The Foreign Earned Income Exclusion lets US expats exclude the first around $100,000 (the exact figure rises a little each year) of their earned income from US taxes.
It’s a great choice for many expats who earn less than this threshold, and sometimes a good option for expats who earn above the threshold too.
To claim the Foreign Earned Income Exclusion, expats have to file form 2555 with their annual US tax return. Form 2555 requires expats to prove that they live abroad.
I have to say today’s blog post was triggered by a phone call a few weeks ago. The would-be client wanted to report his foreign bank accounts. Apparently, this good citizen had all his I’s dotted & T’s crossed – so to speak – so what was the problem you ask? I hate to say this, but it happens more than you would think. He did not know there were additional reporting requirements involved when it came to bank accounts in foreign financial institutions. (More on FBAR thresholds in my post here)
You have to know that the IRS will not impose a penalty for the failure to file the delinquent FBARs if you “properly” reported the foreign bank accounts on your US tax returns, and paid tax on the income from these accounts and have not been contacted by the IRS for an income tax examination or a request for the delinquent returns has not been made by them. Read More