Foreign Earned Income Exclsuion for Tax Purposes

[jlivings99 0]

There seems to be information and some confusion bouncing around about the $82,400 allowed as a foreign earned income exclusion. Below is some information from the IRS website (www.irs.gov):

Foreign Earned Income Exclusion - Can I Claim the Exclusion or Deduction?

To determine whether you can claim the exclusion or deduction please begin with question 1

1. Do you have foreign earned income?

Yes. Go to question 2.

No. You CANNOT claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction.

2. Is your tax home in a foreign country?

Yes. Got to question 3.

No. You CANNOT claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction.

3. Are you a U.S. citizen?

Yes. Go to question 4.

No. Are you a U.S. resident alien?

Yes. Are you a citizen or national of a country with which the United States has an income tax treaty in effect? (IRS Publication 901 lists treaties)

Yes. Go to question 4.

No. Go to question 5.

No. You CANNOT claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction.

4. Were you a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year?

Yes. You CAN claim the foreign earned income exclusion and the foreign housing exclusion or the foreign housing deduction.

No. Go to question 5.

5.Were you physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months?

Yes. You CAN claim the foreign earned income exclusion and the foreign housing exclusion or the foreign housing deduction.

No You CANNOT claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction.

If you are the nonresident alien spouse of a U.S. citizen or resident alien, you can elect to be treated as a U.S. resident in order to file a joint return. In this case, you can take the foreign earned income exclusion if otherwise qualified.

Use Form 2555 to report the foreign earned income and take the exclusion.

I hope this helps. Although I am a tax professional, I have pulled together this information for nonprofessional reasons (we are applying for a K-3 for my husband) so please seek professional tax advice if you need assistance.

[vylex 0]

If you are the nonresident alien spouse of a U.S. citizen or resident alien, you can elect to be treated as a U.S. resident in order to file a joint return. In this case, you can take the foreign earned income exclusion if otherwise qualified.

Use Form 2555 to report the foreign earned income and take the exclusion.

I hope this helps. Although I am a tax professional, I have pulled together this information for nonprofessional reasons (we are applying for a K-3 for my husband) so please seek professional tax advice if you need assistance.

Thanks a lot for checking this out! I appreciate it! I'll be testing the knowledge of my tax accountant next month. Wow...so many things I need to stay on top of... MUCH APPRECIATED!

[jacob88 0]

jlivings99,

Your posts have been very helpful. I had a couple more questions that I thought you might be able to answer.

When filing our 2555-EZ, for foreign earned income exclusion, do we need to submit some kind of w-2 form with it? My wife is in the Philippines, but I am not sure if they issue a document like a w-2 to show total earnings for the year. Do you think a document like this is needed along with the 2555 and 1040?

Also, for the Bona Fide Residency test, my wife (a non-resident alien, but we are requesting her status to change to alien resident for tax purposes) has never left the country for an extended period of time. Do we list on the 2555 form her date-of-birth as the "began" date, since she is a Philippine residence?

On question 11a, what does tax home mean?

Thought you may be able to help answer these questions. Thanks a lot!

Jacob

[Robor007 0]

Looks like I made a mistake. I'm a USC with one job in the US all of 2006 - that part is simple. My wife, a Philippines citizen, worked in the cruise ship industry for 2 contracts totaling about 6 months and her income was maybe 20% of the amount of foreign income allowed to be excluded. She worked for a US based company but being that she's a non-US citizen her income was not taxed. Her employer paid in cash and they do not provide any sort of statements (like a W2) for tax purposes. Knowing that she was well under the amount that can be excluded I left her income off our taxes completely. However, I did not include a form 2555-EZ (first I heard of it) with our taxes. I sent them off on Tuesday so I don't know what's going to happen now. I guess worst case I can get audited and provide the necessary documents to make our filing 'legit'.

[jlivings99 0]

I am on my way out of town for a couple of days. Your questions go beyond what I can answer quickly ... if you still have questions I can try & respond Sunday.

[Robor007 0]

I am on my way out of town for a couple of days. Your questions go beyond what I can answer quickly ... if you still have questions I can try & respond Sunday.

Thanks a bunch & have a safe trip!

[jacob88 0]

Ok thanks a lot! Just whenever you have time would be helpful. Thanks again.

[NY_IZMIR 1]

Hi all,

We just got our K3 visa paperwork forwarded to the embassy and the only paperwork remaining that I need to send my wife to include in her packet is the 2006 tax return.

A few accountants and IRS reps have all said different things.

My wife was in the U.S. for 3 months as an exchange visitor (j-1) during 2006 and did not have any income. We got married overseas after she returned. She does work overseas and does have income (she works for a state university so all her taxes are withheld automatically)

I would like to file married jointly. I have the signed w-7 and her certified passport copy.

If I were to go this route and write a statement saying that we'd like her to be treated as a resident. Then does the 2555 form "residency" tests automatically hold?

She made about $9,000 USD net income overseas. If I were to include this in the 1040, then can I use 2555 to exlude it?

Is a safer bet just to file married separately? I am not worried about saving a few hundred bucks on taxes. I just want to do the right thing so that the embassy doesn't say anything about me not showing her on my taxes or something.

Any help is appreciated. Thanks