If you are a US citizen, living outside the US, then all your income may not be taxed. Yes, if you live as an expat, then at tax filing time, you can file the “Foreign Income Exclusion” form, number 2555.
But, there’s a catch. (Isn’t there always a catch?) The catch is, you must really be living outside the United States for 90% or more of the time (that works to be 330 days or more). It doesn’t mean just calling your expat home your “Primary residence.” It doesn’t mean come home again for “just” the summer months. Nope, for your income to be excluded from tax, you must stay clear of the US for 330 days or more.
This is on my mind because someone just wrote to me asking the same questions. She asked how (or if) they can visit the United States and how it affects their taxes. I answered her, but then I thought others may be wondering the same thing. So, here is my reply:
Yes, about spending 35 days in the US, it’s true, unfortunately. If
someone spends 35 days in the US, they are then ineligible for foreign
income exclusion. It’s part of the physical presence test and I agree
I think the actual IRS text reads that you must be outside the US for
330 days, but it’s the same. It’s more important to understand that
those 35 days are cumulative and not consecutive. Also, understand
that the 35 days is over *any* span of 12 months, not just calendar
So, as a detailed example, someone fails the physical presence test if
their vacations were:
- July 2011 – 5 days
- December 2011 – 20 days
- May 2012 – 10 days
- June 2012 – 5 days
—–that’s 40 days within 12 months, failing the test. My wife and I have been super careful in counting our days spent over the past 6-7 years outside the US. We never go over 33 (including the entry/exit days in travel). One flight delay could cost us thousands, as you
Of course, I have to add that I am not a financial expert. All the above comes from years of experience as an expat, but not as a financial planner, tax attorney or some other professionally licensed money guru.
Hope this can help at least someone else out there.
Lastly, here’s a flowchart graphic I stole from the IRS. At least it’s less confusing than the 7000 pages of tax code.
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