There are 3 kinds of foreign income exclusions that the IRS allows for income earned in a foreign country:
The foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction.
In order to claim any of these deductions you must have:
-foreign earned income
-your tax home must be in a foreign country
-and you must be one of the following:
- A U.S. citizen who is a bona fide resident of a foreign country or countries 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 with a nondiscrimination article in effect and who is a bona fide resident of a foreign country or countries 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 or countries for at least 330 full days during any period of 12 consecutive months.
The last one is the one most people qualify for (or under). Normally this allows you to exclude up to $85,700 (in 2007).
Remember, you also have a foreign tax credit (which can be equally as helpful!) This allows for a dollar for dollar credit back to your taxes for any taxes paid to a foreign country (converted to U.S. Dollars).
This is not an easy subject - so if you have any questions, please don't hesitate to ask!
Always Yours,
Your Tax Goddess!
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