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Foreign Earned Income Exclusion

Posted by Rachel Santana Posted on Nov 07 2013

If you are going to accept a job working out of the country, this exclusion will become your favorite part of the tax code.

It is available to US Citizens and resident aliens who live and work abroad.  It allows you to exclude all or part of your foreign salary from income when you file your U.S. tax return.  It also allows you to exclude costs for personal services and certain foreign housing expenses.

There are several ways to qualify, but the most common is based on time.  You must be present in a foreign country or countries for at least 330 full (24-hour) days during a period of 12 consecutive months.  What does this mean?  You work in the foreign country for a full year (it doesnâ??t have to be a calendar year) and come home for a couple of weeks at Christmas and a couple of weeks mid-yearâ?¦ you still qualify. 

The amount you can exclude (2013) is $97,600 per qualifying person. 

The exclusion is claimed using Form 2555, and you absolutely need our help to fill this form out as it is complicated and often confusing, but the exclusion is absolutely worth it.

Another important fact to remember is that you cannot take a foreign tax credit or deduction on any of the income excluded.  This would be considered double-dipping and would result in the exclusion being revoked.  Finally, the exclusion is not available to US Government Employees working abroad.

This exclusion could save you up to $38,064 in real tax dollars (bottom line) based on your income tax rate.  If you are or have the potential to be employed outside of the United States, then come and talk to us first.  We can help.