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Tag Archive for Foreign Earned Income Exclusion

Tax Court In Brief: Foreign Earned Income Exclusion (FEIE) For A U.S. Citizen

JASON FREEMAN, JD - Foreign earned Income Exclusion

Short Summary:  This case discusses the applicability of the foreign earned income exclusion (FEIE) for a U.S. citizen residing in Saudi Arabia deriving income in such jurisdiction.

Alfred Christopher Morgan (Mr. Morgan) a U.S. citizen and retired military, resided in Saudi Arabia during 2016. He worked there as a quality control manager for a Saudi Arabian’ company. He worked 9 hours per day, 5 days a week. During the weekends, he traveled to close foreign countries (Bahrain, Dubai, etc.) for recreational purposes. In Saudi Arabia, he was the president of a social club, the Worldwide Fraternity of Turtles. He lived in an employer-facility and he had obtained Saudi Arabian proof of residence (Iqama), medical insurance and a driver’s license in Saudi Arabia. Mr. Morgan also was engaged to a long-term resident of Saudi Arabia.

In the U.S., Mr. Morgan had a home where his daughter used to live. He was the sole financial responsible person for maintaining the property. Although Mr. Morgan had his family (mother, daughter, brother, and sisters) living in the U.S., he barely visited them. During 2016, he visited his mother and daughter for approximately two and one week respectively. He did not provide financial assistance to his immediate family. He did not visit any medical provider in the U.S., but he retained medical insurance provided to retired military and his driver’s license.

Mr. Morgan did not file his 2016 tax return. The IRS prepared a substitute for return including in his gross income the income he derived from Saudi Arabia. Mr. Morgan challenged the deficiency in the Tax Court and claimed that the FEIE applied and thus, his foreign earned income should be excluded under I.R.C. § 911(a)(1). The Court determined that his income should have been excluded as he met the requirements of the FEIE.

Key Issues: Whether Petitioner was entitled to exclude his income from Saudi Arabia under the FEIE  § 911(a)(1) of the I.R.C.

Primary Holdings: Petitioner was entitled to exclude his foreign earned income as he met the FEIE requirements, because he met the “physical presence” test and his tax home was determined to be located in Saudi Arabia.

Key Points of Law:

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Written by | Posted in Foreign Earned Income Exclusion

Foreign Earned Income Exclusion

Foreign Earned Income Exclusion

U.S. citizens and resident aliens who live abroad are taxed on their worldwide income.  But such taxpayers may qualify for the foreign earned income exclusion, which allows certain taxpayers to exclude up to $112,000 (in 2022) of their foreign earnings from income, as well as to exclude or deduct certain foreign housing costs.  Note, however, that not all U.S. expats qualify to take advantage of the foreign earned income exclusion.  In addition, business owners may be subject to other complications and taxpayers residing in countries that have tax treaties with the United States may have certain tax planning opportunities.

The Foreign Earned Income Exclusion: The Basic Requirements

To qualify for the foreign earned income exclusion, the taxpayer must have (i) foreign earned income, (ii) a tax home in a foreign country (the “tax home” test), and (iii) the taxpayer must be one of the following:

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The S. 911 Foreign Earned Income Exclusion: It’s Origins, Journey, Opportunities And Limitations

John Richardson

I recently participated in a podcast discussing both the opportunities and limitations associated with the Section 911 FEIE (“Foreign Earned Income Exclusion”). It is short and explains why the FEIE is not the answer to the problems experienced by Americans abroad. You can listen to it here:

https://prep.podbean.com/e/us-taxation-of-americans-abroad-do-the-foreign-tax-credit-rules-work-sometimes-yes-and-sometimes-no/

The podcast was the subject of a post at American Expat Finance. That post prompted me to explore more deeply, the origins of the FEIE. When was it enacted? What was it designed to do? I found a fantastic article that I thought I would/should share.

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Written by | Posted in Foreign Earned Income Exclusion • Section 911 • TaxConnections

Using Foreign Earned Income Exclusion: Bona Fide Residence Test For U.S. Expatriates

Olivier Wagner

U.S. citizens and Green Card holders living abroad must pass either the Bona Fide Residence Test or the Physical Presence Test in order to qualify for Foreign Earned Income Exclusion. Using this exclusion is one of the most popular and legal ways to reduce your tax burden. However, just living overseas doesn’t automatically make you pass either of the tests. In this blog post, we will explain what the Bona Fide Residence Test really is. We will also share with you how to qualify for it and the most common mistakes by U.S. expats make with this test.

How To Qualify For Bona Fide Residence TestAas American Living Overseas

As we mentioned earlier, sometimes just living abroad isn’t enough to qualify for the Bona Fide Residence Test. Out of two tests, which make you eligible for Foreign Earned Income Exclusion, the Bona Fide Residence test is slightly more complicated. In practice, it gives you more days to spend in the US per year. However, it has more challenging requirements to meet.

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Written by | Posted in Bona Fide Residence Tests

How To Qualify For The Physical Presence Test To Use Foreign Earned Income Exclusion

Olivier Wagner, Tax Expatriate Tax Preparer

U.S. expats can use the Foreign Earned Income Exclusion to reduce taxable income. And if you did you research on this topic, then you probably heard about tests to pass. American abroad has to qualify for one of the two tests. Today we explain what you need to pass the Physical Presence Test.

Let’s take another look at few general requirements to use FEIE:

  • You should have foreign earned income
  • Your tax home must be in a foreign country
  • and one must qualify for one of the two tests, either Bona Fide Residence or the Physical Presence Test.

The IRS states that a U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months qualifies for the Physical Presence Test, but is it really that simple?

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Written by | Posted in Foreign Earned Income Inclusion • Physical Presence Test

How Do I Qualify For Foreign Earned Income Exclusion?

https://www.taxconnections.com/profile/12273815?name=Olivier-Wagner-EA-CPA

To claim the foreign earned income exclusion, you must meet all three of the following requirements:

  1. Your tax home must be in a foreign country
  2. You must have foreign earned income
  3. You must be one of the following:
  • A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
  • 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, and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
  • A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

There are only two of the factors to be considered in determining whether you pass the bona fide residence test: the length of your stay and the nature of your job. You need to remember that you do not automatically acquire bona fide resident status just by living in a foreign country or countries for one year and your bona fide residence is not necessarily the same as your domicile. If you made a statement to local authorities in your residence country that you are not a resident of that country, and they determine you are not subject to their income tax laws as a resident, you can’t be considered a bona fide resident.

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How To Qualify For Foreign Earned Income Exclusion

To claim the foreign earned income exclusion, you must meet all three of the following requirements:

  1. Your tax home must be in a foreign country
  2. You must have foreign earned income
  3. You must be one of the following:
  • A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
  • 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, and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
  • A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

There are only two of the factors to be considered in determining whether you pass the bona fide residence test: the length of your stay and the nature of your job. You need to remember that you do not automatically acquire bona fide resident status just by living in a foreign country or countries for one year and your bona fide residence is not necessarily the same as your domicile. If you made a statement to local authorities in your residence country that you are not a resident of that country, and they determine you are not subject to their income tax laws as a resident, you can’t be considered a bona fide resident.

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Written by | Posted in Expatriate • Expatriate Taxes • Foreign Earned Income Exclusion

Tax Deductions And Credits Available For U.S. Expats

Olivier Wagner, Virtual Tax Advisor, Expatriate Tax Expert

There are a few deductions and exemptions available to a U.S. person who lives and works overseas. These will help you to lower your expat taxes and might even get you a refund.

If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction. The most common deduction is the Foreign Earned Income Exclusion, which is calculated on Form 2555. If you qualify for this you may exclude up to $101,300 of your foreign earned income. To qualify, you will need to meet either the Physical Present Test or Bona Fide Resident Test for living outside of the U.S.

Foreign Housing Exclusion or Deduction is another option that can save you some money on your taxable income. You need to be either a salaried employee, a wage earner or a self-employed individual to qualify for this deduction. It’s in an addition to FEIE and increases the exempted income by the amount of your qualified housing expenses. Depending on the country of your residence, the allowable deductions for the foreign housing will vary and are subject to limitations.

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Written by | Posted in Deductions And Credits • Foreign Earned Income Inclusion • US Expats

Filing Taxes As An American Living In Mexico – US Expatriate Taxes Explained

You are going to be required to file US expat taxes no matter in which country you live, but how will they be affected if you’ve chosen to live in Mexico?  With the familiar language, proximity to the US, warm weather, and beautiful geography, Mexico is one of the most popular destinations for American expatriates.  It is essential to understand how your US tax return will be affected by your move to Mexico, and what US taxes you will be required to pay. On top of your obligation to file and pay US taxes, Mexico has taxes of its own. Read on for the details you need! Read More

Written by | Posted in Expatriate Taxes • Foreign Earned Income • Mexico Tax/ Belize Tax

The Reality Of Owning A Controlled Foreign Corporation After Trump’s Tax Reform

Do you know that owning a Controlled Foreign Corporation got affected by New Tax Bill? In a nutshell, Trump’s tax reform now means that all income is Subpart F income. In addition, all currently untaxed retained earnings will be subject to a one-time tax. Read further if you want to find out what it means exactly and how U.S. expats with CFCs are affected.

Let’s take a quick look at a few changes that were introduced in recent tax legislation. Generally, Trump’s tax reform benefits individuals who are struggling with their finances by doubling standard deductions, i.e. from $6,000 to $12,000 for singles, and reducing the rates for five tax brackets of the existing seven. Read More

Written by | Posted in CFC • Foreign Earned Income Exclusion

FBAR Penalties Rise Again Due To Inflation

As with many numbers in the U.S. tax code (for example, the foreign earned income exclusion maximum amount), FBAR penalties increase periodically due to inflation.

Recently, the IRS announced that FBAR penalties for noncompliance would be increased for penalties assessed after January 15, 2017. A brief summary of the FBAR requirement and the new penalty amounts are the subjects of this blog.

The FBAR Requirement – A Quick Background Read More

Written by | Posted in FBAR • Foreign Earned Income Exclusion • Inflation • IRS • TaxConnections

How Does The Foreign Earned Income Exclusion Work?

Living and working abroad comes with many exciting benefits. In addition to exploring new lands and learning about new cultures, expats often earn additional income beyond just their regular salary. Foreign earned income can come in many forms. In addition to the wages that are earned, those who are working outside the United States also must declare as income bonuses, tips, commissions, and the like.
It is also common for expats working overseas to have non-cash income as part of their employment package.

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Written by | Posted in Foreign Earned Income • Foreign Earned Income Exclusion • TaxConnections
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