Tax return went from 1500 to less than 1000 after i enter my foreign income

[Wuozopo 4,285]

1 hour ago, britishstraddler said:

I've look at this recently. You're right, the Foreign earned income is added to your total earnings, your total earnings are 'stacked' from the various sources with FEI being placed at the bottom. So your FEI is taking up some/all of Standard Deduction and potentially pushing other earned income into other tax brackets. The FEI Deduction is then cancels that amount out from earned income.

Sorta like that. Take the “stack” of all income including foreign and find the tax. Calling that (A).  

Then find the tax on just the foreign. Calling that (B) 

Subtract (A) - (B) = your final tax.

 

If Tesco was an American living abroad, then maybe he didn’t  have anything in his (A) stack except the foreign.

So tax on foreign minus tax on foreign is zero tax. That is a very easy tax return to fill out unless you own a foreign corporation, have big investments, and any other numerous factors. 

 

There is also a pecking order of figuring taxes on the “stack” so it’s sometimes a sequence. Capital Gains taxation worksheet comes to mind as first to determine how much of the capital gains are taxable in the “stack”. Put that in the stack then figure the (A) tax, then the (B) tax, then subtract. 
 

If you did taxes manually with an instruction booklet, blank forms, and a calculator ; the process would unfold as you went through it. When you use a tax program, the software figures it all out in a split second and doesn’t explain how it got there. And if it shows a running total of “your refund” as you enter things, it appears it took that refund down. That mythical refund is not your refund until you finish everything.  “It ain’t over ‘til it’s over” —Yogi Berra

 

Edit to add: Must confess, my American wife wrote the above response. I’m just a minor leaguer compared to her experience of reading IRS manuals and doing taxes before personal tax software and home computers were available. 

Edited February 11, 2020 by Wuozopo

[markandoliv 3]

On 2/10/2020 at 5:31 PM, kris&me said:

If you did not see a form 2555, it was not done

all this should have come up on the screen to fill out and printed out for your records

this income is not added in the normal spot of tax returns / it is all on form 2555

Update to this: turbotax completed form 2555 in the background and after completingall the other info, and opting to file by mail, i can see and have downloaded the completed forms, which included form 2555.  

[Spkooky80 0]

Hello Mark, mine did the same on turbo tax and trying to figure out what went wrong. I went from $9000+ down to $6000 yikes. If you figure it out, please help me out too :)

[Tesco 53]

Look at the worksheets, this will give clues to where you may have gone wrong.

 

To simplify (assuming you're a resident(s) of a foreign country and can uses 2555(EZ) as per instructions:

 

You only have earned income from W-2 wages (you and/or souse) and foreign earned income from  you and/or spouse. 

Assuming you are filing MFJ:

 

Total foreign earned income  = $80,000

Total W-2 income = $100,000

Total earned income from ALL sources $180,000

Then minus, (exclude the foreign income of $80,000)

Total income is $100,000 , then minus the standard deduction of $24,400

Taxable income $75,600 (for this example, you have no other deductions such as HSA, Medical, 401(k) IRA,  foreign tax credits etc

 

 

 

 

Edited February 14, 2020 by Tesco

[Wuozopo 4,285]

2 minutes ago, Spkooky80 said:

Hello Mark, mine did the same on turbo tax and trying to figure out what went wrong. I went from $9000+ down to $6000 yikes. If you figure it out, please help me out too

I wish people could understand that your refund was never $9000 because you were not finished. Change the American’s income to zero on the W2 but not the amount already paid in. The supposed refund zooms up. Is that really your refund without claiming the American income? Of course not because you can’t skip any income.  
 

Check this first to see if your Form 2555 was done correctly

Do you have a negative number on Form 1040 Line 8a representing the foreign income?
 

 

 

4 minutes ago, Tesco said:

To simplify (assuming you're a resident(s) of a foreign country and can uses 2555(EZ) as per instructions

There is no Form 2555EZ for 2019.  It was discontinued after 2018.

 

[Tesco 53]

3 minutes ago, Wuozopo said:

I wish people could understand that your refund was never $9000 because you were not finished. Change the American’s income to zero on the W2 but not the amount already paid in. The supposed refund zooms up. Is that really your refund without claiming the American income? Of course not because you can’t skip any income.  
 

Check this first to see if your Form 2555 was done correctly

Do you have a negative number on Form 1040 Line 8a representing the foreign income?
 

 

 

There is no Form 2555EZ for 2019.  It was discontinued after 2018.

 

Yes, that is correct. However, it's still available should you need to amend/file for earlier years

[markandoliv 3]

On 2/14/2020 at 10:01 AM, Wuozopo said:

I wish people could understand that your refund was never $9000 because you were not finished. Change the American’s income to zero on the W2 but not the amount already paid in. The supposed refund zooms up. Is that really your refund without claiming the American income? Of course not because you can’t skip any income.  
 

Check this first to see if your Form 2555 was done correctly

Do you have a negative number on Form 1040 Line 8a representing the foreign income?
 

 

 

There is no Form 2555EZ for 2019.  It was discontinued after 2018.

 

On ours on the document that says form 1040 int he top left, it doesnt have any figure for 8a (see first pic).  However in the next document on turbotax, which has schedule 1 form 1040 written in the top left and is titled "additional income and adjustments to income", see pic 2, my foreign earned income is listed as a negative number on number 8. Is this wrong?

 

 

 

Edited February 15, 2020 by markandoliv
2 pics uploaded, looked like one, separated them

[Wuozopo 4,285]

31 minutes ago, markandoliv said:

On ours on the document that says form 1040 int he top left, it doesnt have any figure for 8a (see first pic).  However in the next document on turbotax, which has schedule 1 form 1040 written in the top left and is titled "additional income and adjustments to income", see pic 2, my foreign earned income is listed as a negative number on number 8. Is this wrong?

 

 

 

 

That should have said Line 7a as yours shows, taking it from Schedule 1. Got no answer from that person so probably isn’t interested anyway. Thank you for correcting that.

[EnglishLove 112]

On 2/15/2020 at 10:05 AM, Wuozopo said:

 

That should have said Line 7a as yours shows, taking it from Schedule 1. Got no answer from that person so probably isn’t interested anyway. Thank you for correcting that.

This is how my taxes turned out. And it took away almost my whole refund. I deleted my progress and had family help by having them enter it in thinking I've done it wrong and it comes up with the same thing. In form 1040, it added my income and his together in line 1. Then in 7a, it shows his (foreign earned) income as a negative and 7b as just my income.