US Expats - Filing Too Late Can Cause you to Lose the Foreign Earned Income Exclusion

The foreign earned income exclusion is not automatic. US expats must file returns to claim it. If you file your return for any year late (more than 18 months), the IRS can deny the exclusion (and you would have to pay tax on your entire income--- but could still take foreign tax credits) if you owe taxes with the return. If your never file a return the statute of limitations for the IRS to assess taxes or require a return never expires!

Need help catching up or filing your return?  Need US International, Expatriate or Nonresident tax assistance. Go to www.TaxMeLess.com.  We offer all of your clients the absolute privacy of attorney-client privilege. We have over 30 years specialized experience in expatriate and nonresident US taxation.

Qualifying for the Foreign Earned Income Exclusion Physical Presence - When You Have Foreign Residence or Tax Domicile

The IRS can cause you problems if you claim a foreign residence for the Physical Present Test when attempting to use the  foreign earned income exclusion on your tax return. Factors that are looked at to determine if you have a foreign residence are:

In Sochurek v. CIR, the Court of Appeals for the Seventh Circuit listed some of the factors to be weighed in determining a taxpayer's residence:

a. The taxpayer's intention.

b. Establishment of a home temporarily in the foreign country for an indefinite period.

c. Participation in the activities of the community on social and cultural levels, identification with the daily lives of the people, and, in general, assimilation into the foreign environment.

d. Physical presence in the foreign country consistent with the taxpayer's employment.

e. The nature, extent, and reasons for temporary absences from the foreign home.

f. Assumption of economic burdens and payment of taxes to the foreign country.

g. Status of a resident of the foreign country as contrasted to that of a transient or sojourner.

h. The taxpayer's employer's classification of the taxpayer's income tax status.

i. Marital status and residence of the taxpayer's family.

j. Nature and duration of his employment; whether his assignment abroad could be promptly accomplished within a definite or specified time.

k. Whether the taxpayer's purpose in establishing a foreign home is tax evasion.

Want help with your tax return or have expat or international tax questions. Email us at ddnelson@gmail.com.  We have been doing expat taxes for over 30 years.

Everything You Wanted to Know about the Foreign Earned Income Exclusion (IRS Form 2555)

One of the best tax benefits in the tax code is the foreign earned income exclusion.  If you live abroad in a no tax or low tax jurisdiction it allows you to save many thousands of dollars in US income taxes.

If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction.

If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is now adjusted for inflation ($91,400 for 2009, $91,500 for 2010, $92,900 for 2011, $95,100 for 2012). In addition, you can exclude or deduct certain foreign housing amounts.

You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer. Refer to Exclusion of Meals and Lodging in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, and Publication 15-B, Employer's Tax Guide to Fringe Benefits for more information.

• Requirements
• Can I Claim the Exclusion or Deduction?
• Tax Home In A Foreign Country
• Bona Fide Resident test
• Physical Presence Test
• Exceptions to Tests
• Figuring The Exclusion
• Choosing The Exclusion
• Revocation
• Which Form to File
• Foreign Housing Exclusion or Deduction
• Individual Retirement Arrangements
• Extension to Claim Foreign Earned Income Exclusion
• Application of Foreign Earned Income Exclusion and the Combat Zone Exclusion to Civilian Contractors Working in Combat Zones (PDF)

If you live in a foreign country where you must pay foreign income taxes, you can avoid double taxation by taking foreign tax credits which offset your US tax on that foreign income dollar for dollar.  We have over 30 years experience in assisting US expatriates, green card holders and nonresidents pay the lowest US income taxes possible. We can often help you avoid having to pay US state taxes also.  Email us at ddnelson@gmail.com or visit our websites at www.TaxMeLess.com or www.expatattorneycpa.com