Expatriate Tax Advice

Expatriate Tax Advice offers tax advice and other information to the increasing number of expatriates living abroad in a shrinking world.

Tax free income overseas
Depending on the country, there are different tax advantages in living overseas. Many countries do not tax their citizens working abroad at all. While Americans living abroad are legally required to file their tax forms, their US tax liability is much lower.

For Americans expats working overseas, the Foreign Earned Income Exclusion is a major benefit. With it, more than $90,000 a year of earned income is legally tax free ($91,500 for the 2010 tax year). Expatriate Tax Advice will take a look at this tax break, how to qualify, why the government grants it and ways to take advantages of it.

The IRS defines Foreign Earned Income Exclusion as follows:
“For this purpose, foreign earned income is income you receive for services you perform in a foreign country during a period your tax home is in a foreign country and during which you meet either the bona fide residence test or the physical presence test.”

Basically, money earned for work performed abroad while living abroad is eligible for the exclusion as long as one meets the requirements.

Who qualified for the Foreign Earned Income Exclusion
One way to qualify for this exclusion is to be a bona fide resident. Taxpayers can qualify for this when they reside in another country for an entire tax year from the first of January through December 31st.

For those who do not meet the bona fide resident test, they can still earn the exclusion from income taxes if they reside overseas at least 330 days in a 12-month period (this does not need to be within a single tax year).

Also, in the case of those who have moved overseas but have not been there long enough yet to qualify for the exclusion, it is still possible to claim it as long as they plan to remain overseas until they do. However, the amount of the exclusion will be prorated for the amount of time spent overseas.

There are reasons many countries give tax breaks to their citizens living abroad. Those living abroad are not using the services of their native countries. Also, since those working abroad usually have to pay taxes in the country they are working in; forcing them to pay taxes in their native countries would result in double taxation. Furthermore, it would make them more expensive to employ. For example, if Americans working abroad had to pay American taxes on top of those in the country they were working in; their real earnings would be much lower than those from other nations. This would make them more expensive to employ since Americans would need to make more to get the same wage.

Note that is exemption only covers earned income and other income such as that from rental properties, capital gains, dividends and interest income is still taxable income. However, the Foreign Earned Income Exclusion does help in lowering or eliminating this tax burden as Expatriate Tax Advice will examine here fdakdfd