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Great thread with lots of helpful information! I'm dealing with a similar situation but have an additional complication - I received unemployment benefits from France during part of 2023 before starting my consulting work. Does anyone know how French unemployment benefits (allocation chΓ΄mage) are treated for US tax purposes? I'm wondering if these would be considered foreign earned income eligible for the FEIE, or if they're treated more like unearned income. The benefits were based on my previous employment in France, so I'm not sure if the IRS views them as compensation for services or just social benefits. Has anyone dealt with this type of income before? Also, @Freya Christensen - have you been able to get clarity on your sabbatical situation yet? I'm curious how it turned out since our situations seem very similar with the mix of US and French income sources.
French unemployment benefits (allocation chΓ΄mage) are generally treated as unearned income by the IRS, so they wouldn't qualify for the Foreign Earned Income Exclusion. The IRS typically views unemployment compensation as a replacement for lost wages rather than payment for current services, which puts it in the unearned income category. However, you'll still need to report this income on your US tax return. The good news is that if France taxed these benefits, you might be able to claim a Foreign Tax Credit for any French taxes paid on the unemployment income. This could help offset some or all of the US tax liability on that portion of your income. The key distinction is that the FEIE only applies to income from personal services performed while physically present in a foreign country. Since unemployment benefits aren't compensation for active work, they don't meet this requirement. Your consulting income from the French company would likely qualify for the FEIE though, assuming you performed the work while physically in France.
This is such a comprehensive discussion! I've been following along as someone in a similar situation with international income complications. One thing I haven't seen mentioned yet is the potential impact of tax treaties between the US and France. The US-France tax treaty has specific provisions that might affect how your sabbatical income and consulting work are treated. For instance, Article 15 covers employment income and might provide additional protections against double taxation. There are also provisions for researchers and academics that could be relevant to your sabbatical situation. Additionally, since you mentioned planning to return to the US in June 2024, you'll want to be strategic about your timing. If you break foreign residence before establishing it for a full tax year, it could affect your ability to use the Bona Fide Residence Test for 2024. You might need to rely on the Physical Presence Test instead, which requires careful day counting. Have you considered consulting with a tax professional who specializes in expat returns? Given the complexity with multiple income sources, treaty provisions, and the transition back to US residency, it might be worth the investment to ensure you're optimizing your tax position and staying compliant with all filing requirements.
You make an excellent point about the tax treaty provisions! I hadn't considered how the US-France treaty might specifically apply to academic research situations. Article 20 of the treaty actually has special provisions for students and researchers that could be really relevant here. For anyone dealing with similar situations, it's worth noting that the treaty can sometimes provide more favorable treatment than just relying on the FEIE alone. The researcher provisions might allow for temporary exemption of certain income that wouldn't otherwise qualify for standard exclusions. @Henry Delgado - your point about the timing of returning to the US is crucial. I learned this the hard way when I moved back mid-year and it complicated my residency test calculations. The Physical Presence Test becomes much more important in transition years, and you really need to track every single day spent in/out of the US. For complex international tax situations like this, I d'definitely second the recommendation to work with a specialist. The interaction between FEIE, Foreign Tax Credits, treaty provisions, and various reporting requirements can get pretty intricate, especially when you re'dealing with academic income, consulting work, and a pending move back to the US.
Has anyone actually succeeded with this strategy through an audit? I'm seeing lots of theory but wondering if there are success stories when the IRS actually reviews everything.
Yes, my brother-in-law successfully passed an audit while claiming real estate professional status with a W-2 job. The key was that he had negotiated his employment contract down to 15 hours weekly (documented), works remotely, and kept incredibly detailed records of his real estate activities including video logs of property visits and time-stamped communications with tenants/contractors. He also had a legitimate real estate business structure with separate bank accounts, business cards, website, etc. The IRS initially questioned his status but ultimately accepted it after reviewing his documentation. But he literally had 800+ pages of supporting documents!
This is fascinating but also terrifying! I'm a marketing director making $280k and have been considering real estate investing specifically for tax benefits. Reading about your colleague's $140k penalty really makes me pause though. I'm wondering - for those who've successfully navigated this, what's the minimum number of rental properties you'd recommend to realistically generate enough hours for REPS qualification? And has anyone tried the strategy of purchasing properties that need significant renovation work to legitimately rack up more documented hours? Also curious about the timing - if I start investing in real estate this year, can I claim REPS status immediately or do I need to establish a track record first? The documentation requirements sound intense but doable if you're organized from day one.
A little off topic but make sure you've set aside enough for your 2025 estimated tax payments if you're still planning on selling more investments! I got hit with a penalty last year because I didn't realize I needed to make quarterly estimated payments on investment gains. The penalty wasn't huge but still annoying on top of the tax bill.
I'm in a somewhat similar situation - owing about 8k after some unexpected freelance income this year. After reading through all these responses, I'm leaning toward paying in full rather than setting up a payment plan, especially since you mentioned you're planning to buy a house. The debt-to-income ratio impact that Benjamin mentioned is really important. Even a small monthly payment to the IRS could potentially reduce your mortgage qualification amount. Since you have the 80k sitting in savings and your tax bill is 13k, you'd still have 67k left for your down payment and emergency fund, which seems like a solid position. One thing I'd add - if you do decide to pay in full, consider using a credit card that offers cashback or rewards if you can pay it off immediately. Some people earn 1-2% back on tax payments this way, though there's usually a processing fee of around 1.87-1.99%, so you'd only come out slightly ahead with a good rewards card. Just another small optimization to consider!
After going through this mess last year, I can tell you that using taxr.ai helped me understand what was happening with my transcripts and the next steps I should take. I was totally lost with all the IRS codes and notices until I used it. Highly recommend for situations like this! https://taxr.ai
This is terrifying but you're not alone! I went through something similar last year. A few things that really helped me beyond what others have mentioned: 1. Document EVERYTHING with dates and times - every call, every form you submit, every correspondence. Create a dedicated folder/binder. 2. When you do get through to the IRS (and you will eventually), ask for a case number and the agent's ID number. Write down their direct extension if they have one. 3. Consider reaching out to your local Taxpayer Advocate Service office if you hit roadblocks. They're independent from the IRS and can really help cut through red tape. 4. Sign up for USPS Informed Delivery so you can track what mail is coming to your address - sometimes identity thieves try to intercept IRS correspondence. The paper filing requirement is standard for ID theft cases, and yes it's a pain, but it's temporary. Once you get your IP PIN for next year, you can go back to e-filing. Stay strong - this will get resolved! πͺ
KaiEsmeralda
Something nobody mentioned yet - make sure you file even if you don't owe anything! I made that mistake one year thinking "I don't owe taxes so why file?" and missed out on getting my withholding back. You HAVE to file to get that money refunded to you. The IRS doesn't automatically send it back.
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Debra Bai
β’Is there a deadline for filing if you're owed a refund? I heard it's different than if you owe money.
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KaiEsmeralda
β’You generally have 3 years from the original due date to file and claim a refund. So for 2025 taxes (filed in 2026), you'd have until April 2029 to claim your refund. After that, the money becomes property of the US Treasury and you can't get it back. But the deadline for filing if you OWE money is much stricter - you'll face penalties if you file late when you owe. That's why the distinction is important.
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Gabriel Freeman
Hey I was in literally the exact same situation last year. Made 11k, had about $1200 withheld. I got ALL of it back plus some extra from tax credits. Filed in February and had my refund by mid-march. Just use a free filing service and it's pretty straightforward!!
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Cassandra Moon
β’Thanks for sharing your experience!! That's super helpful to know. Did you use one of the free file options on the IRS website or something else? And did you have to provide any special documentation since your income was below the standard deduction?
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Samantha Hall
β’I used FreeTaxUSA which is one of the IRS Free File partners. Super simple interface and completely free for federal returns. You don't need any special documentation - just your W-2 form that your employer sends you by January 31st. The software automatically calculates whether you're below the standard deduction threshold and handles everything for you. Since your income is so straightforward (just W-2 wages), it should be really quick to complete!
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