of lodging provided by your employer
as long as it is
not excluded on line 25).
- Rent paid by your employer directly to your landlord.
- Amounts paid by your employer to reimburse you for housing expenses, educational expenses of your dependents, or as part of
a tax
equalization plan.
Self-employed individuals.
If all of your foreign earned income (Part IV) is self-employment income, skip lines 32 and 33 and enter zero on line
34. If you qualify, be sure
to complete Part IX.
Married couples.
If both you and your spouse qualify for, and choose to claim, the foreign earned income exclusion, the amount of the
exclusion is figured
separately for each of you. You each must complete Part VII of your separate Forms 2555.
Community income.
The amount of the exclusion is not affected by the income-splitting provisions of community property laws. The sum
of the amounts figured
separately for each of you is the total amount excluded on a joint return.
If you claim either of the exclusions, you may not claim any deduction (including moving expenses), credit, or exclusion that
is definitely related
to the excluded income. If only part of your foreign earned income is excluded, you must prorate such items based on the ratio
that your excludable
earned income bears to your total foreign earned income. See Pub. 54 for details on how to figure the amount allocable to
the excluded income.
The exclusion under section 119 and the housing deduction are not considered definitely related to the excluded income.
Line 42.
Report in full on Form 1040 and related forms and schedules all deductions allowed in figuring your adjusted gross
income (Form 1040, line 34).
Enter on line 42 the total amount of those deductions (such as the deduction for moving expenses, the deduction for one-half
of self-employment tax,
and the expenses claimed on Schedule C or C-EZ (Form 1040)) that are not allowed because they are allocable to the excluded
income. This applies only
to deductions definitely related to the excluded earned income. See Pub. 54 for details on how to report your itemized deductions
(such as
unreimbursed employee business expenses) that are allocable to the excluded income.
IRA deduction.
The IRA deduction is not definitely related to the excluded income. However, special rules apply in figuring the amount
of your IRA deduction. For
details, see Pub. 590, Individual Retirement Arrangements (IRAs).
Foreign taxes.
You may not take a credit or deduction for foreign income taxes paid or accrued on income that is excluded under either
of the exclusions.
If all of your foreign earned income is excluded, you may not claim a credit or deduction for the foreign taxes paid
or accrued on that income.
If only part of your income is excluded, you may not claim a credit or deduction for the foreign taxes allocable to
the excluded income. See
Pub. 514, Foreign Tax Credit for Individuals, for details on how to figure the amount allocable to the excluded income.
Housing Deduction Carryover Worksheet—Line 47
Keep for Your Records
| 1 |
Enter the amount from your 2002 Form 2555, line 44 |
|
1. |
|
| 2 |
Enter the amount from your 2002 Form 2555, line 46 |
|
2. |
|
| 3 |
Subtract line 2 from line 1. If the result is zero, stop; enter -0- on line 47 of your 2003 Form
2555. You do not have any housing deduction carryover from 2002
|
|
3. |
|
| 4 |
Enter the amount from your 2003 Form 2555, line 45 |
|
4. |
|
| 5 |
Enter the amount from your 2003 Form 2555, line 46 |
|
5. |
|
| 6 |
Subtract line 5 from line 4 |
|
6. |
|
| 7 |
Enter the smaller of line 3 or line 6 here and on line 47 of your 2003 Form 2555. If line 3 is
more than line 6, you may not carry the difference over to any future tax year
|
▶ |
7. |
|
If line 31 is more than line 34 and line 27 is more than line 41, complete this part to figure your housing deduction. Also,
complete this part to
figure your housing deduction carryover from 2002.
One-year carryover.
If the amount on line 44 is more than the amount on line 45, you may carry the difference over to your 2004 tax year. If you cannot
deduct the excess in 2004 because of the 2004 limit, you may not carry it over to any future tax year.
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