FreeTaxUSA Foreign Income Reporting Question for US Citizen Living Abroad

Thank you so much for pointing me in the right direction! I was looking all over the place but somehow missed the Foreign Income section. I do have one follow-up question though - when entering the income, do I need to convert the amount myself or does FreeTaxUSA handle the currency conversion? Also, do you know if I need to provide any additional documentation about the exchange rate I used if I do it myself?

You'll need to convert the amount yourself before entering it. FreeTaxUSA doesn't handle currency conversion automatically. Use the IRS yearly average exchange rate or the actual exchange rates from when you received your payments - either is acceptable as long as you're consistent. You don't need to submit documentation about the exchange rate with your return, but keep records of how you calculated the conversion in case of questions later. The IRS publishes yearly average exchange rates that are considered acceptable for tax purposes, so using those is often the simplest approach.

Does it actually work with FreeTaxUSA specifically? I've tried other "helpers" before and they usually only support TurboTax or H&R Block. I've got income from both Canada and Mexico this year and I'm already dreading figuring it all out.

I'm skeptical about these kinds of services. How does it handle the Foreign Earned Income Exclusion calculations? That's usually the trickiest part with multiple countries and partial year residency.

Yes, it actually does work with FreeTaxUSA! It gives you specific guidance on which sections to use in whatever tax program you're using. I was worried about the same thing since most tools seem focused on the big expensive software. For the Foreign Earned Income Exclusion calculations, it walks you through the physical presence test or bona fide residence test (whichever applies to your situation) and helps determine your qualifying period. It even helped me figure out how to properly allocate my income when I was in multiple countries. It basically translates the complicated IRS rules into plain English steps.

How does this actually work? The IRS phone system is notoriously terrible, so I'm confused how a third-party service could somehow get through easier than I could myself?

Yeah right. I've been trying to reach the IRS for months about foreign tax credits from my time in Germany. There's no way this actually works. If it did, everyone would be using it instead of wasting days on hold.

It uses an automated system that dials continuously and navigates the IRS phone tree until it gets a spot in the queue. When an agent is about to pick up, it calls you and connects you directly to the agent. It's basically doing the waiting for you. As for why everyone isn't using it, I think it's just not that well known. I only found it after searching specifically for solutions to the IRS hold time problem when I was desperate. It's not a magic solution that lets you skip the line - you're still in the same queue as everyone else - but the service does the waiting instead of you having to keep your phone tied up for hours.

Can you use both the exclusion and the credit in the same year? I worked in two different countries - paid taxes in one but not the other. Wondering if I can exclude the untaxed income and get credits for the income where I paid foreign taxes?

Yes, you can use both in the same tax year, but not on the same income. So in your case, you could potentially use the Foreign Earned Income Exclusion for the income from the country where you didn't pay taxes, and then use the Foreign Tax Credit for the income from the country where you did pay taxes. FreeTaxUSA will let you work through both forms. Just be careful about how you allocate the income to make sure you're not double-dipping. The software should help prevent this, but it's good to be aware of the distinction.

That's different from the original question because you have US-source income (1099-NEC) rather than foreign-source income. Since you were paid by a US company as a contractor, you'd report this on Schedule C as self-employment income, not as foreign income. However, you might still qualify for the Foreign Earned Income Exclusion if you meet either the Physical Presence Test or the Bona Fide Residence Test. FreeTaxUSA has sections for both your self-employment income and the FEIE. You'll just need to complete both parts.

Thanks for clarifying! That makes sense that it's still US-source income. I think I do qualify for the Physical Presence Test since I was outside the US for 330+ days last year. Just to be clear - in FreeTaxUSA, I should first enter my 1099-NEC income as self-employment, then separately go to the Foreign Income section to claim the exclusion on that same income? I don't want to accidentally report the same income twice.

Exactly right! You'll first enter your 1099-NEC income on Schedule C as self-employment income in FreeTaxUSA. Then you'll go to the Foreign Income section and complete Form 2555 for the Foreign Earned Income Exclusion. The software will automatically coordinate between the two - it won't double-count your income. When you complete the FEIE section, you'll indicate that you're excluding self-employment income that you already reported elsewhere in your return. FreeTaxUSA will then reduce your taxable income by the exclusion amount (up to the limit for 2022, which was $112,000). Just make sure you have good records of your travel dates to prove you meet the Physical Presence Test - you'll need to show you were outside the US for at least 330 days during a consecutive 12-month period. The IRS can be pretty strict about this requirement.

This is really helpful! I had no idea there were two separate forms for foreign accounts. Quick question - if I only had my Singapore bank account with about $15,000 in it at the highest point, do I need to file both FBAR and Form 8938? And since I was living abroad for most of 2022, would the higher threshold of $200,000 apply to me for Form 8938?