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Reduce Your U.S. Tax Bill with the FEIE

If you’re an American citizen living and working abroad, including if you hold dual citizenship, the Foreign Earned Income Exclusion (FEIE) might allow you to exclude a portion of your foreign earnings from U.S. taxes, reducing your tax bill.

There are two ways to qualify for the FEIE:

  • The Bona Fide Residence Test: This one is for people who haven’t established residency in a foreign country according to their tax laws. To qualify, you’ll need to prove you’ve been physically present in a foreign country for an entire tax year.
  • The Physical Presence Test: This test is simpler. All you need is to be physically present in a foreign country for at least 330 full days out of a 12-month period. The qualifying days don’t have to be consecutive.

For 2023 (taxes due in 2024), the foreign earned income eligible for exclusion is $120,000. This amount that can be excluded from your U.S. tax reporting increases to $126,500 for 2024 (taxes due in 2025). This means that, if you earned less than that income amount while working abroad, you can potentially exclude it all from your U.S. taxable income. But if you made more, you could only exclude up to that limit.

In addition, U.S. citizens living abroad may also be eligible to deduct certain housing costs that are not reimbursed by an employer.

FEIE applies to your earned income, like wages or salary from foreign employment or your self-employment income. It doesn’t apply to things like pensions, interest income or rental income and other types of pay.

Thinking about claiming FEIE? Contact the international tax and business law attorneys at Hone Maxwell LLP for help determining if you qualify and to ensure you’re following the IRS guidelines correctly.

International tax law and regulations compliance can get tricky, so having a knowledgeable and experienced attorney on your side can save you time and money.

 

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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