U.S. TAX GUIDE IN SAUDI ARABIA
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.
