| Pub. 516, U.S. Government Civilian Employees Stationed Abroad |
2004 Tax Year |
Main Contents
This is archived information that pertains only to the 2004 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
If you are a U.S. citizen or resident living or traveling outside the United States, you are generally required to file income
tax returns in the
same way as those residing in the United States. However, the special rules explained in the following discussions may apply
to you.
Most individual tax returns cover a calendar year, January through December. The regular due date for these tax returns is
April 15 of the
following year. If April 15 falls on a Saturday, Sunday, or legal holiday, your tax return is considered timely filed if it
is filed by the next
business day that is not a Saturday, Sunday, or legal holiday. If you get an extension, you are allowed additional time to
file and, in some
circumstances, pay your tax. You must pay interest on any tax not paid by the regular due date.
Your return is considered filed on time if it is postmarked by the U.S. Postal Service, or dated by a designated delivery
service, on or before the
due date (including extensions). See your tax form instructions for a list of private delivery services that have been designated
by the IRS to meet
this “timely mailing as timely filing/paying” rule for tax returns and payments.
If your return is filed late, the postmark or delivery service date does not determine the date of filing. In that case, your
return is considered
filed when it is received by the IRS.
You may be able to get an extension of time to file your return and pay your tax.
Automatic 2-month extension.
You can get an automatic 2-month extension (to June 15, for a calendar year return) to file your return and pay your
tax if you are a U.S. citizen
or resident and, on the regular due date of your return, you are living outside the United States and Puerto Rico and your
main place of business or
post of duty is outside the United States and Puerto Rico. To get this extension, you must attach a statement to your return
explaining how you
qualified.
Married taxpayers.
If you file a joint return, either you or your spouse can qualify for the automatic extension. If you and your spouse
file separate returns, the
extension applies only to the spouse who qualifies.
Additional extension.
You can apply for an additional extension of time to file your return by filing Form 4868. You must file Form 4868
by the due date for your
income tax return.
Generally, you must file it by April 15. However, if you qualify for the automatic 2-month extension, you generally
must file Form 4868 by June
15. Write “ Taxpayer Abroad” across the top of Form 4868.
Payment of tax.
You should estimate and pay any additional tax you owe when you file Form 4868 to avoid being charged a late-payment
penalty. The late-payment
penalty applies if, through withholding, etc., you paid less than 90% of your actual tax liability by the original due date
of your income tax return.
Even if the late-payment penalty does not apply, you will be charged interest on any unpaid tax liability from the original
due date of the return
until the tax is paid.
Electronic filing.
You can file for the additional extension by phone, using tax software, or through a tax professional. See Form 4868
for more information.
Limit on additional extensions.
You generally cannot get a total extension of more than 6 months. However, if you are outside the United States and
meet certain tests, you may be
able to get a longer extension.
For more information, see Publication 54.
You must file Form TD F 90-22.1 if at any time during the year you had an interest in, or signature or other authority over,
a bank account,
securities account, or other financial account in a foreign country. This applies if the combined assets in the account(s)
were more than $10,000. Do
not include accounts in a U.S. military banking facility operated by a U.S. financial institution.
File the completed form, by June 30 of the following year, with the Department of the Treasury at the address shown on that
form. Do not attach it
to Form 1040. If you are required to file Form TD F 90-22 but do not do so, you may have to pay a penalty of up to $10,000
(more if the failure to
file is willful).
If you are a U.S. citizen or resident with income from sources outside the United States, you must report all that income
on your tax return unless
it is exempt by U.S. law. This applies to earned income (such as wages) as well as unearned income (such as interest, dividends,
and capital gains).
Foreign earned income exclusion and foreign housing exclusion and deduction.
Certain taxpayers can exclude or deduct income earned in foreign countries. However, the foreign earned income and
housing exclusions and the
foreign housing deduction do not apply to the income you receive as an employee of the U.S. Government.
U.S. agency reimbursed by foreign country.
If you are a U.S. Government employee paid by a U.S. agency to perform services in a foreign country, your pay is
from the U.S. Government and does
not qualify for the exclusions or the deduction. This is true even if the U.S. agency is reimbursed by the foreign government.
Employees of post exchanges, etc.
If you are an employee of an Armed Forces post exchange, officers' and enlisted personnel club, embassy commissary,
or similar instrumentality of
the U.S. Government, the earnings you receive are paid by the U.S. Government. This is true whether they are paid from appropriated
or nonappropriated
funds. These earnings are not eligible for the foreign earned income and housing exclusions or the foreign housing deduction.
Other employment.
If you are a U.S. citizen or resident employed abroad by the U.S. Government and you also receive income from a private
employer or
self-employment, you may qualify to claim the exclusions or the deduction based on this other income. To qualify, you must
meet either the bona fide
residence test or the physical presence test. Your spouse who is a U.S. citizen or resident alien may also qualify if he or
she earns income in a
foreign country that is paid by a private employer or is from self-employment. If you are not a U.S. Government employee,
amounts paid by the United
States or its agencies to you may also qualify for the exclusions or the deduction.
Additional information.
For more information on the foreign earned income and housing exclusions and foreign housing deduction, see Publication
54.
Allowances, Differentials, and Other Special Pay
Most payments received by U.S. Government civilian employees for working abroad, including pay differentials, are taxable.
However, certain foreign
areas allowances, cost of living allowances, and travel allowances are tax free. The following discussions explain the tax
treatment of allowances,
differentials, and other special pay you receive for employment abroad.
Pay differentials.
Pay differentials you receive as financial incentives for employment abroad are taxable. Your employer should have
included these differentials as
wages on your Form W-2, Wage and Tax Statement.
Generally, pay differentials are given for employment under adverse conditions (such as severe climate) or because
the post of duty is located in a
hazardous or isolated area that may be outside the United States. The area does not have to be a qualified hazardous duty
area as discussed in
Publication 3. Pay differentials include:
Foreign areas allowances.
Certain foreign areas allowances are tax free. Your employer should not have included these allowances as wages on
your Form W-2.
Tax-free foreign areas allowances are allowances (other than post differentials) received under the following laws.
-
Title I, chapter 9, of the Foreign Service Act of 1980.
-
Section 4 of the Central Intelligence Act of 1949, as amended.
-
Title II of the Overseas Differentials and Allowances Act.
-
Subsection (e) or (f) of the first section of the Administrative Expenses Act of 1946, as amended, or section 22 of that Act.
These allowances cover such expenses as:
-
Certain repairs to a leased home,
-
Education of dependents in special situations,
-
Motor vehicle shipment,
-
Separate maintenance for dependents,
-
Temporary quarters,
-
Transportation for medical treatment, and
-
Travel, moving, and storage.
Allowances received by foreign service employees for representation expenses are also tax free under the above provisions.
Cost-of-living allowances.
If you are stationed outside the continental United States or in Alaska, your gross income does not include cost-of-living
allowances (other than
amounts received under Title II of the Overseas Differentials and Allowances Act) granted by regulations approved by the President
of the United
States. Cost-of-living allowances are not included on your Form W-2.
Federal court employees.
If you are a federal court employee, the preceding paragraph also applies to you. The cost-of-living allowance must
be granted by rules similar to
regulations approved by the President.
American Institute in Taiwan.
If you are an employee of the American Institute in Taiwan, allowances you receive are exempt from U.S. tax if they
are equivalent to tax-exempt
allowances received by civilian employees of the U.S. Government.
Federal reemployment payments after serving with an international organization.
If you are a federal employee who is reemployed by a federal agency after serving with an international organization,
you must include in income
any reemployment payments you receive. These payments are equal to the difference between the pay, allowances, post differential,
and other monetary
benefits paid by the international organization and the pay and other benefits that would have been paid by the federal agency
had you been detailed
to the international agency.
Allowances or reimbursements for travel and transportation expenses.
See How To Report Business Expenses, later, for a discussion on whether a reimbursement or allowance for travel or transportation is
included in your income.
Lodging furnished to a principal representative of the United States.
If you are a principal representative of the United States stationed in a foreign country, you do not have to include
in income the value of
lodging (including utilities) provided to you as an official residence. However, amounts paid by the U.S. government for your
usual costs of operating
and maintaining your household are taxable. If amounts are withheld from your pay to cover these expenses, you can not exclude
or deduct those amounts
from your income.
Peace Corps.
If you are a Peace Corps volunteer or volunteer leader, some allowances you receive are taxable and others are not.
Taxable allowances.
The following allowances must be included on your Form W-2 and reported on your return as wages.
-
If you are a volunteer leader, allowances paid to your spouse and minor children while you are training in the United States.
-
The part of living allowances designated by the Director of the Peace Corps as basic compensation. This is the part for personal
items such
as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous
expenses.
-
Leave allowances.
-
Readjustment allowances or “termination payments.”
Taxable allowances are considered received by you when credited to your account.
Example.
Gary Carpenter, a Peace Corps volunteer, gets $175 a month during his period of service, to be paid to him in a lump sum at
the end of his tour of
duty. Although the allowance is not available to him until the end of his service, Gary must include it in his income on a
monthly basis as it is
credited to his account.
Nontaxable allowances.
These generally include travel allowances and the part of living allowances for housing, utilities, food, clothing,
and household supplies. These
allowances should not be included on your Form W-2. These allowances are tax free whether paid by the U.S. Government or
the foreign country in which
you are stationed.
Some other income items that may apply to U.S. Government civilian employees stationed abroad are discussed in this section.
Republic of Panama.
Income earned by any citizen or resident of the United States is not exempt from U.S. tax by any section of the Panama
Canal Treaty. See
Allowances, Differentials, and Other Special Pay, earlier.
Sale of personal property.
If you have a gain from the sale of your personal property (such as an automobile or a home appliance), whether directly
or through a favorable
exchange rate in converting the proceeds to U.S. dollars, the excess of the amount received in U.S. dollars over the cost
or other basis of the
property is a capital gain. Capital gains are reported on Schedule D (Form 1040), Capital Gains and Losses. However, losses
from sales of your
personal property, whether directly or through an unfavorable exchange rate, are not deductible.
Sale of your home.
All or part of the gain on the sale of your main home, within or outside the United States, may be taxable. (Losses
are not deductible).
You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return). Generally, you must have
owned and used the home as
your main residence for two of the five years preceding the date of sale.
For detailed information on selling your home, see Publication 523.
Deductible Business Expenses
Deductions that may be of special interest to you are discussed here. They include travel expenses, transportation expenses,
and other expenses
connected to your employment.
Subject to certain limits, you can deduct your unreimbursed ordinary and necessary expenses of traveling away from home in
connection with the
performance of your official duties. These expenses include such items as travel costs, meals, lodging, baggage charges, local
transportation costs
(such as taxi fares), tips, and dry cleaning and laundry fees.
Your home for tax purposes (tax home) is your regular post of duty regardless of where you maintain your family home. Your
tax home is not limited
to the Embassy, consulate, or duty station. It includes the entire city or general area in which your principal place of employment
is located.
Traveling away from home.
You are traveling away from home if you meet both of the following requirements.
-
Your duties require you to be away from the general area of your tax home substantially longer than an ordinary day's work.
-
You need to get sleep or rest to meet the demands of your work while away from home. This requirement is not satisfied by
merely napping in
your car.
You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long
enough to get
necessary sleep or rest.
Temporary assignment.
If your assignment or job away from your tax home is temporary, your tax home does not change. You are considered
to be away from home for the
whole period, and your travel expenses are deductible. Generally, a temporary assignment in a single location is one that
is realistically expected to
last (and does in fact last) for one year or less.
However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home
and you cannot deduct your travel
expenses while there. An assignment or job in a single location is considered indefinite if it is realistically expected to
last for more than one
year, whether or not it actually lasts for more than one year.
You must determine whether your assignment is temporary or indefinite when you start work. If you expect employment
to last for one year or less,
it is temporary unless there are facts and circumstances that indicate otherwise. Employment that is initially temporary may
become indefinite due to
changed circumstances. A series of assignments to the same location, all for short periods but that together cover a long
period, may be considered an
indefinite assignment.
Exception for federal crime investigations or prosecutions.
If you are a federal employee participating in a federal crime investigation or prosecution, you may be able to deduct
travel expenses even if you
are away from your tax home for more than one year. This exception to the one-year rule applies if the Attorney General certifies
that you are
traveling for the federal government in a temporary duty status to prosecute, or provide support services for the investigation
or prosecution of a
federal crime.
Limit on meals and entertainment.
You can generally deduct only 50% of the cost of your unreimbursed business-related meals and entertainment. However,
the limit does not apply to
expenses reimbursed under a U.S. Government expense allowance arrangement.
Individuals subject to hours of service limits.
You can deduct a higher percentage of your unreimbursed business-related meal expenses if the meals take place during
or incident to any period
subject to the Department of Transportation's hours of service limits. The percentage increases to 80% by the year 2008, as
shown in the following
table.
Individuals subject to the Department of Transportation's “ hours of service” limits include the following persons.
-
Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under
Federal
Aviation Administration regulations.
-
Interstate truck operators and bus drivers who are under Department of Transportation regulations.
-
Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who
are under Federal
Railroad Administration regulations.
-
Certain merchant mariners who are under Coast Guard regulations.
Primary purpose of trip must be for business.
If your trip was entirely for business, your unreimbursed travel expenses are generally deductible. However, if you
spend some of your time on
nonbusiness activities, part of your expenses may not be deductible.
If your trip was mainly personal, you cannot deduct your travel expenses to and from your destination. This applies
even if you engage in business
activities while there. However, you can deduct any expenses while at your destination that are directly related to your business.
Expenses paid for others.
You generally cannot deduct travel expenses of your spouse, dependents, or other individuals who go with you on a
trip.
Home leave.
The Foreign Service Act requires U.S. citizens who are members of the foreign service to take a leave of absence after
completing 3 years of
continuous service abroad. This period is called “ home leave” and can be used to take care of certain personal matters such as medical and dental
checkups, buying a new wardrobe, and visiting relatives.
The amounts paid for your travel, meals, and lodging while on home leave are deductible as travel or business expenses
subject to the rules and
limits discussed earlier. You must be able to verify these amounts in order to claim them. Amounts paid on behalf of your
family while on home leave
are personal living expenses and are not deductible.
More information.
See chapter 1 of Publication 463 for more information on travel expenses.
You can deduct allowable transportation expenses that are directly related to your official duties. Transportation expenses
include the cost of
transportation by air, rail, bus, or taxi, and the cost of driving and maintaining your car. They do not include expenses
you have when traveling away
from home overnight. Those expenses are deductible as travel expenses and are discussed earlier.
Commuting.
You cannot deduct your transportation costs of going between your home and your regular business location. These costs
are personal commuting
expenses.
If you have one or more regular business locations but must work at a temporary location, you can deduct the costs
of commuting to that temporary
place of work.
If you work at two or more places in the same day, you can deduct your expenses of getting from one place of work
to the other.
More information.
For more information on transportation expenses, see chapter 4 of Publication 463.
Other Employee Business Expenses
You may be able to deduct other unreimbursed expenses that are connected with your employment.
Membership dues.
Membership dues you pay to professional societies that relate to your business or profession are deductible.
Subscriptions.
Subscriptions to professional publications that relate to your business or profession are deductible.
Educational expenses.
Generally, educational expenses are considered to be personal expenses and are not deductible. However, under some
circumstances, educational
expenses are deductible as business expenses.
You can deduct educational expenses as business expenses if the education:
-
Maintains or improves skills needed in your present position, or
-
Meets the express requirements of your agency to keep your present position, salary, or status.
You cannot deduct educational expenses as business expenses if the education:
-
Is needed to enable you to meet minimum educational requirements for qualification in your present position,
-
Is a part of a program of study that can qualify you for a new position, or
-
Is for travel as a form of education.
These rules apply even if the education is required by your agency or it maintains or improves skills required in your work.
See Publication 970, Tax Benefits for Education, for more information on educational expenses.
Educational expenses that are not work related, such as costs of sending children to college, are personal expenses that you
cannot deduct.
However, you may be eligible for other tax benefits such as the Hope and lifetime learning credits, contributions to a Coverdell
education savings
account or qualified tuition program, deduction for student loan interest, and exclusion from income of certain savings bond
interest. These benefits
are explained in Publication 970, Tax Benefits for Education.
Foreign service representation expenses.
If you are an employee of the U.S. Foreign Service and your position requires you to establish and maintain favorable
relations in foreign
countries, you may receive a nontaxable allowance for representation expenses. If your expenses are more than the allowance
you receive, you can
deduct the excess expenses as an itemized deduction on Schedule A (Form 1040) if you meet one of the following conditions.
-
You have a certificate from the Secretary of State attesting that the expenses were incurred for the benefit of the United
States, and would
be reimbursable under appropriate legislation if the agency had sufficient funds for these reimbursements.
-
The expenses, while specifically not reimbursable under State Department regulations, were ordinary and necessary business
expenses incurred
in the performance of your official duties.
To deduct any expenses for travel, entertainment, and gifts, including those certified by the Secretary of State, you must
meet the rules for
recordkeeping and accounting to your employer. These rules are explained in Publication 463.
Representation expenses.
These are expenses that further the interest of the United States abroad. They include certain entertainment, gifts,
costs of official functions,
and rental of ceremonial dress. They generally do not include costs of passenger vehicles (such as cars or aircraft), printing
or engraving,
membership fees, or amounts a principal representative must pay personally to cover the usual costs of operating and maintaining
an official
residence.
Chapters 300 and 400 of the Standardized Regulations (Government Civilians, Foreign Area) provide more detail on what expenses are
allowable as representation expenses. These regulations are available on the Internet at www.state.gov/m/a/als. Click on “ Standardized
Regulations (DSSR)”. Publication 463 and Publication 529, Miscellaneous Deductions, provide more detail on what expenses are allowable as
ordinary and necessary business expenses.
Impairment-related work expenses.
If you are an employee with a physical or mental disability, you can deduct attendant-care services at your place
of work and other expenses in
connection with work that are necessary for you to be able to work. Attendant care includes a reader for a blind person and
a helper for a person with
a physical disability. These expenses are reported on Form 2106 or 2106-EZ and carried to Schedule A (Form 1040). They are
not subject to the 2%-of-
adjusted-gross-income limit on miscellaneous itemized deductions.
Loss on conversion of U.S. dollars into foreign currency.
The conversion of U.S. dollars into foreign currency at an official rate of exchange that is not as favorable as the
free market rate does not
result in a deductible loss.
If you claim a deduction for unreimbursed business expenses, you must keep timely and adequate records of all your business
expenses.
For example, you must keep records and supporting evidence to prove the following elements about deductions for travel expenses
(including meals
and lodging while away from home).
-
The amount of each separate expense for travel away from home, such as the cost of your transportation, lodging, or meals.
You may total
your incidental expenses if you list them in reasonable categories such as daily meals, gasoline and oil, and taxi fares.
-
For each trip away from home, the dates you left and returned and the number of days spent on business.
-
The destination or area of your travel, described by the name of the city, town, or similar designation.
-
The business reason for your travel or the business benefit gained or expected to be gained from your travel.
How to record your expenses.
Records for proof of your expenses should be kept in an account book, diary, statement of expense, or similar record.
They should be supported by
other records, such as receipts or canceled checks, in sufficient detail to establish the elements for these expenses. You
do not need to duplicate
information in an account book or diary that is shown on a receipt as long as your records and receipts complement each other
in an orderly manner.
Each expense should be recorded separately in your records. However, some items can be totaled in reasonable categories.
You can make one daily
entry for categories such as taxi fares, telephone calls, meals while away from home, gas and oil, and other incidental costs
of travel. You may
record tips separately or with the cost of the service.
Documentary evidence generally is required to support all lodging expenses while traveling away from home. It is also required
for any other
expense of $75 or more, except transportation charges if the evidence is not readily available. Documentary evidence is a
receipt, paid bill, or
similar proof sufficient to support an expense. It ordinarily will be considered adequate if it shows the amount, date, place,
and essential business
character of the expense.
A canceled check by itself does not prove a business cost. You must have other evidence to show that the check was used for
a business purpose.
Your records must be timely.
Record the elements for the expense in your account book or other record at or near the time of the expense. A timely-kept
record has more value
than statements prepared later when, generally, there is a lack of accurate recall.
Confidential information.
You do not need to put confidential information relating to an element of a deductible expense (such as the place,
business purpose, or business
relationship) in your account book, diary, or other record. However, you do have to record the information elsewhere at or
near the time of the
expense and have it available to fully prove that element of the expense.
How To Report Business Expenses
As a U.S. Government employee, your business expense reimbursements are generally paid under an accountable plan and are not
included in your wages
on your Form W-2. If your expenses are not more than the reimbursements, you do not need to show your expenses or reimbursements
on your return.
However, if you do not account to your employer for a travel advance or if you do not return any excess advance within a reasonable
period of time,
the advance (or excess) will be included in your wages on your Form W-2.
If you are entitled to a reimbursement from your employer but you do not claim it, you cannot deduct the expenses to which
that unclaimed
reimbursement applies.
Form 2106 or Form 2106-EZ.
You must complete Form 2106 or 2106-EZ to deduct your expenses. Also, if your actual expenses are more than your
reimbursements, you can complete
Form 2106 or 2106-EZ to deduct your excess expenses. You must generally include all of your expenses and reimbursements on
Form 2106 or 2106-EZ and
carry your allowable expense to Schedule A (Form 1040). Your allowable expense is then generally subject to the 2%-of-adjusted-gross-income
limit.
Form 2106-EZ.
You may be able to use Form 2106-EZ instead of the more complex Form 2106 for reporting unreimbursed employee business
expenses. You can use Form
2106-EZ if you meet both of the following conditions.
-
You are not reimbursed by your employer for any expenses. (Amounts your employer included in your wages on your Form W-2
are not considered
reimbursements.)
-
If you claim car expenses, you use the standard mileage rate.
Other Deductible Expenses
In addition to deductible business expenses, you may be entitled to deduct certain other expenses.
If you changed job locations or started a new job, you may be able to deduct the reasonable expenses of moving yourself, your
family, and your
household goods and personal effects to your new home. However, you cannot deduct any expenses for which you received a tax-free
allowance as a U.S.
Government employee.
To deduct moving expenses, your move must be closely related to the start of work and you must meet the distance test and
the time test.
Closely related to the start of work.
The move must be closely related, both in time and in place, to the start of work at the new location. In general,
you must have incurred your
moving expenses within one year from the time you first report to your new job or business.
A move generally is not considered closely related in place to the start of work if the distance from your new home
to the new job location is more
than the distance from your former home to the new job location. A move that does not meet this requirement may qualify if
you can show that you must
live at the new home as a condition of employment, or you will spend less time or money commuting from the new home to the
new job.
Distance test.
Your new main job location must be at least 50 miles farther from your former home than your old main job location
was. If you did not have an old
job location, your new job location must be at least 50 miles from your former home.
Time test.
If you are an employee, you must work full time for at least 39 weeks during the first 12 months after you arrive
in the general area of your new
job location.
Deductible moving expenses.
Moving expenses that can be deducted include the reasonable costs of:
-
Moving household goods and personal effects (including packing, crating, in-transit storage, and insurance) of both you and
members of your
household, and
-
Transportation and lodging for yourself and members of your household for one trip from your former home to your new home
(including costs
of getting passports).
The cost of your meals is not a deductible moving expense.
The costs of moving household goods include the reasonable expenses of moving household goods and personal effects
to and from storage. For a
foreign move, the costs also include expenses of storing the goods and effects for part or all of the period that your new
job location abroad
continues to be your main job location.
Expenses must be reasonable.
You can deduct only those expenses that are reasonable for the circumstances of your move. For example, the costs
of traveling from your former
home to your new one should be by the shortest, most direct route available by conventional transportation.
Members of your household.
A member of your household includes anyone who has both your former home and new home as his or her home. It does
not include a tenant or employee
unless you can claim that person as a dependent.
Retirees.
You can deduct the costs of moving to the United States when you permanently retire if both your former main job location
and former home were
outside the United States and its possessions. You do not have to meet the time test described earlier.
Survivors.
You can deduct moving expenses for a move to the United States if you are the spouse or dependent of a person whose
main job location at the time
of death was outside the United States and its possessions. The move must begin within 6 months after the decedent's death.
It must be from the
decedent's former home outside the United States, and that home must also have been your home. You do not have to meet the
time test described
earlier.
How to report moving expenses.
Use Form 3903 to report your moving expenses and figure your allowable deduction. Claim the deduction as an adjustment
to income on Form 1040.
(You cannot deduct moving expenses on Form 1040A or Form 1040EZ.)
Reimbursements.
Generally, you must include reimbursements of, or payments for, nondeductible moving expenses in gross income for
the year paid. You must also
include in gross income reimbursements paid to you under a nonaccountable plan. However, there is an exception for the tax-free
foreign areas
allowances described earlier under Allowances, Differentials, and Other Special Pay.
Additional information.
For additional information about moving expenses, see Publication 521.
Other Itemized Deductions
You may be able to claim other itemized deductions not connected to your employment.
Contributions.
You can deduct contributions to qualified organizations created or organized in or under the laws of the United States
or its possessions. You
cannot deduct contributions you make directly to foreign organizations (except for certain Canadian, Israeli, and Mexican
charities), churches, and
governments. For more information, see Publication 526, Charitable Contributions.
Real estate tax and home mortgage interest.
If you receive a tax-free housing allowance, your itemized deductions for real estate taxes and home mortgage interest
are limited. You must reduce
the amount of each deduction that would otherwise be allowable by the amount of each expense that is related to the tax-free
allowance.
Example.
Adam is an IRS employee working overseas who receives a $6,300 tax-free housing and utility allowance. During the year, Adam
used the allowance,
with other funds, to provide a home for himself. His expenses for this home totaled $8,400 and consisted of mortgage principal
($500), insurance
($400), real estate taxes ($1,400), mortgage interest ($4,000), and utility costs ($2,100). Adam did not have any other expenses
related to providing
a home for himself.
Adam must reduce his deductions for home mortgage interest and real estate taxes. He figures a reasonable way to reduce them
is to multiply them by
a fraction: its numerator is $6,300 (the total housing and utility allowance) and its denominator is $8,400 (the total of
all payments to which the
housing and utility allowance applies). The result is ¾. Adam reduces his otherwise allowable home mortgage interest deduction
by
$3,000 (the $4,000 he paid ×¾) and his otherwise allowable real estate tax deduction by $1,050 (the $1,400 he paid × ¾). He
can deduct $1,000 of his mortgage interest ($4,000 - $3,000) and $350 of his real estate taxes ($1,400 - $1,050) when he
itemizes his deductions. Exception to the reduction.
If you receive a tax-free housing allowance as a member of the military or the clergy, you do not have to reduce your
deductions for real estate
tax and home mortgage interest expenses you are otherwise entitled to deduct.
Required statement.
If you receive a tax-free housing allowance and have real estate tax or home mortgage interest expenses, attach a
statement to your tax return. The
statement must contain all of the following information.
-
The amount of each type of tax-free income you received, such as a tax-free housing allowance or tax-free representation
allowance.
-
The amount of otherwise deductible expenses attributable to each type of tax-free income.
-
The amount attributable to each type of tax-free income that was not directly attributable to that type.
-
An explanation of how you determined the amounts not directly attributable to each type of tax-free income.
The statement must also indicate that none of the amounts deducted on your return are in any way attributable to tax-free
income.
If you pay or accrue taxes to a foreign government, you generally can choose to either claim them as a credit against your
U.S. income tax
liability or deduct them as an itemized deduction when figuring your taxable income.
Do not include the foreign taxes paid or accrued as withheld income taxes in the Payments section of Form 1040.
Foreign tax credit.
Your foreign tax credit is subject to a limit based on your taxable income from foreign sources. If you choose to
figure a credit against your U.S.
tax liability for the foreign taxes, you must generally complete Form 1116 and attach it to your U.S. income tax return.
You cannot claim a credit for foreign taxes paid on amounts excluded from gross income under the foreign earned income
or housing exclusions. If
all your foreign income is exempt from U.S. tax, you will not be able to claim a foreign tax credit.
If, because of the limit on the credit, you cannot use the full amount of qualified foreign taxes paid or accrued
in the tax year, you are allowed
to carry the excess back 1 year and then forward 10 years. This rule applies to foreign taxes arising in years beginning after
October 22, 2004.
Foreign taxes arising before October 23, 2004, generally can be carried back 2 years and then forward 5 years. However, any
of those taxes which can
be carried forward to any tax year ending after October 22, 2004, can be carried forward an additional 5 years.
Exemption from limit.
You can elect to not be subject to the foreign tax limit if you meet all the following conditions.
-
Your only foreign income is passive income, such as interest, dividends, and royalties.
-
The total of all your foreign taxes is not more than $300 ($600 for joint tax returns).
-
The foreign income and taxes are reported to you on a payee statement, such as Form 1099-DIV, Dividends and Distributions,
or 1099-INT,
Interest Income.
If you make the election, you can claim a foreign tax credit without filing Form 1116. However, you cannot carry back or
carry over any unused
foreign tax to or from this year. See the instructions for the appropriate line in the Tax and Credits section of Form 1040.
Foreign tax deduction.
If you choose to deduct all foreign income taxes on your U.S. income tax return, itemize the deduction on Schedule
A (Form 1040). You cannot
deduct foreign taxes paid on income you exclude under the foreign earned income or housing exclusions.
Example.
Dennis and Christina are married and live and work in Country X. Dennis works for the U.S. Government and Christina is employed
by a private
company. They pay income tax to Country X on Christina's income only.
Dennis and Christina file a joint tax return and exclude all of Christina's income. They cannot claim a foreign tax credit
or take a deduction for
the taxes paid to Country X.
Deduction for other foreign taxes.
The deduction for foreign taxes other than foreign income taxes is not related to the foreign tax credit. You can
take deductions for these
miscellaneous foreign taxes and also claim the foreign tax credit for income taxes paid to a foreign country.
You can deduct real property taxes you pay that are imposed on you by a foreign country. You take this deduction on
Schedule A (Form 1040). 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.
More information.
The foreign tax credit and deduction, their limits, and carryback and carryover provisions are discussed in detail
in Publication 514.
You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information
from the IRS in several
ways. By selecting the method that is best for you, you will have quick and easy access to tax help. Access to most of these
services depends on
whether you are inside or outside the United States.
Services Available Inside the United States
Contacting your Taxpayer Advocate.
If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate.
The Taxpayer Advocate independently represents your interests and concerns within the IRS by protecting your rights
and resolving problems that
have not been fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision,
they can clear up
problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.
To contact your Taxpayer Advocate:
-
Call the Taxpayer Advocate toll free at
1-877-777-4778.
-
Call, write, or fax the Taxpayer Advocate office in your area.
-
Call 1-800-829-4059 if you are a
TTY/TDD user.
-
Visit
www.irs.gov/advocate.
For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS—How To Get Help With Unresolved
Tax Problems.
Free tax services.
To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. It contains a list of
free tax publications and an
index of tax topics. It also describes other free tax information services, including tax education and assistance programs
and a list of TeleTax
topics.
Internet. You can access the IRS website 24 hours a day, 7 days a week, at
www.irs.gov to:
-
E-file your return. Find out about commercial tax preparation and e-file services available free to eligible
taxpayers.
-
Check the status of your refund. Click on Where's My Refund. Be sure to wait at least 6 weeks from the date you filed your return
(3 weeks if you filed electronically). Have your tax return available because you will need to know your filing status and
the exact whole dollar
amount of your refund.
-
Download forms, instructions, and publications.
-
Order IRS products online.
-
Research your tax questions online.
-
Search publications online by topic or keyword.
-
View Internal Revenue Bulletins (IRBs) published in the last few years.
-
Figure your withholding allowances using our Form W-4 calculator.
-
Sign up to receive local and national tax news by email.
-
Get information on starting and operating a small business.
Fax. You can get over 100 of the most requested forms and instructions 24 hours a day, 7 days a week, by fax. Just call 703-368-9694
from the telephone connected to your fax machine. When you call, you will hear instructions on how to use the service. The
items you request will be
faxed to you.
For help with transmission problems, call 703-487-4608.
Long-distance charges may apply.
Phone. Many services are available by phone.
-
Ordering forms, instructions, and publications. Call 1-800-829-3676 to order current-year forms, instructions, and publications
and prior-year forms and instructions. You should receive your order within 10 days.
-
Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
-
Solving problems. You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. An
employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Call your local
Taxpayer Assistance Center
for an appointment. To find the number, go to
www.irs.gov/localcontacts or
look in the phone book under United States Government, Internal Revenue Service.
-
TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and
publications.
-
TeleTax topics. Call 1-800-829-4477 and press 2 to listen to pre-recorded messages covering various tax topics.
-
Refund information. If you would like to check the status of your refund, call 1-800-829-4477 and press 1 for automated refund
information or call 1-800-829-1954. Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed
electronically). Have
your tax return available because you will need to know your filing status and the exact whole dollar amount of your refund.
Evaluating the quality of our telephone services.
To ensure that IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate
the quality of our
telephone services. One method is for a second IRS representative to sometimes listen in on or record telephone calls. Another
is to ask some callers
to complete a short survey at the end of the call.
Walk-in. Many products and services are available on a walk-in basis.
-
Products. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and
publications. Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions,
and office supply stores
have a collection of products available to print from a CD-ROM or photocopy from reproducible proofs. Also, some IRS offices
and libraries have the
Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.
-
Services. You can walk in to your local Taxpayer Assistance Center every business day to ask tax questions or get help with a tax
problem. An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. You
can set up an appointment by
calling your local Center and, at the prompt, leaving a message requesting Everyday Tax Solutions help. A representative will
call you back within 2
business days to schedule an in-person appointment at your convenience. To find the number, go to
www.irs.gov/localcontacts or
look in the phone book under United States Government, Internal Revenue Service.
Mail. You can send your order for forms, instructions, and publications to the National Distribution Center at the following address
and
receive a response within 10 business days after your request is received.
National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903
CD-ROM for tax products. You can order Publication 1796, IRS Federal Tax Products CD-ROM, and obtain:
-
Current-year forms, instructions, and publications.
-
Prior-year forms and instructions.
-
Frequently requested tax forms that may be filled in electronically, printed out for submission, or saved for recordkeeping.
-
Internal Revenue Bulletins.
Buy the CD-ROM from National Technical Information Service (NTIS) at
www.irs.gov/cdorders for $22 (no handling fee) or call 1-877-233-6767 toll free to buy the CD-ROM for $22 (plus a $5 handling fee). The
first release is available in early January and the final release is available in late February.
CD-ROM for small businesses. Publication 3207, The Small Business Resource Guide, CD-ROM, is a must for every small business owner or
any taxpayer about to start a business. This handy, interactive CD contains all the business tax forms, instructions, and
publications needed to
successfully manage a business. In addition, the CD provides other helpful information, such as how to prepare a business
plan, finding financing for
your business, and much more. The design of the CD makes finding information easy and quick and incorporates file formats
and browsers that can be run
on virtually any desktop or laptop computer.
It is available in early April. You can get a free copy by calling 1-800-829-3676 or by visiting
www.irs.gov/smallbiz.
Services Available Outside the United States
During the filing period (January to mid-June), you can get the necessary federal tax forms and publications from U.S. Embassies
and consulates.
You can request Package 1040-7 for Overseas Filers, which contains special forms with instructions and Publication 54.
Also during the filing season, the IRS conducts an overseas taxpayer assistance program. To find out if IRS personnel will
be in your area, you
should contact the consular office at the nearest U.S. Embassy.
Phone. You can also call your nearest U.S. Embassy, consulate, or IRS office listed below to find out when and where assistance
will be
available. These IRS telephone numbers include the country and city codes required if you are outside the local dialing area.
Overseas taxpayers can also call the IRS Philadelphia Service Center for help at (215) 516–2000 from 6 a.m. to 2 a.m. Eastern
Standard
Time.
If you are in Guam, the Bahamas, U.S. Virgin Islands, or Puerto Rico, you can call the IRS at 1-800-829-1040.
Mail. For answers to technical or account questions, you can write to:
Internal Revenue Service
International Section
P.O. Box 920
Bensalem, PA 19020-8518.
Internet. With your personal computer and modem, you can access the IRS on the Internet at www.irs.gov. For more information
on the website, see Internet under Services Available Inside the United States, earlier.
Contacting your Taxpayer Advocate.
If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate.
The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving
problems that have not been
fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can
clear up problems that
resulted from previous contacts and ensure that your case is given a complete and impartial review.
Mail. Persons living outside the United States may contact the Taxpayer Advocate at:
Internal Revenue Service
Taxpayer Advocate
P.O. Box 193479
San Juan, PR 00919-3479. You can also contact one of the IRS offices located abroad, listed earlier.
Phone. You can call the Taxpayer Advocate at 787-622-8930.
Fax. You can fax the Taxpayer Advocate at 787- 622-8933.
Previous | First | Next
Publications Index | 2004 Tax Help Archives | Tax Help Archives Main | Home
|
