Working abroad? The Foreign Earned Income Exclusion (FEIE) could save you thousands in US taxes. Here’s your comprehensive guide to Form 2555 and making the most of this valuable tax benefit.
Understanding the Foreign Earned Income Exclusion
The FEIE allows qualified US citizens and residents working abroad to exclude a significant portion of their foreign earned income from US taxation. For 2024, the exclusion amount is indexed for inflation, representing a substantial tax-saving opportunity for American expats.
Qualifying for the FEIE
To qualify, you must meet either:
The Physical Presence Test:
- Present in a foreign country for 330 full days during a 12-month period
OR
The Bona Fide Residence Test:
- Establish residence in a foreign country for an uninterrupted period including an entire tax year
Maximizing Your Benefits
Housing Exclusion
Beyond the basic FEIE, you may qualify for the foreign housing exclusion, which allows you to exclude or deduct certain housing expenses from your taxable income.
Strategic Planning Tips
- Keep detailed records of your time in and out of foreign countries
- Document your tax home and abode status
- Maintain proof of foreign earned income sources
- Track qualifying housing expenses
Common Pitfalls to Avoid
Remember, proper planning and documentation are key to maximizing your FEIE benefits while maintaining compliance with IRS requirements.
- Consider timing of moves to maximize benefits
- Not filing Form 2555 even when eligible
- Miscalculating physical presence days
- Incorrectly determining qualifying income
- Overlooking housing exclusion opportunities
- Missing filing deadlines