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Question

A Form 2555 Foreign Earned Income Allocation Worksheet and a Form 2555 Deductions Allocable to Excluded Income Worksheet printed. What is the purpose of these worksheets?

Answer

The worksheets provide support for amounts reported on Form 2555 and Form 1116. All worksheets are designed to be submitted with the return.

Form 2555 Foreign Earned Income Allocation Worksheet

The Form 2555 Foreign Earned Income Allocation Worksheet is designed to report the allocation between U.S. and foreign earned income. Income allocated to foreign earned during the assignment is used to calculate the Form 2555 exclusion. Foreign income earned before, during, and after the foreign assignment is reported, less any applicable exclusion, by Form 1116 as eligible for the foreign tax credit. The worksheet reports the following:

• How the current-year Foreign Earned Income reported on Form 2555, Page 2, Part IV calculates.
• How any housing deduction carryover reported on Form 2555, Page 3 calculates.
• How deductions to be allocated to excluded income calculate. Allocable deductions reported in the During Foreign Assignment column are used by the Form 2555 Deductions Allocable to Excluded Income Worksheet to be allocated and then reported on Form 2555, Page 3.

Form 2555 Deductions Allocable to Excluded Income worksheet

The Form 2555 Deductions Allocable to Excluded Income worksheet is designed to allocate deductions to excluded income. Deductions allocated to the foreign income earned during the assignment on the Form 2555 Foreign Earned Income Allocation Worksheet transfer to this worksheet. Also on this worksheet, the tax application allocates an amount to the excluded income using an exclusion ratio of foreign earned income and housing exclusion to total foreign earned income.

Related topic: Foreign tax credits and earned income FAQs (1040)

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