As an accountant to U.S. citizens or resident aliens of the United States living abroad, we have extensive knowledge and experience working with the foreign earned income exclusion. If you do not reside within the US or any of its territories or if you have any U.S. income you are still required to file a U.S. income tax return and pay taxes on your worldwide income, unless you do not meet the minimum-filing requirement.
You can however qualify to exclude from in come up to an amount of your foreign earnings that is adjusted annually to match inflation. You can also qualify to exclude or deduct specific foreign housing amounts. In order to claim the exclusion or deduction you must file a U.S. tax return every year. If you fail to file a tax return for each year, you risk having the IRS disqualify you from claiming the foreign earned income exclusion.
What are the requirements to claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction?
In order to qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction there are a number of tests that you must meet:
Bona Fide Resident Test
To pass the bona fide resident test you must be a bona fide resident of a foreign country or countries for an uninterrupted period of time that includes an entire tax year. You must also be either a U.S. citizen or a U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect.
Physical Presence Test
In order to pass the physical presence test you must be physically present in a foreign country or countries for at least 220 full calendar days during a period of 12 consecutive months. You must also be a U.S. citizen and resident alien.
What types of income are considered foreign earned income?
Earned income can be in either cash or non cash form and includes:
· Salaries and wages
· Professional fees
· The fair market value of property or facilities provided to you by your employer in the form of lodging, meals, or use of a car
· Any reimbursements or allowances for the following items:
o Costs of living
o Overseas differential
o Home leave
Contact us for more advice on US tax for US Expats