Dear Tax Talk,
I am a U.S. citizen living and working in Hong Kong. I know I need to file a Form 1040 every year and 2555-EZ to get foreign earned income exclusion. What else do I need to file?
I have a regular salary job with a Hong Kong-based employer. They don't send me a Form 1099 or W-2. So when I mail my forms, do I have to send a copy of my income statement to prove what I have put down is bona fide information? Or, is it not necessary if it's not a W-2 or 1099?
In addition, the Hong Kong fiscal year is from April 1 to March 31. When I report my 2007 income, do I not have to report the part I earned from Jan. 1, 2008 to March 31, 2008 (which is part of my 2007/2008 total income here)?
-- Chester
Dear Chester,
U.S. citizens and green card holders (i.e., resident aliens) have a continuing obligation to file U.S. tax returns while living abroad. Whether these individuals have to pay U.S. taxes depends on the tax breaks under the law.
A U.S. citizen who takes up bona fide residence in a foreign county can exclude a certain amount of earned income. In 2007 the exclusion was $85,700 and in 2008 will be $87,600, as it is adjusted for inflation each year (note it is not adjusted for the weakening dollar.) To claim the exclusion, you should attach Form 2555 or 2555-EZ (if applicable) to your Form 1040.
Individual taxpayers are required to complete their Form 1040s on a calendar-year basis. Accordingly, you will need to report your wages on a different basis than that provided by your employer.
Figure your wages from Jan. 1, 2007 through Dec. 31, 2007 when submitting your 2007 tax return. You do not need to attach a Form W-2 to prove your wages; generally Form W-2 is only requested by the IRS to prove income-tax withholding, which doesn't apply in your situation.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.
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