Not Excluding foreign Earned Income

[Norman2001]

Hello,

I'm using Proseries Professional 2020. I have a client that lives and works in Germany. She is a US citizen and bona fide resident of Germany. 

For TY 2021, she would like to see if it is more beneficial to not exclude her foreign earned income from US taxes and claim the foreign tax credit. As I go through completing 2555, I don't see a way to not exclude the income.  I guess I could delete the Bona Residence test section, but I'm concerned that it may cause issues in the future if she chooses to exclude her income again. 

Any help with this issue is greatly appreciated. 

Thank you

[jeffmcpa2010]

Just a thought.

I have never prepared a 2555 unless I was intending to claim the exclusion. What happens if you just leave the 2555 out?

[Norman2001]

Where would I enter foreign earned income? Also, I'd be concerned about not claiming the bona residence information.

[jeffmcpa2010]

All of the returns I have done which had foreign earned income received a US form W-2, so I had that. 

I guess your choices would be to complete a form 4852 Substitute for Form W-2, Wage and Tax Statement, or to report the income on the "Other Income" section.

[Norman2001]

Thanks. I called Proseries, but they could not help. I was hoping there was a check box election to not exclude the income, but I couldn't find anything of the sort. 

[sjrcpa]

Can you enter the wages the same as any other W-2? Is there a box to check for a foreign employer?

That's how you do it in Lacerte.

As others mentioned, only use the 2555 if you're trying to exclude the foreign income.

[TaxGuyBill · Accepted solution]

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@Norman2001 wrote:

Where would I enter foreign earned income?

Also, I'd be concerned about not claiming the bona residence information.

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On the 1040Wks, to the left of line 1, there is a blank space.  Click it and it will open up a wage worksheet.  There is a spot for foreign wages there.

Bona Fide Residence information is only for claiming the Foreign Earned Income Exclusion.  If you are not claiming the Exclusion, that information should not be on the tax return.

However, use extreme caution.  If I remember correctly, electing to NOT use the Foreign Earned Income Exclusion now will make it so the taxpayer can NOT claim it again for the next 5 years.

[Norman2001]

Thanks for the help Bill. I had already told my client that there is a 5 year waiting period if they want to switch back  to the exclusion. They just want to see the results of a "what if".