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Tag Archive for Virtual Tax Advisor

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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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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U.S. Taxes for Worldly Americans: The Traveling Expat’s Guide to Living, Working, and Staying Tax Compliant Abroad

Are you a citizen of the United States who lives abroad? You probably know that the U.S.A. is one of only two countries that applies citizenship based taxation in order to tax its own citizens on their worldwide income, irrespective of where they live or work anywhere in the world. If you’re thinking about becoming a digital nomad or expatriating to another country, do you know how to avoid having to pay tax on your income while abroad? There could be huge penalties or tax evasion charges if you don’t file correctly. Fortunately, these important questions have answers.

By combining the right strategies for citizenship, residency, banking, incorporation, and physical presence in other countries, most people who work overseas can legally lower their U.S. tax owing to $0. In U.S. Taxes for Worldly Americans, Certified Public Accountant, U.S. immigrant, expat, and perpetual traveler Olivier Wagner preaches the philosophy of being a worldly American. He uses his expertise to show you how to use 100% legal strategies (beyond traditionally maligned “tax havens”) to keep your income and assets safe from the IRS.

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Form 1116: What Is The Catch?

Virtual Tax Advisor

Although Form 1116 is a great benefit, there are some limitations to this tax credit that you should be aware of.

  1. The money earned needs to be subject to income tax in the foreign country. Unfortunately, you cannot use the credit to offset the cost of the property or other taxes paid abroad. Income only!
  2. The credit can be up to the amount you paid the foreign country. However, it is limited to no more than the percentage of your income that was earned overseas. So if you only earned 40% of your income in a foreign country that was subject to taxation abroad, then you cannot take a deduction equal to more than 40% of your U.S. tax burden.
Look At Expat Example Using Foreign Tax Credit

Mark and Sylvia have been living and working in Spain for three years. They are full-time residents and earn all of their foreign earned income through the Spanish companies they work for (perhaps, you can relate to this example of how to claim the Foreign Tax Credit):

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