As a US expat, you can exclude $91,400 or more of your foreign-earned income on your 2009 expat tax return. You and your spouse can get the exclusion on Form 2555, each subject to the limit. To qualify for the foreign earned income exclusion, you must meet each of the two tests. The exclusion limit is calculated based on the days during the year that you met both tests.
Try one: your tax domicile must be in a foreign country or countries. Tax domicile means the place where you live and work. For people trying to deduct travel expenses as work-related, the IRS likes to say you live where you work. For expats, they sometimes try to say that your home stayed in the US. If you are working outside the US and your primary residence is outside the US, then you qualify. If you keep a home in the US and don’t rent it (or don’t try to rent it), the IRS may try to say you don’t qualify.
Try two: for each day assessed OR you are a bona fide resident of a foreign country for that day and for an entire fiscal year OR that day you were in a 12-month period during which you were outside the US for 330 days.
bona fide resident means that you are a legal resident in the country. Your visa must allow you to live and work there, and not just for a short period. For example, if you have a Swiss work permit visa and rent an apartment in Zurich as your sole residence, you are a bona fide resident. However, if you declare to the country’s government that you are not a resident (such as on a tax return or as part of a visa), then you cannot claim to be a bona fide resident.
To meet the bona fide resident test, your bona fide residency must include a full tax year in the U.S. For example, if your residency began on June 1, 2008, it must continue through December 31, 2008. 2009, for any of the 2008 days to qualify.
Tea 330 days 12-month trial (the physical presence or 330-day trial), can be very difficult to calculate. Each day of each year is in 365 (or 366) different and overlapping 12-month periods. You must qualify for only one of these periods for each day. Any part of a day spent in the US counts as a day in the US, EXCEPT, however, for presence while in transit between two points abroad. So your day of arrival or departure from the US is normally a US day, but if you are simply in the US for a connecting flight or flights on a trip abroad, that does not count as US time
For example, Joe moves to Spain, leaving the US on July 1, 2008, and arriving in Spain on July 2. He returns to the US on May 31, 2009. He leaves for Italy on July 20, 2009 and arrives the same day. He stays out of the US through the end of 2010. Joe qualifies for every day from July 2, 2008 through the end of 2010. How? His first qualifying period is from July 2, 2008 to July 1, 2009. In this 12-month period, he was away from the US for 333 days (July 2 to May 30). Another period he qualifies for is June 16, 2009 to June 15, 2010, during which Joe was outside the US for 330 days (July 20 to June 15). These two periods overlap and cover every day in 2009. Therefore, for 2009, Joe can exclude at least $91,400.
In addition to the basic exclusion, expatriates can deduct or exclude housing expenses that exceed 16% of the basic exclusion (with limits). If Joe spent $2,000 per month on rent in 2009, his housing exclusion or deduction would be $9,374.
Expats who qualify for the bona fide resident test do not need to count their days outside the US. However, all expatriates are required to count their days of work in the US and outside the US. not for the US portion of the profits. Therefore, if Jane’s salary was $96,000, she worked 240 days in 2009 and 18 of those days were in the US.
Expat taxes can be complicated. Count your days every year if you still don’t meet the bona fide resident test. Plan your trip to the US carefully. And get the help you need to file your expat taxes.