Americans working abroad may be eligible to exclude certain foreign earned income (wages, compensation for services) from US taxable income under the rules governing the Foreign Earned Income Exclusion (FEIE). The FEIE amount is adjusted annually for inflation.
What does it mean to earn foreign earned income?
For this purpose, foreign earned income is income you receive for services you perform in a foreign country during a period your tax home is in a foreign country and during which you meet either the bona fide residence test or the physical presence test.
Can a self employed person claim the foreign housing exclusion?
The excluded amount will reduce your regular income tax but will not reduce your self-employment tax. Also, as a self-employed individual, you may be eligible to claim the foreign housing deduction instead of a foreign housing exclusion.
Can a foreign earner contribute to a traditional IRA?
Coordinating the Foreign Earned Income Exclusion With Traditional IRAs. First, like the Roth IRA, a person cannot contribute excluded income to a traditional IRA. Second, a deduction for a traditional IRA contribution might be limited or eliminated entirely if the person is covered by their employer’s retirement plan.
What do you mean by foreign earned income?
“Earned income” means just that – income that is earned for personal services performed in a foreign country.
Do you get tax credit for foreign earned income?
The Foreign Tax Credit doesn’t reduce adjusted gross income though, so some expats may benefit more from claiming the Foreign Earned Income Exclusion on their 2019 tax return. The devil is in the details though, as expat parents who claim the Foreign Earned Income Exclusion can’t normally claim the Child Tax Credit.
