As a U.S. citizen/resident working abroad, you may be able to exclude from income all or a portion of your foreign earnings.
To claim the foreign earned income exclusion, your tax home (the general area of your main place of business, employment, or post of duty) must be in a foreign country throughout the period of your bona fide residence or physical presence abroad. You also must be either:
- a U.S. citizen who is a bona fide resident of a foreign country 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 and be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year, or
- a U.S. citizen or a U.S. resident alien who is physically present in a foreign country for at least 330 full days during any period of 12 consecutive months.
Earned income is generally compensation for personal services you perform, such as wages, salaries, or professional fees. If you are engaged in a trade or business through a sole proprietorship or a partnership in which both personal services and capital investment are material factors in producing income, no more than 30 percent of your share of the net profits of the business may be treated as earned income. Foreign earned income generally is earned income from sources outside the United States that you receive for services you perform during a period in which your tax home is in a foreign country and you meet either the bona fide residence test or the physical presence test. However, foreign earned income does not include:
- the value of meals and lodging you exclude from income because it was furnished for the employer’s convenience;
- pension or annuity payments, including social security benefits;
- pay you receive as a U.S. government employee;
- amounts you include in income because of the employer’s contributions to a nonexempt employee trust or to a nonqualified annuity contract;
- any unallowable moving expense deduction you chooses to recapture; or
- payments you receive after the end of the tax year following the tax year in which you performed the services that earned the income.
Once you elect the foreign earned income exclusion, the election remains in effect for that year and all later years unless you revoke it. If you elect the foreign earned income exclusion, you cannot take a foreign tax credit or deduction for taxes on income excluded under the election. Taking a credit or deduction for any of those taxes may be treated as a revocation of the election. Also, if you claim the foreign earned income exclusion, you cannot claim the earned income credit for the year.
Please call me at your convenience so that we can examine how the foreign earned income exclusion applies in your particular situation.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 05102021-1 320-290)