As an expert in tax for US expats we are expert in identifying US expats tax filing obligations, reliefs, deductions and exclusions. This article is aimed at helping US expats identify whether their income is taxable in a foreign country.
The IRS allows expats to earn slightly over $100,000 and not be required to pay federal income tax under Foreign Earned Income Exclusion (FEIE). This allowance is given providing that you meet the requirements of either the bona fide resident or physical presence test, alongside the less popularly known tax home test.
The tax home test states that if you have a tax home within the US, you do not qualify for Foreign Earned Income Exclusion (FEIE). A tax home is typically the general area where you permanently or indefinitely work. The IRS tighten expats access to FEIE by stating that you cannot claim FEIE if you have an abode in the US. An abode is identified by the IRS as an individual’s home, habitation, residence or place of dwelling. The IRS also takes social and economic connections into considerations when determining whether you have an abode in the US or not. This means that an expat could own a property in the US with a spouse and still qualify for the tax home test in a foreign country; or an expat who owns a property abroad is not necessarily identified as having a tax home and abode outside of the US.
Establishing a tax home in a foreign country
In order to establish a tax home in a foreign country it is essential that expats establish clear, primary connections with their host countries. The IRS will take the following into consideration when identifying whether your tax home is abroad:
· Memberships to local banks, clubs and organizations
· Participation in religious services
· Community involvement
· Established primary home