Question 1: Can I claim the foreign income exclusion for 2011 taxes when I file in 2012?

A: Yes, if you are in foreign countries, even as an itinerent, with no permanent locale, for 330 days in a 12-month period.

My income is from book and writer royalties. If yes, which form(s) do I fill out in 2012 if my income is both above or below the foreign limit (~$91,000).

A: Form 2555.

Question 2: From 4/09 to 5/10, I traveled continuously in South America. Can or should I claim the exclusion in my 2010 taxes that I'm about to file? (For 2009 taxes I filed a regular 1040.) If I can claim it, would I only exclude the first five months of income for 2010, since that is how long I was out of the country for in that year?

A: Yes you can claim for 2009 and 2010 pro rata. See Pub. 54, Page 19-20 (last paragraph) for an example of how to calculate the excluded amounts for portions of differen tax years.

Note: Your income must be earned as a result of personal services in the foreign nation. For royalties, you are entitled to count income earned from your foreign activities during the period of your foreign residence, and income paid in the next tax year -- but no further into the future. Treas. Reg. 1.911-3(e). This can make for some messy accounting, when you have different royalties accruing from different projects and different tax years during which the royalties are actually paid.

I'm not an accountant, so I'm the wrong person to try to run the numbers for you. Sufficie it to say that you can take the exclusion -- but, consider hiring a CPA to do the actual accounting for you.

Hope this helps and happy holidays.

The 2555 is filed with the 1040. The income is reported on 1040, line 7, and the exclusion on 1040 line 21. See Pub. 54, page 24 for an example.

Re 2010, yes, you can take the exclusion, but only against income earned as the result of your foreign activities -- and the excluded amount is pro rata (e.g., income_related_to_foreign_activities - ($91,500 * days_outside_USA_in_2010 / 330).

So, let's say you receive $150,000 in income for your travel book in 2011 after returning home to the USA. If you were outside the USA for 150 days in 2010, then you would have ($150,000 - $91,500) * 150/330 excludable against your 2010 tax return, and ($150,000 - $91,500) * 180/330 excludable against your 2011 income. And, if you receive income in 2012 from the book, then you could exclude that against the $91,500 *180/330 days in 2011, but not for the days applicable to 2010.

Like I said -- very messy accounting.

...and to all a good night.