Some U.S. citizens work abroad to save on their taxes. In this article, read and find out if these citizens still need to file their income taxes to the U.S.For some U.S. citizens, working abroad can be a chance to experience the world and even save on their taxes. However, during tax season, these U.S. citizens working abroad may find it difficult to file their income taxes. The Internal Revenue Service (IRS)’s Form 2555 is intended to report the foreign earned income of U.S. citizens working abroad. This form also helps taxpayers calculate the exclusions to their foreign earned income so they can file federal income taxes properly.
According to an article in Community Tax, a U.S. citizen working abroad may be eligible to exclude up to $105,900 of their income. However, for certain incomes to be free of taxes, they must be considered eligible. The types of income that are eligible for the foreign income exclusion include earned income such as wages, salary, bonuses, tips, and more. Self-employed income, some meals and lodging, and some foreign housing costs are also eligible. On the contrary, unearned income like interest, dividends, or capital gains are not eligible. Any income earned abroad as a U.S. government employee is not also eligible.
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Who is eligible for the foreign earned income exclusion?
An article in the H&R Block says that a U.S. citizen working abroad may need to file the Form 2555. However, to be eligible for the benefits of foreign earned income exclusion, the U.S. citizen must meet specific requirements. First, the U.S. citizen must meet the tax home test. This means that the tax home where they work must be outside the U.S. The U.S. citizen must also not have a house in the U.S.
In addition, the U.S. citizen must meet the bona fide residence test. This means that the U.S. citizen must be a lawful resident of at least one foreign country for an entire tax year. If not, they must be a U.S. resident alien who is a citizen of a country that has an income tax treaty with the U.S.
Lastly, the U.S. citizen must meet the physical presence test. This means that the U.S. citizen or resident alien must be physically present in at least one foreign country. This must happen for at least 330 days at any time during the consecutive 12 months.
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