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Discussion Starter · #1 ·
Hello. I have been self-employed in Paris since 1991 (travailleur indépendant with a residency card). Only once, in 1992, did I actually fill out my US tax forms (1040s, 2555, 4868, etc). At that time, I was getting minimal dividends from some mutual funds (which I no longer hold).

Twenty years later (gasp!), I have made the decision to 'come clean' and would like to backfile 3 years in taxes. I still have no income in the States, and my annual revenue in France is well under the 95,000 dollar exemption. However, two years ago, I did inherit about 60,000 USD when my parents passed away. Does this have to be reported as US tax income?

Also, I have been dutifully paying my URSSAF and assurance maladie (RAM) all this time. Do I still need to get a Totalization Agreement/Certificate of Coverage for my back filing?

I would really appreciate any advice you could give me.
 

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disclaimer: i'm not an accountant or lawyer and this is not formal advice. but i think you would need to file 6 years back. totalization is to avoid paying social charges in two countries. i believe if you have been residing and working in france then you should be covered by the french system and you should not have to pay social security in the states. if you've been paying into the french system from day 1 then it shouldn't be a problem. americans get a certificate of coverage to reside in france and avoid paying social charges IN FRANCE (for obvious reasons). in the us, there is no federal inheritance tax, there is only estate tax. some states have inheritance tax but since you are state-less, then i think you should not be paying taxes on the inheritance itself. however, if you invested the inheritance and had gains on it, you would be responsible for reporting the gains to uncle sam.

i don't understand how, as a us citizen, you could not file a return for 20 years and not get flagged. even if you make less than the exemption every year, you still have to file. in the end, you should really talk with a professional.
 

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I actually AM an accountant (though I don't necessarily keep up with all the twists and turns of the US tax requirements these days), and frankly, I'd just file the current year (2012) and three years back and be done with it.

And to respond to ASK, there are literally thousands of US citizens outside of the US who haven't filed for years. It's not that difficult to simply "fall off the radar" when you're living abroad, and the IRS simply doesn't have the resources to go after the small fry taxpayer who doesn't owe anything anyhow.

OK, back to the issue at hand:

No, your inheritance isn't income for income tax purposes. As long as any and all inheritance taxes were resolved at the time, you can do anything you like with the money and assets, even transfer them to France (though be ready to show some sort of probate statement to prove the source of the funds - not always necessary, but "just in case").

On the Social Security issue, I wouldn't bother with any formal paperwork until or unless they come back to ask for it. Report your "enterprise" as your employer on the 2555 form, including the statut you work under (EURL, AE, whatever) to indicate that you're registered and paying French cotisations.

The six years of back filings is only for FATCA - which, if your foreign assets total less than $200,000, is completely irrelevant. To be scrupulously honest about all this, you should probably file 6 years back of FBARs if you're subject to filing those. Personally, I wouldn't bother, but you have to do what lets you sleep at night.
Cheers,
Bev
 

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Discussion Starter · #4 ·
heartfelt thanks

Thank you for your time and help!

I'm slowly but surely working my through the past three years of tax returns. As I am well under the 95,000 FEIE, I wonder if it is worth detailing the various expenses of the 1040 Schedule C form as I still won't owe a penny...or will this look suspicious to someone in the IRS? hmmm
 

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Personally, I wouldn't bother with a Schedule C if your revenue is under the FEIE limit. It makes a difference if you start out with revenue over the limit, but you don't have to report deductions, just revenue.
Cheers,
Bev
 

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Discussion Starter · #6 ·
Thank you Bev, for the advice. I will take it and file 2012 by this June and three years of back taxes. I starting reading all the horror stories about FBARS (New York Times April 2012) and innocent people getting hit with huge penalities for not filing FBARS and it is NOT at all encouraging me to get into the 'system'. (I keep telling myself that I am such a small fry, and an ignorant small fry to boot. This will be my new mantra when tax anxiety hits!)
 

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This thread interested me very much because I'm in a very similar situation to americaninparis. I'm self employed in France and haven't bothered with declaring my income since I got here a few years ago.

I earn about 20,000$/year in English lessons... So, for this year:

1. I fill in the F2555, indicating my company's statut (AE)
2. On the F1040, I just write in the amount earned in the 'income' box, then write the same amount in the foreign income exemption box and call it a day? And the same for the previous yers?

No Schedule C, no schedule SE, and no certificate of affiliation to the French social security in order to justify my qualification for the Totalization agreement?
 

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I'm not sure that you need to indicate the company statut - if your company has a name, I'd just give that as your "employer" and your "employer address" is the same as your home address.

Your amount earned is the same amount you declared to the AE folks (i.e. gross revenues before any deductions). If you're using tax software, find how to put the revenue in an FEC (it's a special form for foreign employer compensation) rather than using a W2. If you're not using tax software, just put the amount on line 7 as salary income.

The 2555 form tells you where to put the final number (which should be the same as the amount on line 7 in your case) - and be sure to follow the instructions and put it in parens (indicating that it should be subtracted). Fill out the rest of the form - taking your standard deduction and personal exemption until you get to the part that says that your taxes due are $0.

Should work, no problem.
Cheers,
Bev
 

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Does that mean no schedule C is required? I just talked to an attorney and he told me he would have to file schedule C because I have to show my expenditures (also freelance person).
 

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If you're excluding your entire revenue under the FEIE, why do you need to show your expenses? It won't change anything about your return.
Cheers,
Bev
 

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That's what I thought also about filing Schedule C. And I am way below the FEIE threshold so it wouldn't make any difference. He's the second out of three attornies that told me I would have to file Schedule C. The first one said he would just file 2555 for me. Maybe they want to file Schedule C because I have been filing form 2555EZ instead of form 2555? This is just so confusing.
Thanks again Bev.
 

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If you file the 2555 and the standard 1040, as long as you are under the threshold set by the IRS, you will only get back what you paid in taxes over the past year. Itemizing under a Schedule C is a complete waste of time. Again, you can only expect back what you paid and not one cent more. We are very lucky to live here and have everything we paid in taxes joyfully refunded to us by the US Government. Not to many people can actually say that! Warm regards!
 

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I would love a clarification regarding refund mentioned above:

- this is a refund from IRS of what one would have paid in US taxes to IRS already for withholding, correct?
- this is not a refund by IRD of taxes paid in France, to France.

Thanks!
 

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I have just looked at the 1040 form to see where I would put my business income and it is on line 12 and has the mention:
Business income or (loss). Attach Schedule C or C-EZ
There is no loss since I am a freelance person.

So, how would I get around not attaching schedule C or would I put my business income on line 7 as I have always done, wrongly in the past.
 

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I have just looked at the 1040 form to see where I would put my business income and it is on line 12 and has the mention: Business income or (loss). Attach Schedule C or C-EZ There is no loss since I am a freelance person. So, how would I get around not attaching schedule C or would I put my business income on line 7 as I have always done, wrongly in the past.
I am not an accountant and only speak based upon my experience this year. Bev is far more qualified to share her experience with this but I know this having spoken at great length with the IRS:

If you qualify under the 2555 based upon one of the two test methods, you are entitled to a refund of all your Federal and State taxes paid. If you do not qualify under the two test methods of form 2555, then you can not claim the Foreign Earned Income Exclusion and should use a Schedule C to file your taxes along with the 1040. Did you pay US taxes last year? If you did, I honestly don't understand why you would file a Schedule C if you are qualifying under a form 2555. There is a telephone number to the IRS section at the office of the State Department in Paris. You might want to reach out to them for clarification. You can only get back what you paid, not more. Then again, even if you are a Sub S corp., I don't see how you can recoup more than you paid in. It is best to reach out to the IRS or await Bev to clarify this. Warm regards!
 

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I have just looked at the 1040 form to see where I would put my business income and it is on line 12 and has the mention:
Business income or (loss). Attach Schedule C or C-EZ
There is no loss since I am a freelance person.

So, how would I get around not attaching schedule C or would I put my business income on line 7 as I have always done, wrongly in the past.
To be perfectly honest, I would simply report your revenue on line 7 as "salary income". "Business income or loss" is what results when you subtract your business expenses from your business revenue - so if you're not doing that, just report the revenue as if it was wages or salary. (Especially the case if your revenue comes from an AE here in France.) If you're doing your taxes online or with a program, you'll need to fill out a FEC instead of a W-2, but if you're doing it yourself, just plunk the amount in line 7.

There really is no way for them to "check" on what you're reporting, so take the easy way out. It's actually not "wrong" in any sense. Just think - if your salary were covered by the FEIE, would you bother itemizing your deductions on a Schedule A just because you had more deductions than the standard deduction? I suspect not.
Cheers,
Bev
 

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I would love a clarification regarding refund mentioned above:

- this is a refund from IRS of what one would have paid in US taxes to IRS already for withholding, correct?
- this is not a refund by IRD of taxes paid in France, to France.

Thanks!
The only way you can get a refund on your US taxes is if you, for some reason, had taxes withheld from your US source income.

There are some over in the tax section who will advocate eschewing the FEIE in order to make yourself eligible for one or more of the "refundable" credits - like the Earned Income Credit. Check over there if you're interested. For me that's far more trouble than it's worth.

You get no refund from the US for taxes paid in France to the French fisc! And, except for "income taxes" strictly defined, you can't deduct most other French taxes, either as part of the Foreign Tax Credit or as deductions against taxable income. There is more info on this on the Paris IRS office webpage: Internal Revenue Service | Embassy of the United States Paris, France
Cheers,
Bev
 

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Bev, in the past I have been putting down the "Bénéfice" amout on line 7 and not my "Recettes" amount and putting that Bénéfice on 2555EZ, the wrong form. This year I will put it on the correct form 2555 but do I use the "Bénéfice" amount or the "Recettes" amount.
Thanks again.
 

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What sort of business do you have? If it's an AE, you would just use the "recettes" amount (like you do for French tax purposes). As far as having used the "wrong" form - I assume because you consider this "self employment" income - I wouldn't worry about it as long as you have some form of French business entity where you are registered for and paying your cotisations.

In US tax parlance, "self-employment income" means income that subjects you to "self-employment tax" (i.e. US Social Security payments).

As long as your "recettes" are under the FEIE limit, I'd just report "recettes" as your "salary" and use the 2555EZ as you have been doing. You're giving the IRS all the information they need.
Cheers,
Bev
 
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