General Rules For Filing The Expatriate Tax Return

Importance of US Expatriates and their Foreign Earned Income Exclusion with their US tax Needs

There are general rules for filing the expatriate tax return whether you stay in the States or in a foreign country. All the income generated worldwide by Americans is subject to the United States income tax. Regardless of the country you reside, an expatriate tax filing form is issued to be filled following the requirements. Tax exclusion is only for foreign earned income and not for a passive income.

All of these exclusions can be claimed on Form 1040 for the given year. These exclusions are not automatic therefore IRS Form 2555 needs to be filled out and fastened to Form 1040 to prioritize this exclusion. Form 2555 gives information on what the latest caps are for those exclusions.

Foreign Earned Tax Exclusion:

The largest separate tax you should take advantage of as an Expat is the Foreign Earned Income Exclusion. Anyone that meets specific defined requirements is qualified to have exclusion on foreign earned income. These are only achievable by filing the form of expatriate tax return and in so doing, claim exclusion. If it is accepted by U.S. tax administrators, you can then be allowed to exclude from taxation up to a net income/earning. This foreign earned income tax can be facilitated with the help of Tax Samaritan.

Foreign Tax Credit:

A foreign tax credit is given to citizen who are subjected to multiple taxation of paying for accumulated foreign taxes to the foreign nation from the income made in the foreign country and at the same time, paying for U.S. tax on the same earned income, you can choose to either take a foreign tax credit or a specific deduction for the taxes payable. Taking this credit implies that your U.S. tax liability is being discounted by foreign income taxes. But in most occasions, it is advisable to take credit on foreign income taxes.

Bona Fide Residence Test:

In the case of a Bona Fide Residence Test, the expat should be able to verify that his residence has been completely transferred to the new tax home. Any form of association to your former residence in the United States may be used to contradict you, be it constant trip to your family, keeping and maintaining properties or memberships.

Your responsibility is to state where exactly you reside in the occasion that the IRS enquires. But in order to prevent any confusion, Physical Presence Test may be more suitable.

Physical Presence Test:

To undergo the Physical Presence Test, you must accurately give record of the whole days spent in the state. The stamped passports are the only evidence of your movements that the IRS will accept, therefore never discard old passport of a minimum of 3 years past to give proof of your travel.

At least 330 days must be spent in the foreign country to pass through the test and these days must be within 12 months’ duration. This is the number that both the tax home country and other foreign countries use to count. The best option would be to choose a 12-month period that you have more days spent in any of the foreign countries as this will most importantly determine the amount of tax that will be excluded from your foreign earned income.


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