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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2355
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Question regarding the 2013 tax work, as this client

Customer Question

Hi,
question regarding the 2013 tax work, as this client lives in Germany and our understanding is that he should not be taxed in US
as he lives and pays taxes in foreign country.
2013 tax year was the first year that they started living in Germany.
So the foreign earned income credit form should also be part of the tax forms.
The tax return is reflecting $65K tax liability, which we think is unreasonable.
Yes, mortgage and real property taxes are for rental property and should be included into Sch E.
Also, depreciation is missing, which would further reduce the rental income.
I still think that it is unreasonable for our client to pay in US for the income earned in Germany.
Please let me know your thoughts.
Submitted: 1 year ago.
Category: Tax
Expert:  Anne replied 1 year ago.
Hi Roger

I'm Anne. I've been preparing taxes for 27 years and I'll be helping you today.

First, as a US citizen,/ Resident Alien, your client is responsible for reporting, and paying tax, on world wide income

However, there is a Foreign Earned Income Exclusion of up to $100,800 if your clients meet the criteria. See below:

http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion

Even if your income is below the $100,800, you must still file a US tax return and include the Form 2555, Foreign Earned Income to tell the IRS WHY you are not paying US tax on our earnings.

From your information, it sounds like the tax that you are questioning SE tax.

If that's true, then you're correct that there is a tax treaty between the US and Germany, and your client would not be responsible for SE tax in both Germany and the US.

However, even in the reference material you sent, it states:

"On the other hand, if your employer sends you from one country to work for that employer or an affiliate in the other country for five years or less, you will continue to be covered by your home country and you will be exempt from coverage in the other country. For example, if a U.S. company sends an employee to work for that employer or an affiliate in Germany for no more than five years, the employer and the employee will continue to pay only U.S. Social Security taxes and will not have to pay in Germany."

I've done alot of tax returns for US citizens/Resident Aliens working abroad, and I have never been able to exclude SE tax from their earnings, even if they make less than the foreign earned income exclusion.

If you have any questions, please post them here and I'll be notified.

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