How do I qualify for the foreign-earned income exclusion?
Figuring out how to qualify for the foreign-earned income exclusion doesn’t have to be a headache.
Let’s break down the two main ways to get there, as explained by Aya: the Physical Presence Test (PPT) and the Bona Fide Residence Test (BFR). Both have their perks, depending on your situation.
The Physical Presence Test (PPT)
- 330 Days Abroad Rule: Simply put, spend at least 330 full days outside the US in any 12-month period, and you’re on track.
- Pick Your 12 Months: The cool part? This 12-month period can start whenever you want in the year, giving you some wiggle room in planning.
The Bona Fide Residence Test (BFR)
- A Year Overseas: If you’ve already been living outside the US for a full year, the BFR might be your ticket.
- More Time Back Home: Unlike the PPT, the BFR is a bit more relaxed about trips back to the US, allowing over 35 days.
Which test should I focus on completing first?
However, if you’ve just moved abroad, say to Saudi Arabia, starting with the PPT is usually the way to go. It’s a straightforward method to establish your eligibility.
Let’s check if you qualify for the FEIE. Chat with our tax professionals today.
How exactly do I get qualified with the BFR?
To meet the BFR criteria, you need to have spent a whole calendar year abroad, with limited time in the US. If you’re frequently traveling back to the US, the BFR might be great for you.
What should I do to prepare?
- Understand Your Status: Knowing which test suits you best can save you a lot in taxes.
- Planning Ahead: Keep track of your travel dates. Documenting your time abroad can make the qualification process smoother.
- Consult Experts: Don’t hesitate to seek advice from tax professionals, especially if your situation has unique aspects.
In a nutshell, US expats have two clear paths to qualify for the foreign-earned income exclusion: the PPT and the BFR. Each has its own set of rules, but understanding them can lead to significant tax savings. Whether you’re a new expat or have been living abroad for a while, getting to grips with these tests can make a big difference in your financial well-being.
Aya Takriti, an IRS Enrolled Agent with 11 years of expat tax experience, specializes in US tax preparation, tax planning and tax advice for US citizens and Green Card holders living and working in the Middle East. *Schedule a consultation with Aya today.
*30-minutes US$247.
