Stephen C. Fox, CPA
U.S. International Tax
Stephen C. Fox, CPA, CMA
PO Box 880695
Port Saint Lucie,  FL  34988
+1(973) 610-5669

Expat Tax Returns, Form 2555 and International Tax Planning

Expat tax return rules for U.S. citizens can be hard to understand.  The interaction of the foreign earned income exclusion and foreign tax credit are particularly difficult.  Does the expatiate qualify for the 330 day or bona fide resident tests? Does the exclusion on Form 2555 reduce U.S. tax more than the foreign tax credit on Form 1116?  Is a per diem allowance for travel away from home better than either? What's the interaction of expat status and the education credits and exemptions?  These tough questions are often more than local CPAs or foreign chartered accountants can answer reliably.


Foreign Earned Income Exclusion

Expat tax rules allow a foreign earned income exclusion (USD 100,800 for 2015 and 101,300 for 2016) for wages or self employment income earned for services performed outside the U.S.  This may be increased by a housing exclusion and/or deduction for costs in excess of 16% of the basic amount (with limits based on location).  To qualify for the exclusion, the expat must meet a tax home test as well as either a bona fide resident or physical presence test.  A U.S. citizen living and working overseas may qualify even though he or she visits the U.S., but one still living in the U.S. and working outside the U.S. likely will not.  Qualification on a particular day is an all or nothing proposition.


Foreign Tax Credit

Federal income tax may be reduced by a foreign tax credit, but this credit is limited to that portion of Federal tax generated by taxable foreign source income.  Where taxable income is reduced by the exclusion, the amount of creditable foreign taxes are also reduced.  The calculation of the foreign tax credit limitation takes into account itemized deductions.  The calculations can be complex.


Please note:  I am now retired and not accepting new Expat clients
It's your business:  get personal.  Call Steve Fox at  1(973) 610-5669  or  email steve @ sfoxcpa .com
Get the best tax reference source, available for your desktop or portable device:   Income Tax in the USA 2016