The Foreign Earned Income Exclusion (FEIE): How does it work? Can it help you?

The Foreign Earned Income Exclusion (FEIE): How does it work? Can it help you?

https://ift.tt/1RfwK1f What is the Foreign income exclusion? How does it work? If you spend time living, studying, or working abroad, the Foreign Income Exclusion can greatly lower your tax bill. In this video, we explain how this exclusion works and to what type of income it applies All of your world wide income is taxable   Typically, U.S. citizens and residents are taxed on their worldwide income, wherever it is earned. However, if you meet certain requirements, you can exclude a certain amount of your foreign earnings from your income when you submit your tax return. The amounts you may be able to exclude are  one hundred four thousand dollars for the 2018 tax year, and one hundred five thousand and nine hundred dollars in 2019. This amount increases every year in line with inflation. To claim these exclusions, you need to show that you have been resident and earned money in countries outside the U.S.   What is Included and Excluded in Foreign Earned Income?   Here are some of the rules behind Foreign Earned Income Exclusion   It can only be applied to active income that you earn for performing a job, from wages or salary, or as money you paid yourself while self-employed. This can even apply to money paid to you by a US-based employer, providing you were outside of the country for a specific length of time. The exclusion does not apply to other types of income like retirement income, investment income, real estate income, social security benefits, and others. Certain other types of income don’t apply including income earned as employee of the U.S. government, or payments received after the end of the tax year.   Now a few warnings You may still have to file an income tax return. In order to claim the foreign income exclusion you have to file. If you have not filed, you may a very large penalty exposure on your hands as many foreign informational returns must be completely along with the tax return. Penalties can be automatically assessed - at $10,000 per year. We have seen the IRS begin doing this the last three years. Additionally, FBAR penalties may be an entirely separate but difficult issue. If you think you might have a problem, follow the link to irsmedic for expert advice. Your income is excluded from US tax- But chances are you are paying high taxes to the country in which you are living or working. So it’s like like you are getting away with not paying taxes. Now, Foreign tax credits work entirely differently. Additionally, to qualify for the Foreign In come exclusion, you need to satisfy something called the bona fide residence test to claim the foreign income exclusion. Be sure to subscribe to our channel as we will be coving both topics - foreign tax credits and the bona fide residence test in future videos. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269 - 6699 info@irsmedic.com https://youtu.be/-CiJ4394Ab0 IRS Medic