http://derlandbahrcpa.com/overseas-earned-income-exclusion/ Do you qualify for the Overseas Earned Income Exclusion (also known as the Foreign Earned Income Exclusion)? Watch this presentation to learn more.

1. Derland G. Bahr, CPA

2. Up to a maximum of 99,200 for 2014
To qualify you must either be a Bona Fide
Resident or meet the Physical Presence Test
In this slideshow we will look at the Physical
Presence Test since it is the more common of the
two methods.

3. 330 day rule
330 day rule
To qualify to take any credit. You must have foreign
earned income and be overseas 330 days out of any
365 day period.
It can be from June 1, 2014 to May 31, 2015
It can be a calendar year.
It can run from Oct 13, 2012 to Oct 12,2013

4. 330 day rule
330 day rule
The key is you cannot be back in the United States for
more than 35 days within the 365 day period you
choose.
You can be in a different county.
E.g., you work as a contractor in Afghanistan for 310 days
You go to Germany for 20 days before coming home
Thus, you were overseas for 330 days within a 12 month
period, therefore you qualify for an exclusion.
If you don’t meet this test you do not qualify for any
exclusion!

5. 330 day rule
330 day rule
Let’s use a similar example
E.g., you work as a contractor in Afghanistan for 325
days
You come straight home. You were only out of the
states for two additional days (327 total)
You come back home without leaving the states again
that year.
You fail to meet the 330 day rule thus you do not
quality for any exemption.

6. 330 day rule
330 day rule
If, however, you come back and get your wife and
go to the Caribbean for a week you would have 330
days out of the states within the 12 month period
and you would qualify.
The key, the 330 day rule is all or nothing, either
you qualify or you do not.

7. Days within the Calendar Year
Determining the amount of exclusion
The amount of exclusion is prorated based on the
number of days within your 365 day period that fall
within the calendar year for the tax return you are
filing.

8. Days within the Calendar Year
Example
You work as a contractor from July 1, 2014 to
December 31, 2015.
Between came home 3 times.
17 days in Dec 2014
14 days in March 2015
15 days in August 15

9. Days within the Calendar Year
Example, cont.
You would get roughly half the exclusion for 2014.
99,200 x ½ = $49,600
Your 12 month period for 2014 would run
approximately from July 1, 2014 to June 30, 2015.
You were back in the states only 31 days during that time
frame, so you meet the physical presence test
Since only six months of the 12 month (365 day) period falls in
2014, you have to prorate the exclusion 99,200 x ½ = $49,600
Similarly
9 months would be 74,400
3 months would be 44,800

10. Days within the Calendar Year
Example, cont.
You would get entire exclusion for 2015
Using the example you would be overseas from Jan
1, 2015 to Dec. 31, 2015.
Between those dates you are only back in the states for
29 days.
Since all twelve months of the period fall in 2015, you can
take the full exclusion ($100,800) in 2015.

11. Days within the Calendar Year
Notice, your 12 month periods can overlap
For 2014 taxes you use July 1, 2014 to June 30,
2015 to meet the qualifications.
For 2015 you use Jan. 1, 2015 to Dec. 31, 2015 to
get the full exclusion
Thus, you use Jan – June 2015 to meet the 330 day rule
for both years
This is okay – 12 month periods can overlap!

12. Any taxable income you do have is taxed at the
higher rates.
Example you have $130,000 in income. You
qualify for a $90,000 foreign earned income
exclusion and you have $20,000 in itemized
deductions. Thus, you have $20,000 in taxable
income. That income is taxed at the 25%
bracket rather than the 10 and 15% brackets.

13. You must report your income and then take the
exclusion.
If not, the IRS will get a copy of the W-2 and
assume all the income is taxable.

14. Example: I have seen a couple think it is not
taxable; therefore, they just don’t report the
foreign income. Due to the wife’s moderate
income the software they used showed they
qualified for earned income credit. The got a
huge refund. They ended up having to pay it
back.

15. Example, cont.: While foreign earned income is
non-taxable for federal income tax purposes. It
is added back in to determine whether you
qualify for earned income credit, etc.
This is different from military combat pay which
is not added back to determine the credit.

16. You must be overseas 330 days out of a 365 day
period to qualify for a credit at all. The 365 day
period does not have to be a calendar year.
The credit is prorated based on the number of days
in your 365 day period that falls within the
calendar year for a specific tax return.
Two different 365 day periods can overlap.
You must report the income and take the
exclusion. It affects other parts of your return.

17. You can email or fax us your information and
we would be happy to prepare a return for you
even if you are overseas.
Our office is near Fort Hood, TX. I have
prepared many foreign earned income
exclusions.
Email: derland@dbahrcpa.com
Website: derlandbahrcpa.com
Phone 254-432-5724