Foreign: Foreign Earned Income Exclusion and Foreign Housing Allowances

Question 1

How does the Foreign Earned Income Exclusion (FEIE) affect tax deductions?

Answer 1

Deductions related to foreign EI used for FEIE are disallowed

Question 2

How much income can be excluded for the Foreign Housing Allowance?

Answer 2

1. First $16,944 of income is included in GI
2. Next portion of income up to $31,770 (or IRS high cost location amount) is excluded
3. Remainder of income is included in GI

Question 3

Requirements for Foreign Earned Income Exclusion (FEIE) (4)

Answer 3

1. foreign earned income
2. tax home test
3. Bonafide Residence test OR Physical Presence Test
4. US citizen or US Resident Alien

Question 4

Are employees of the US Government eligible for the FEIE or Foreign Housing Allowance?

Answer 4

NO

Question 5

Types of Variable Income for FEIE (4)

Answer 5

1. business profits
2. royalties
3. rents
4. scholarships/fellowships - Amount for services performed can be used for FEIE

Question 6

Can Sole Proprietorship or partnership income be used for FEIE?

Answer 6

Only the percentage that represents the TP’s personal services provided to the company

Question 7

FEIE Presence Test: Can a TP count a day when he transits from a foreign country through the United States to another foreign country?

Answer 7

Yes, if in the US for less than 24 hours

Question 8

FEIE Presence Test: Can the TP count days were the TP is moving from one foreign country to another foreign country?

Answer 8

yes

Question 9

FEIE Presence Test: What is an allowable exception for not meeting the presence test?

Answer 9

Not being in the foreign country for 330 full days because of war or civil unrest

Question 10

What is the Physical Presence Test for FEIE?

Answer 10

1. US citizen or US resident alien
2. physically present in a foreign country/countries for 330 consecutive days during a 12 month period

Both TP and spouse must qualify separately

Question 11

What is the Bonafide Residence Test for FEIE?

Answer 11

1. US citizen or a Resident Alien from a treaty country
2. Bona fide resident of country/countries for full tax year
   * TP and spouse must qualify separately

IRS determines if a TP is a bonafide resident

Question 12

What types of income DO NOT qualify for the FEIE? (4)

Answer 12

Passive income from:

1. pension/annuity/social security
2. dividend/interest/capital gains
3. gambling winnings
4. scholarship/fellowship not for services

Question 13

What is considered Foreign Earned Income for FEIE?

Answer 13

1. income received for services performed in a foreign country
2. Not passive income
3. who pays and where the payment is sent is irrelevant

Question 14

What three areas are not considered “Foreign Countries”?

Answer 14

1. Antartica
2. international waters/air space
3. US territory/possession

Question 15

How long does the election for FEIE last?

Answer 15

1. until revoked

2. if revoked the TP can not file for the exclusion within 5 years without IRS approval

Question 16

What is the maximum exclusion amount for FEIE?

Answer 16

Single: $105,900 of Foreign earned income
MFJ: $211,800
*spouses must qualify separately

Question 17

Requirements to be a Tax Home in a foreign country for FEIE? (3)

Answer 17

1. In a foreign country
2. permanently or indefinitely for > 1 year
3. regular/principal place of business
   *if no regular place of business then tax home = abode
   Someone could have a house in the US but still have a Foreign Tax Home