Tax Law (Questions About Taxes)/Form 2555-EZ

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QUESTION: John,
Two hopefully quick and easy questions for you per form 2555-EZ. Is foreign income EARNED in December 2014 but NOT paid until January 2015 excludable, i.e. reported on the 2014 return or 2015? The instructions for this, line 17 on the 2555-EZ form are unintelligible, but seem to suggest the December EARNED income is excludable in 2015. On the other hand, Pub. 54 appears to clearly state you DO report this December 2014 EARNED income in 2014. There has to be a general rule for this. And, the instructions for line 17 also state "report the amount (of excluded income) in U.S. dollars using the exchange rates in effect WHEN YOU ACTUALLY RECEIVE THE INCOME". I'm having a problem locating the dates of when my pay was deposited monthly in my bank account. Can I use an average exchange rate for 2014 instead, as I did for the foreign tax credit. Thank you.

ANSWER: Shone,

Thanks for your question.

You only include the income you received in 2014, as reflected on your W-2.

Hope this helps.

John Stancil, CPA

---------- FOLLOW-UP ----------

QUESTION: Thanks John,
 There's NO w-2. It's a foreign employer who paid me month to month in 2014. And what about the currency conversion I asked in my original post? Here's my original question again. Thank you in advance once again also.

Two hopefully quick and easy questions for you per form 2555-EZ. Is foreign income EARNED in December 2014 but NOT paid until January 2015 excludable, i.e. reported on the 2014 return or 2015? The instructions for this, line 17 on the 2555-EZ form are unintelligible, but seem to suggest the December EARNED income is excludable in 2015. On the other hand, Pub. 54 appears to clearly state you DO report this December 2014 EARNED income in 2014. There has to be a general rule for this. And, the instructions for line 17 also state "report the amount (of excluded income) in U.S. dollars using the exchange rates in effect WHEN YOU ACTUALLY RECEIVE THE INCOME". I'm having a problem locating the dates of when my pay was deposited monthly in my bank account. Can I use an average exchange rate for 2014 instead, as I did for the foreign tax credit. Thank you.

ANSWER: You would use the amount actually paid to you in the calendar year. US individual taxpayers operate on the cash basis of accounting. You can use an average rate for the entire year. Apologize for missing the exchange question origianally.

John Stancil, CPA

---------- FOLLOW-UP ----------

QUESTION: Once again, thanks so much John! You've been VERY, VERY helpful so far!! I'm understanding, according to my original post, and your second response to me, I am to NOT include the foreign income I EARNED in December 2014 on my 2014 return because I received it in 2015, and to exclude this December 2014 EARNED income in 2015. And even though the instructions for Form 2555-EZ clearly state to use the exchange rates in effect when I actually received the foreign income, nevertheless, the IRS is OK if I use an average exchange rate for the entire year instead? Lastly, because I'll be using an average exchange rate conversion as opposed to what the instructions say, do I NEED to write a little letter to accompany my 2014 return to explain why I'm using the average for the year instead of when I actually received the income, something similar to the letter I wrote explaining how I converted the currency using an average exchange rate for the year when I used the foreign tax credit? Thanks so much again.

Answer
The income your earned in December 2014 and received in January 2015 should be INCLUDED in your 2015 return.

See this for info on the exchange rates. http://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-E

John

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John Stancil, CPA

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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