SimmersDeacon761
From GunGame5 Documentation
Expatriate Tax Preparation and Understanding Exclusion of Foreign Earned Income
international mobility There is much confusion by what constitutes foreign earned income with respect to the residency location, the place that the work or service is performed, and also the supply of the salary or fee payment. Foreign residency or extended periods abroad of the tax payer is a qualification to prevent double taxation.
Moreover, foreign source income is for services performed outside the U.S. If one resides abroad and works for a company abroad, services performed for your company (work) on a trip on business in the U.S. is considered U.S. source income, and is not subject to exclusion or foreign tax credits. Additionally, passive income from a U.S. source, for example interest, dividends, & capital gains from U.S. securities, or U.S. property rental income, is also not subject to exclusion.
Conversely, earned income abroad, and passive income from foreign securities, rental, or other activities abroad, can be excluded from U.S. taxable income, or foreign taxes paid thereon, can be used as credits against U.S. taxes due.
Basically, the government recognizes that income earned abroad is taxed by the resident country, and could be excluded from taxable income by the IRS when the proper forms are filed. The source of the income salary paid for earned income doesn't have effect on whether it's U.S. or foreign earned income, but instead in which the work or services are carried out (as in the illustration of a worker working for the U.S. subsidiary abroad, and receiving his pay check from the parent U.S. company out of the U.S.).
So, Who Qualifies for Exclusion?
Truth be told there are two methods of expatriates to be eligible for a exclusions of foreign earned income:
The most easy strategy is to file for a special form whenever during the tax year for postponement of filing that current year until a full tax year (usually calendar) has been completed in a foreign country because the taxpayers principle place of residency. This really is typical because one transfers overseas in the center of a tax year. That year's tax return would simply be due in January following completing the following full year abroad following the year of transfer.
The second strategy is to become overseas any 330 days in each full 12 month period abroad. These periods can overlap in case of an incomplete year. In this instance the filing deadline follows the completion of each twelve month abroad.
