What is the foreign-earned income exclusion?

The foreign-earned income exclusion allows US expats to exclude a certain amount of income earned abroad from US taxes.

How do I qualify for the foreign-earned income exclusion?

There are two main tests:

  • Physical Presence Test (PPT): Spend at least 330 full days outside the US in a 12-month period. You can start this period at any point in the year.
  • Bona Fide Residence Test (BFR): Live outside the US for a full calendar year with limited visits back to the US.

Which test should I complete first?

If you’ve just moved abroad, the Physical Presence Test is usually the simplest way to establish eligibility.

How do I qualify with the BFR?

To qualify with the Bona Fide Residence Test, you must live abroad for a full calendar year and can have more flexibility with trips back to the US compared to the PPT.

What should I do to prepare?

  • Understand Your Status: Determine which test suits you best.
  • Plan Ahead: Track your travel dates and document your time abroad.
  • Consult Experts: Seek advice from tax professionals to navigate complex situations.

US expats can qualify for the foreign-earned income exclusion through the PPT or BFR, both of which offer significant tax savings. Understanding these tests can greatly benefit your financial planning while living abroad.

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