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My husband is in Puerto Rico working on reinstalling there…

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My husband is in...

My husband is in Puerto Rico working on reinstalling there electric. The government there had him make out a tax form. They are going to tax him 40% of his earnings. They claim he won't have to claim his income from there when he comes back home and makes out his tax's for the year 2017. It doesn't sound right to me, so is this true and do they have the right to tax him 40%?

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

Not that I know of.

Submitted: 8 months ago.Category: Tax
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11/13/2017
Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,759
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago

If your husband is a U.S. citizen, he is required to report his worldwide income. SEE BELOW:

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U.S. citizens and resident aliens who aren't bona fide residents of Puerto Rico during the entire tax year are required to report all income from worldwide sources on their U.S. income tax return. However, a U.S. citizen who changes residence from Puerto Rico to the United States, and who was a bona fide resident of Puerto Rico for a period of at least two years before changing residency, can exclude any Puerto Rican source income from his or her U.S. income tax return attributable to the time he or she was still residing in Puerto Rico for part of the year.

REFERENCE SOURCE:

https://www.irs.gov/taxtopics/tc901

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An individual who has income from Guam, the Commonwealth of the Northern Mariana Islands (CNMI), American Samoa, the U.S. Virgin Islands or Puerto Rico will probably have to file a tax return with the tax department of one of these territories. It is possible that you may have to file two annual tax returns: one with the territory's tax department and the other with the U.S. Internal Revenue Service. You should ask for forms and advice about the filing of territory tax returns from that territory's tax department and not the U.S. Internal Revenue Service.

Individuals in the following U.S. territories are NOT eligible for the possession exclusion: Baker Island, the CNMI, Guam, Howland Islands, Jarvis Island, Johnston Island, Kingman Reef, Midway Islands, Palmyra, Puerto Rico, U.S. Virgin Islands, and Wake Island.

REFERENCE SOURCE:

https://www.irs.gov/individuals/international-taxpayers/individuals-living-or-working-in-us-possessions

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If your husband is not a U.S. government employee, he may be eligible to claim the Foreign Earned Income Exclusion by filing the Form 2555. I will get more information to you on the FEIE shortly,

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Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:

  • A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
  • A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
  • A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

Based on the information above, unless your husband will be in P.R.for 330 full days during at 12 consecutive months, he will not qualify for the foreign earned income exclusion, however, he will qualify for the Foreign Tax Credit. SEE BELOW:

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If you paid or accrued foreign taxes to a foreign country or U.S. possession and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes.

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Qualifying Foreign Taxes

You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U.S. possession. Generally, only income, war profits and excess profits taxes qualify for the credit. See What Foreign Taxes Qualify For The Foreign Tax Credit?for more information.

Taken as a deduction, foreign income taxes reduce your U.S. taxable income. Deduct foreign taxes on Schedule A (Form 1040), Itemized Deductions

Taken as a credit, foreign income taxes reduce your U.S. tax liability. In most cases, it is to your advantage to take foreign income taxes as a tax credit.

If you choose to exclude either foreign earned income or foreign housing costs, you cannot take a foreign tax credit for taxes on income you can exclude. If you do take the credit, one or both of the choices may be considered revoked.

How to Claim the Foreign Tax Credit

File Form 1116, Foreign Tax Credit, to claim the foreign tax credit if you are an individual, estate or trust, and you paid or accrued certain foreign taxes to a foreign country or U.S. possession.

REFERENCE SOURCE:

https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit

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