Citizens Working Abroad : How to Count Your

Newly updated to include the latest revisions in IRS regulations and the 2002 setting of the Foreign Earned Income Exclusion at $80,000 per year, this guide details and explains the necessary physical presence and residence tests needed to claim this exclusion along with the tax rules, forms, and computations that must accompany it. Also clarified are the requirements of Section 911 and how to establish a foreign tax home from which occupational activities are based. Related matters such as preparing to move abroad, foreign moving expense rules, foreign tax credits, and special rules when working in U.S. possessions are also discussed so that the ultimate goal of saving as much money (tax free) as is possible can more easily be met.

Holmes F. Crouch has been an IRS-licensed tax practitioner and consultant for more than 25 years. He is the author of Small C&S Corporations, Rental Real Estate, and Your Trustee Duties. He lives in Saratoga, California.

Tyyyhe $80,000 Exclusion

1

(1)

Must Be U.S. ``Individual''

2

(1)

Taxed on Worldwide Income

3

(2)

Include In; Exclude Out

5

(1)

Foreign Situs Tax Home

6

(2)

Section 911(a): Introduction

8

(2)

Election Made on Form 2555

10

(2)

``Qualified Individual'' Defined

12

(2)

Statutory Wording Re the $80,000

14

(2)

IRS Jurisdiction: Philadelphia

16

Foreign Earned Income

1

(1)

The Statutory Definition

2

(2)

``Earned Income'' Redefined

4

(1)

Engaged in Trade or Business

5

(2)

Employer-Provided Facilities

7

(1)

Overseas ``Differential'' Allowances

8

(2)

Excludable Meals & Lodging

10

(2)

Must Discount ``U.S. Days''

12

(2)

Attribution Rule Explained (?)

14

(2)

Form 2555, Part IV: Overview

16

(2)

Summary Itemization on Part IV

18

Housing Cost Exclusion

1

(1)

The Statutory Provision

2

(1)

Housing Cost Amount ``Explained''

3

(2)

Importance of Regulation 1.911-4

5

(1)

Qualified Housing Expenses

6

(1)

Second Foreign Household

7

(2)

Base Housing Amount

9

(1)

Housing Exclusion Computation

10

(3)

Three ``Limitation Interlocks''

13

(1)

Self-Employeds: Special Rule

14

Physical Presence Test

1

(1)

At Least 330 ``Full Days''

2

(2)

The 330 Days: Nonconsecutive

4

(1)

The Regulatory Wording

5

(1)

Examples of Loss Days

6

(2)

Maintain a Travel Diary

8

(2)

When to Figure the 12 Months

10

(2)

A More Comprehensive Example

12

(2)

Your Attribution Percentages

14

(2)

Waiver for Civil Unrest

16

(1)

No Waiver for U.S. Days

17

Bona Fide Residence Test

1

(1)

An Entire Tax Year

2

(1)

Meaning of ``Uninterrupted''

3

(2)

Watch Your Ps and Qs

5

(1)

Paying Foreign Taxes: The Key

6

(2)

Worth Paying Foreign Taxes?

8

(2)

Satisfying the IRS

10

(2)

Contractual Terms of Employment

12

(1)

Presence in U.S. on Business

13

(1)

Income Earned in U.S. on Business

14

Preparatory Matters

1

(1)

Make Exploratory Business Trip

2

(2)

Collect Foreign Contact Names, Etc

4

(1)

Sanitize Employment Contract

5

(1)

Vital Matters Updating

6

(3)

Renting Your U.S. Home?

9

(2)

Selling Your U.S. Home?

11

(1)

Special Home Sale Exclusion

12

(3)

Take Selected Records With You

15

(1)

Form 2350: Extension to File

16

(2)

Information Needed for Approval

18

(1)

Another Important Form: 673

19

Moving Expenses

1

(1)

General Moving Expense Rule

2

(1)

Clarify Reimbursement Source

3

(1)

Get a Written Statement

4

(2)

The 120-Day ``When'' Rule

6

(2)

Moving Back to the U.S.

8

(1)

Forms 3903 and 3903-F

8

(2)

Reimbursement Entry Confusion

10

(2)

The General Idea

12

(2)

Tie-In With Form 2555

14

(1)

Exclusion Allocation Fraction

15

Mastering Form 2555

1

(1)

Husband and Wife

2

(1)

Clearly Identify Each Form

3

(2)

Part I: General Information

5

(1)

Country of Citizenship

6

(2)

Parts II, III, & IV: Form 2555

8

(4)

Part V: Your Maximum Exclusion Housing Exclusion Comparisons

12

(2)

Income Exclusion Comparisons

14

(1)

Adjustment for ``Double Benefits''

15

(2)

Part IX for Self-Employeds

17

(2)

Is Form 2555-EZ for You?

19

U.S. Possessions, Etc.

1

(1)

The ``Long Arm'' of IRS

2

(2)

Guam, American Samoa, & the CNMI

4

(1)

Section 931: Specified Possessions

5

(2)

American Samoa Form 4563

7

(1)

Form 5074: Guam & CNMI

8

(2)

Virgin Islands: Tax Haven?

10

(1)

Puerto Rico: Statehood ``No''

11

(2)

Puerto Rico: ``Exempt From''

13

(1)

The ``Etc.'' Possessions

14

Foreign Accounts & Trusts

1

(1)

Two Foreign Accounts Questions

2

(2)

Form TD F 90-22.1 Overview

4

(3)

Overview of Form 3520

7

(1)

What Are Your Chances?

8

(2)

Distributions to a U.S. Person

10

(2)

Receipt of Certain Foreign Gifts

12

(1)

Foreign Currency Investing

13

(1)

Small Business Entities

14

(1)

Beware of Tax Havens

15

Foreign Tax Credit

1

(1)

Overview of Form 1116

2

(1)

Deduction Alternatively Allowed

3

(2)

``Slicing the Pie'' Mandate

5

(1)

Income Categories on Form 1116

6

(2)

Excluded Income is Excluded

8

(1)

Allocable Deductions & Losses

9

(1)

Part II: Foreign Taxes Paid

10

(1)

Part III: Overview

11

(2)

Your Credit Limitation Fraction

13

(1)

Now, ``The Smaller Of''

14

(2)

Part IV: Summary of Credits

16

Returning to the U.S.

1

The U.S. Job Market

2

(1)

Other Preparatory Efforts

3

(3)

Establish U.S. Address Promptly

6

(1)

State Residency Principles

7

(1)

State ``Sourcing'' Principles

8

(2)

Example California Treatment

10

(2)

The 9 Nontaxing States

12

(2)

Reexamine Foreign Residency Tax

14

(1)

Reexamine Foreign Investment Sources

15

(2)

Settle Up With the IRS

17

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Citizens Working Abroad : How to Count Your 330 Qualifying Days for Claiming $80,000 tax Free Each Year of Foreign Earned Income

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