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Foreign earned income exclusion 2023 Form: What You Should Know

Form 2555: The Foreign Earned Income Exclusion and Why You Should Claim It You may have heard or read of the term “foreign earned income” (EIT) used throughout this publication. Foreign earned income is generally income that is earned outside the United States. It also includes any dividend on the sale of a foreign corporation's stock and any distributions of the foreign fund's earnings and profits (which generally are taxed as capital gains). The amount of foreign earned income can be substantial — up to the tax bracket amount, up to the exclusion amount, and sometimes even more. Although your total tax for a year may be zero because the amount of your adjusted gross income, your foreign earned income, is zero for that year, your foreign earned income can be part of your income for the year. (The tax rate you pay will depend on your tax bracket.) When figuring your foreign earned taxes, it is important to include the amount of income (if any) that you would be taxed on if your income were earned in the United States — even if your adjusted gross income is zero. The amount of this income will generally not be large, but it does increase your tax. For example, if the amount is 400 and your standard deduction amount is 20, you are taxed on 240 of this income. To figure your FEE, do the following: FEE Example 2: Here's an example of how you can include the foreign earned income in your income in a particular year. Your foreign earned income for 2023 is 50,000. So, you are taxed on 200 (200 × 50,000 / 100,000 = 2,000). If you had income in the United States, you would have to itemize in order to figure your deductions. FEE Example 3: If, without itemizing, you paid income taxes on 350 for 2017, your FEE would be an amount equal to 1/400 of this amount. This income tax on 350 is in addition to the tax on 200. You must include as gross income the tax paid on your foreign earned income. Because this income is subject to taxation in the United States, you must include it as itemized deductions on line 30 of your tax return. You must also include it in your income when figuring the foreign tax credit and deduction.

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FAQ - Foreign earned income exclusion 2023

2023 Tax Law Change. IRS FORM 2555 Foreign Earned Income Exclusion (FEIE). Can someone help explain what actually changed for deployed contractors?
Prior to 2023. a contractor who worked overseas in support of US Armed Forces could not typically qualify for foreign earned income exclusion if they maintained a home in the US, no matter how long they stayed overseas. Beginning with 2023 tax year, keeping a home in the US no longer disqualifies a defense contractor if he or she is working overseas in a designated combat zone.
Would you move to a third-world country in order to retire much earlier?
I did, and never looked back. In fact, Iu2019ve now lived three countries that might be considered third-world.I left the USA in 2023 at age 60 to retire to Ajijic, Mexico. Itu2019s a beautiful little Mexican village, sandwiched between some pretty impressive mountains and Lake Chapala - Mexicou2019s largest lake. Itu2019s home to some spectacular sunrises and sunsets, a wonderful climate year-round, and a thriving community of American and Canadian expats. Hereu2019s a sunset view from my furnished rental home - a 2 bedroom 2 bath literal art gallery of a home with a heated swimming pool on the side of a mountain. Monthly rental little more than what youu2019d pay for a nice 1BR apartment in any decent sized American city.I absolutely loved almost everything about Ajijic. It seemed like heaven on earth to me, on a Social Security budget. Great people, great restaurants, Guadalajara International Airport 45 minutes awayu2026. oh hell, I could go on for an hour about what to love about Ajijic!But, when traveling to SE Asia in 2023 I happened upon Ubud, Bali. During my first evening there I went to a cultural dance performance at a Balinese Hindu temple. Breathtaking. (Guess which one is me, following the dance performance on my first night in Bali).Two days later there was a cremation ceremony for the King of Ubud, who had died sometime earlier. It was the most amazing spectacle of my life, where hundreds of men lifted the kingu2019s 80-foot-high ceremonial stand on their shoulders and ran with it over 5 kilometers to the site where he was cremated.In between those two events I had attended several other local gatherings and befriended several very interesting people from around the world. I decided to remain in Bali rather than return to Mexico. My only worldly possessions were those that I had in my backpack. I called my friends back in Mexico and told them to sell, give away or keep everything else I had left behind. I found I could live very comfortably with only what I could carry on my back.I loved everything about Bali - the sacredness of the Balinese Hindu traditions, the beauty of nature, the international community of outstanding and interesting people, the simple yet elegant home I was able to rent at less than $400/month. The temples and rice terraces were amazingly sacred and beautiful - as were the beaches everywhere.Speaking of beachesWhen living on a tourist visa in Bali, you must leave the country every 60 days, then restart the clock on another 60 days when you return. Lots of people would get a same-day, round-trip flight to Singapore. But for my visa runs, I chose to explore other countries in SE Asia - Thailand, Singapore, Malaysia, Vietnam, and the Philippines.I traveled to Boracay Island on the Philippines - which Conde Nast Magazine calls one of the worldu2019s most beautiful beaches. I have to agree. Every sunset there is a picture of perfect serenity.And then something unexpected happened. I met an amazing Philippine woman while in Boracay. She took my breath away with her beauty, her fun nature, emotional maturity and compassionate heart. She came back to Bali with me for a one-month visit then returned to the Philippines. I followed her one month later.Three years later, we live in a new, furnished 2 bedroom 2 bath condo overlooking a pool, banana and coconut trees, the ocean, and the next island over. For about half the cost of an American 1 bedroom apartment.We take advantage nearly every day of the excellent climate and amazing natural beauty of this area - waterfalls, mountain streams, beautiful beaches, hot springs, world-class scuba diving. We live an upscale lifestyle on my Social Security income.This lifestyle isnu2019t for everybody.Iu2019m a long way from the USA, so itu2019s neither convenient nor inexpensive to visit family and friends.Driving here is about as screwed up as anywhere Iu2019ve been - no enforcement, thus no adherence to traffic laws.Sometimes the power goes out unexpectedly.The internet is neither as reliable nor as fast as Iu2019d like.I have to go to both a grocery store and a local market to buy groceries, fish, fruits and vegetables. A lunatic must be in charge of grocery stocking, because I never know if something I bought last week will still be on offer this week; if it is, itu2019ll probably be in a different aisle.So if youu2019re hung up on convenience, donu2019t even think of leaving the USA for a third-world country.But I wouldnu2019t trade my life for anyone elseu2019s in the world. Iu2019m the happiest man on earth.Namaste!Follow me on Twitter or like Upgrade Your Lifestyle on Facebook for occasional reflections about life as an art form.
I'm an American working in Dubai, earning $4,500 per month? There is no income tax over here but any idea how much tax I will owe to the IRS?
I have to make some assumptions here:$4500 is your only incomeYour residency in Dubai is sufficient for the foreign earned income exclusion.That level of income is well below both the FEIE and standard deduction, so you owe no US income tax. You do probably need to pay self employment tax in your foreign earnings as there is no totalization agreement in place with the UAE to cover you.
What laws allow the existence of off shore accounts for the purpose of not paying taxes?
None. In fact, the avoidance of paying one's lawful taxes by means of falsehood or other artifice, even u201cartifices in lawu201d, in particular here in terms of the unlawful (it's already against US Laws to do this) movement to a foreign country of funds actually earned as income inside the United States and/OR any such funds earned BY a citizen of the United States is a violation of the Income Tax Laws.For expatriate Americans, see the following article and link as found below:u201cHow do you exclude foreign earned income?u201cTo qualify for the exclusion, you'll need to meet a number of criteria. You must work and reside outside the U.S. and meet either the bona fide resident or physical presence test. If you do, you're eligible to exclude up to $104,100 in foreign earned income for the 2023 tax year.Sep 13, 2018u201dForeign Earned Income Exclusion - The ...The Balance u203a foreign-ea...https://www.google.com/url?sa=t&...
Do Americans who live abroad and own a business have to pay taxes to the US?
Not only are they answerable to the IRS and have to pay any taxes demanded, the US government is currently embarking on tax legislation that seeks to ruin US citizen owned businesses all over the globe, siphoning millions upon millions of dollars from other nations and back to the US IRS.Itu2019s section 965 transition tax and GILTI, more later.An American living anywhere in the world, even if he has never set foot in the USA and is actually French living in France is required to comply with the full weight of the US tax code AND the tax code of the nation heu2019s actually living in, and the US tax code is NOT friendly toward US citizens having foreign finances.The results are disastrous.Note the answer from Hank Williams, and heu2019s just scratching the surface of the complexity of dealing with this and he makes no mention of the dangers, including financial ruin at the stroke of a thoughtless legislative pen in a country an ocean away that demands US citizens abroad live to the US tax code but does NOT take them in to account when making laws. A specific example of this is section 965 and GILTI.Two men wish to start a business in France, both are French but one has a US mother that proudly and foolishly registered his birth with the US embassy. A lot less people doing that these days!Pierre is French only and has a great business idea, he goes to his bank and they like it, he goes to a potential business partner and they like it. Pierre has the finance he needs and the partner with the knowledge and more financial backing. Business is up and running and doing great.Yea, French taxes and reporting are a pain but doable.Jake is French but due to his mother he is also a US citizen.Jake has the same idea as Pierre and goes to his bank with his great business idea. The bank, more aware than most that dealing with US citizens is dangerous simply donu2019t want to know, they are not risking investing in a business subject to the careless whims of the US IRS, and in fact they donu2019t really want Jake as a client at all.Jake comes to somebody like me to see if Iu2019ll partner with him. Not a chance.I know the business will be subject to the whims of a tax department an ocean away, one that will require full and in detail reporting of our entirely French business and one that could ruin the business at any moment and without even knowing they have done it, and nobody to complain to who will actually give a fook.I also know what it costs to hire the likes of Hank Williams here to keep the reporting accurate and the business tax efficient in both nations, and I also know about the ruinous penalty structure the US will apply to out French business should a mistake be made with that reporting.Even if Jake does manage to get the business off the ground, how does he compete with Pierre who does not have the ludicrous costs of US reporting and possible taxation?Think you can get around all that? Now, maybe, but what happens in the next tax reform?The US has a history moving the goal posts that is generally an annoyance for US residents but disastrous for those who donu2019t live there and for doing so retroactively, the latest example being section 965 and GILTI.Joe in Canada has been successfully living with that reporting , tax and penalty regime for many years because his business is very successful and can pay for the very clever accountancy that keeps his US tax bill low or none existent. As many Canadians do (in fact this is common practise all over the world) Joe has been retaining the earnings in his business, growing the business and relying on that as his pension pot when he eventually retires.Section 956 essentially tells these people to take out a part of the retained earnings in their businesses going all the way back to 1986(!?) and hand it over to the US government, otherwise entirely foreign businesses with no link to the USA other than a substantial owner cursed with US citizenship.Joe in Canada is being told to cash in his pension and send it to America, him along with hundreds of thousands of others.Frankly, if this doesnu2019t wake the world to the potential dangers of FATCA and the US governmentu2019s extraordinary arrogance in demanding the residents and citizens of other nations comply with the US tax code when that code has the potential to close down local businesses leaving the owner and employees on state handouts in order to eat, I don't know what will.I have said for years that nobody is free to leave the US any more -the cost is persecution by the US government, discrimination in any nation you land in, reduced life opportunities, inability to start a business, career limitations, inability to safely invest and plan for retirement, total loss of privacy as the US treats you as a criminal and demands an annual search with no due cause, financial pariah status and the ever present threat of financial ruin for as little as failing to file an unconstitutional form.This-must-stop.First link is general information about what the US government is doing to its own citizens that have the audacity to exercise the basic human right of living elsewhere.First video is about section 965 and GILTI being applied to foreign business with no real link to the US and no way for the victims to offset the tax(actually not a tax, itu2019s a confiscation.)Second video shows how the US government is forcing other nations to trample on their own residents and citizens local rights and protections in order to report US suspects to the IRS.Itu2019s that or the US government applies devastating financial sanction to foreign banks.Land of the free?Home | Purple Expat
Do I need to file a return with the IRS every year, if my business is located and I reside in Canada?
If you are a US citizen, you are required to file a US income tax return, even if you work and live outside the US.Thatu2019s the bad news. The good news is that several tax provisions significantly lessen or eliminate the payment of additional taxes on that income to the US. The following list is borrowed from the Taxes for Expats web site, which may be found at the LINK provided below.The Foreign Earned Income Exclusion. This exclusion allows one to exclude USD 101,300 (this amount is for 2023 taxes) in earned income from foreign sources.A tax credit allowing tax on remaining income to be reduced based on the taxes paid to foreign governments.An exclusion on foreign housing that allows additional exclusions from their income for some amounts paid to cover household expenses due to living abroad.LINK: Simple Tax Guide for Americans in CanadaThe foreign earned income exclusions for 2023 is $104,100. The exclusions increases for inflation each year.If you earn less than $104,100 in Canada in 2023. you pay no income tax. BUT, you are still required to file a return.
If an American works in China on an international assignment, does he/she has to deal with double taxation?
I found out to my surprise that the Trump tax reform only put the corporate taxation onto the Territorial Taxation System, that they no longer have to account for income earned in non-US countries after the new legislation; yet, for poor individuals, we are still required to account for worldwide incomes to file for USA Income taxes.Yes you can work on either income exclusion or foreign tax credit methodologies of reconciling the income tax you paid in China against the income tax you owed to the IRS .. read the IRS Publication 54. https://www.irs.gov/pub/irs-pdf/...California sometimes do not give up if you work in China on an assignment, even if it goes on for years .. Their view is that your tax home is in California, as your house, bank, etc. are still there .. They may come after you for CA state income taxes. You are of course liable for the real-estate taxes .. no escape in that ..
Do you need to pay US taxes if you are a US citizen by birth, who was never in the USA?
Yes, you will almost certainly need to file US taxes which could cost a fortune alone, and eventually you will be hit with US taxes.Donu2019t believe a word of those who make out this is a simple bit of reporting and youu2019ll have no tax to pay as long as you earn under the FEIE which is a $105,900 currently, because the reporting of any sort of grown up financial life is likely to become very complex indeed and the US taxes a great deal more than earned income, salary. Where is does tax it can be very painful indeed, such as when the US decides your local retirement vehicle is PFIC and basically confiscates the gains.The good news isu2026.!File absolutely nothing and tell the US IRS to go pound sand, though not literally. Simply ignore the IRS and they have no idea you exist and even if they do, no way of knowing if you even need to file.There is nothing fair or reasonable about the reporting, tax and penalty regime the US inflicts on US citizens abroad, filing is not the route to happiness and a good nights sleep, you are handing the US the tools with which to beat the crap out of you.Home | Purple Expat
If a US Citizen works in England for a few months, are they taxed twice?
The rules are somewhat complex.The nature of your work and the basis on which you are in the UK will play onto this.First, as a US citizen you will definitely be taxed by and have a filing requirement with the US. The amount you owe may be zero, but you only know that at the end of the process.If you are visiting (but visited a lot) but were working primarily for your US employer (say you were overseeing the training of a UK based team - not doing the training), then you would not normally be taxed by the UK.However, if you were actually doing work and being paid by a UK company, then you will have arrived on some sort of work Visa and that will have defined the nature of your UK tax obligations.As an example a US citizen actor filming for 60 days in the UK will pay UK income tax on the income associated with that filming (both immediate and long term), will not get the foreign income exclusion because they are normally resident in the US but will be able to take the UK tax paid as a credit against the US tax assessed on the same income.
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