Your Foreign Earned Income Exclusion

July 26, 2023

As a U.S. citizen or resident alien, it’s crucial to understand that you’re taxed on your global income, irrespective of your residence. However, with our comprehensive tax services, we can help you navigate the Foreign Earned Income Exclusion, potentially allowing you to exclude a portion, if not all, of your foreign earned income. This income could include self-employment earnings, wages, or salaries, subject to annual inflation adjustments ($107,600 for 2020, $108,700 for 2021, $112,000 for 2022, and $120,000 for 2023).

Additionally, you might also be eligible to exclude or deduct certain foreign housing expenses, further reducing your tax burden. Let’s dispel a common myth, though: this excludable foreign earned income is not tax-exempt and still needs to be reported on your U.S. tax return. Only qualifying individuals can elect to exclude foreign earned income, and this is only applicable when a tax return is filed and the income declared.

In order to benefit from the Foreign Earned Income Exclusion, the foreign housing exclusion, or the foreign housing deduction, our tax experts will help you fulfill these key requirements:

  1. Establish your tax home in a foreign country.
  2. Demonstrate that you have earned income abroad.
  3. Confirm that you are either:
  • A U.S. citizen who has been a bona fide resident of one or more foreign countries for an uninterrupted period covering a whole tax year.
  • A U.S. resident alien who is a citizen or national of a country with an active income tax treaty with the U.S., and is a bona fide resident of a foreign country or countries for an entire tax year.
  • A U.S. citizen or resident alien who has physically resided in a foreign country or countries for a minimum of 330 full days within any 12 consecutive month period.

Unlock Foreign Housing Exclusion and Deduction Opportunities

In addition to the Foreign Earned Income Exclusion, our tax service can assist you in claiming an exclusion or deduction from your gross income for your housing expenses. This is possible if your tax home is abroad and you meet the criteria under the bona fide residence test or the physical presence test.

The housing exclusion primarily applies to expenses paid for with employer-provided funds, whereas the housing deduction is relevant to those paid for with self-employment earnings.

Utilize the Foreign Housing Exclusion

If your income doesn’t include self-employment earnings and is completely employer-provided, you might be eligible to exclude your entire housing amount, subject to certain limitations.

Explore the Foreign Housing Deduction

On the other hand, if you don’t have self-employment income, you can’t claim a foreign housing deduction. The calculation of this deduction depends on whether you have solely self-employment income or a combination of self-employment income and employer-provided income. In any case, our tax service can guide you through the special limit applicable to the amount you can deduct.

Optimizing your foreign income and housing deductions can be complex, but our expert tax services in Carlsbad is here to guide you every step of the way.

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