How Many Exemptions Are You Eligible For? (It might be more than you think)

Unfortunately, it is every U.S. citizen's obligation to file a tax return, whether you think you owe taxes or not. In addition to the 1040X, which is the Amended Individual Income Tax Form, there are two other forms for people living and earning abroad: the 2555 and the 2555E-Z, which, as the name would suggest, is a much less complicated version of the former. You are eligible to use the EZ form if:

- Your foreign earned income for the year was $80,000 or less, and
- Your return is not for a short year (you spent at least 330 full days in a foreign country in a consecutive 12 month period).

If you earned more than $80,000, you are going to have to pour yourself a large cup of coffee and settle in for the night, because you will have to use Form 2555. Whether above or below this number, you still may be eligible for certain tax exclusions such as the foreign earned income exclusion and the foreign housing deduction and exclusion. As always, there's a catch; in order to be eligible for either one of these you must have a tax home in a foreign country and earn income from personal services performed in a foreign country.

The IRS has put out an excellent pamphlet for aliens and U.S. citizens living abroad that you can download called "Publication 54." It's a 44-page document in PDF format, so you'll need Adobe Acrobat (which is free to download at http://adobe.com). The link for "P 54" is: http://www.irs.gov/pub/irs-pdf/p54.pdf .

If you happen to be one of those people who live abroad but still (for one reason or another) file your taxes as a resident of one of our 50 states, then you might just be eligible for "e-file," a.k.a. "Free File," which is a service initiated by the IRS but available only through private accounting practices. They are offering this free service to a whopping 60% of the American public based on certain criteria such as:

* Age
* Adjusted gross income
* Eligibility to file a 1040EZ form
* Eligibility to claim the earned income credit
* Military status and
* State residency.

If you're still not sure if you qualify, or would like to find a representative in your area, then check out these links:

* http://www.irs.gov/app/freeFile/welcome.jsp This is the "start page" from the IRS website on e-file.
* http://www.irs.gov/app/freeFile/jsp/index.jsp . A listing of all Free File Alliance members.

For those of you whose taxes are just a little bit more complicated, there is an excellent and easy to understand software program called "The Internet Tax Helper" and I highly recommend it. You can find it at http://internettaxhelper.endorsedbyjetsetliving.com . Although it was originally designed for Americans filing their taxes within the United States, its creators claim that the software is extremely useful for people living abroad and have ample testimonials to prove it. It is especially good for entrepreneurs because it is already set up for a home business and will basically take you by the hand and guide you through the steps to claim all of your home business tax deductions, as well as provide information on how to make your quarterly contributions. It just may make your life (and tax season) a heck of a lot easier, making its $50 price tag money well spent.

Lastly, just so you can remain "up" on all the latest legal loopholes, below you'll find the address of several helpful tax web sites:

* http://taxmama.com Just like your real mom, she gives great advice (even if you don't want to hear it).
* http://bcentral.com/articles/isyn/default.asp?newsid=20031295 An article about the Bush Administration's new Small Business Exemptions and how they will affect you.
* http://www.pinkernell.de/dbausa.htm This is an extremely comprehensive list of German-U.S. tax laws and their corresponding articles.
* http://www.taxsites.com/international.html An excellent resource with links to country-specific sites, as well as the IRS and all its various relevant tax pamphlets, tax associations and tons of other international tax-related links.

No one is saying that filing your taxes is not an unpleasant chore, but it still must be done. D-Day is April 15th and it will be here faster than you can say "refund." Here's wishing you happy returns.

Anne Alexander Sieder is the director of Jet Set Living, a resource for expat entrepreneurs and global citizens. "Let us show you how to get more prosperity, freedom & adventure in your life." http://jetsetliving.com

Tales from a Small Planet reminds you to check tax laws and recommendations with the IRS (www.irs.gov).