2006 Fed Income Tax Overseas deduction??

[leopardprey]

ANyone have info on Taxes for 2006 and what the deduciton for being outof US for 330 days? Have heard it was upped to $82,000 but there is a new way they compute. Would appreciate if you have a link to any official documentation, and not just internet rumors.

Thanks.

[Argyll 50]

You guys get get stiffed on the tax thing, it's a pity you can't do what the Brits do, and declare yourself a non resident, and are allowed 90 days in HOR, without penalty.

[norts]

Tax paying Americans have a lot more job opportunites that Brits and Aussies. I know a lot of non-US guys wishing they had a US social.


From the IRS website:

If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to $82,400 of your foreign earnings. In addition, you can exclude or deduct certain foreign housing amounts.

What applies to us as Contractors is the physical presence test:

Physical Presence Test
You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. The 330 days do not have to be consecutive. Any U.S. citizen or resident alien can use the physical presence test to qualify for the exclusions and the deduction.

The physical presence test is based only on how long you stay in a foreign country or countries. This test does not depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your stay abroad.

330 full days. Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period. You can count days you spent abroad for any reason. You do not have to be in a foreign country only for employment purposes. You can be on vacation time.

You do not meet the physical presence test if illness, family problems, a vacation, or your employer's orders cause you to be present for less than the required amount of time.

Exception. You can be physically present in a foreign country or countries for less than 330 full days and still meet the physical presence test if you are required to leave a country because of war or civil unrest. See Waiver of Time Requirements, later.

Full day. A full day is a period of 24 consecutive hours, beginning at midnight.

Travel. When you leave the United States to go directly to a foreign country or when you return directly to the United States from a foreign country, the time you spend on or over international waters does not count toward the 330-day total.

Edit: I am not sure what the website said last year or how its applied. I do know you are allowed some overlap from the last year. If you had a good CPA and wanted to risk it you could always try the exclusion without your 330 by claiming war or civil unrest....

[SOTB]

....If you had a good CPA and wanted to risk it you could always try the exclusion without your 330 by claiming war or civil unrest....I have ZERO idea if it would work, but I would certainly try (I'm not in this situation, so my comment is as a spectator)....

[PanaVet]

From a CPA Website.... not good changes!!!

2006 Tax Changes Affecting US Expats - IMPORTANT!

Date: July 21, 2006

Subject: Tax Changes Affecting US Expats – effective date of change January 1, 2006

Many of you by now have heard about the tax change signed into law on May 17, 2006. As most of us are familiar with Expat gossip and rumors this sadly enough is true. Below is a brief summary of the key items affecting US Expats:

1. Foreign earned income exclusion for 2006 has increased from $80,000 to $82,400. GOOD
2. Foreign housing exclusion will be limited to 30% of the foreign earned income exclusion for that year. No limits existed before other than the taxpayers' total foreign earned income. BAD
NOTE: Will not affect most Expats working on LOGCAP or man camp type contracts in the Middle East and elsewhere.
3. Floor for foreign housing exclusion will be based on 16% of the foreign earned income exclusion for that year, not 16% of the salary of a US government employee at a certain level. For 2006 the new law will be $13,184 whereas under the current law it would have been only $12,447, a $737 reduction. BAD
4. Taxes on all other income of the taxpayer will now be taxed at higher brackets. Tax bracket on other taxable income will be calculated as if the taxpayer did not have the foreign earned income and housing exclusions. To see how this works compared to the current rule and the new rule see the stacking procedure below. Assumptions are based on 2005 numbers and tax tables for a single taxpayer. VERY BAD

2006 Income Stacking Procedure
Current New
Overseas Income 100,000 100,000
Other Income 5,000 5,000
Less: Exclusion (80,000) (82,400)
Adjusted Gross Income 25,000 22,600

Less: Std Deduction (5,000) (5,000)
Less: Personal Exemption (3,200) (3,200)

Taxable Income 16,800 14,400
*Tax 2,151 4,032
Effective Tax Rate Applied 13% 28%
Increase Under New Rule 1,881
Percentage Increase 87%

* The 28% rate is derived by adding back the foreign earned income exclusion to the taxable income and coming up with a special taxable income basis. In the above example the special basis is $82,400 + $14,400 = $96,800. The special basis is in the 28% tax bracket. Then you multiply 28% times $14,400 to derive your current year tax.

Keep in mind every Expat is different. Refunds and liabilities are never the same for any two Expat’s but one thing is likley if you have taxable income from line 43 on your form 1040 your taxes will go up in 2006 as compared to 2005 under the income stacking procedure.

Many have asked me is there anything we can do to change the law back to the way it was…that’s a good question and I’m hearing conflicting information from other lobbyists, companies and Senators. The last minute provision to tax Expats under the new rule was a tightly guarded secret with no external discussion allowed. Why? Because they knew it would not have passed. In the past three years the same Senator has tried to repeal the entire exclusion twice and he was soundly defeated. So you can see the only way to push something like this through was by amending the bill at the last minute in private conference and sending to the President for signature before anyone knew the changes were made. Rest assured we are fighting this tax change on your behalf and will continue to do so.

What you can do is write, call and fax your senators and representatives and voice your displeasure that they allowed this to happen and that you want them to work to immediately revert back to the 2005 tax provisions. You must exercise your free speech (politely but sternly). This link will help you find the contact information for you, your family and friends to voice your opinion http://www.visi.com/juan/congress/ Keep in mind many will probably not even know what you are talking about so you will likely have to educate them.

As mentioned above this change does not give you a year to think about what to do, instead it is retroactive to January 1, 2006. Some things you can be considering are:

1) Make your presence test for the year. Make sure you have 330 full days overseas during the calendar year so you can maximize the $82,400 exclusion. So plan your R&Rs carefully.
2) Maximize your 401K and other investment accounts if they give you a pretax deduction.
3) Your employer may not be able to change payroll withholdings in time to meet the new change so set aside at least 75% to 100% more then what you paid in for 2005 (this applies if you worked overseas in 2005 and you expect 2006 to be similar).
4) If you don’t have an experienced Expatriate CPA you might think about finding one to help with next years planning and preparation. Earlier you start the better chance of planning in your favor.
5) Don’t react hastily and demob as the advantages of working overseas and earning the exclusion are still great. Average tax savings working overseas for single filer with $100K in income is still around $25K as compared to earning the same income in the US. And for those earning $90K or less in overseas income and qualify for the exclusion will pay in little or nothing in taxes. Plus there are not many jobs in the US paying salaries at those levels.
6) No one likes tax increases so don’t buy into the fraudulent combat zone tax free rumors and residency tax exclusions some are doing overseas. The financial ramifications of such, if caught, are severe.

As 2006 tax guidance from the IRS comes out we will continue to keep you posted in monthly tax updates. This email is approved for distribution to all Expats so please forward to your coworkers. We are also prepared to discuss these changes with your project and corporate payroll/HR employees.

CAUTION - If you know of someone who still thinks or believes in the bogus “expat interpretations” of the Robert Hunt IRS memo that working in a combat zone entitles your overseas income to be completely tax free and that the 330 day rule does not apply, or that you can declare bona fide residency in a combat zone….don’t fall for it. Instead tell them they should seek expert advice immediately, or set aside 30-40% of their annual earnings for when Uncle Sam catches up with them. If they still don’t get the picture have them call the International Affairs office of the IRS at 202-622-3840. If they don’t believe us perhaps they will believe the IRS.

Always stay safe and take care of your health so you can enjoy the fruits of your labor when you return to the US.

[MixedLoad]

Excellent post! Thanks a lot for the heads-up!

[leopardprey]

Figured it out : ( With the new way they do it, basically means even though exclusion increased to $82K, I will end up paying $6200 more in taxes this year, than if they had kept it the old way with only the $80k deduction.

As the way you have to calculate your foreign earned income on page 37 of the 1040 book, and then put in line 44 on your 1040 tax form.

One hint, if you go on vacation overseas, to stay out of country 330 days, try to line up some job interviews. Can then write off a good portion of your trip.

[Type-82]

Norts

We can qualify for the Tax home exclusion if you meet the criterion. This allows you to Pro Rate your 82K based on how many days your in the US. Its a good deal. With 330 its all or nothing, Tax Home its all or some. You need to have an established forign address from 1 Jan to 31Dec in the same tax year. Ask your accountant. I have a letter explaining it, however its stateside. When I get home, I'll post it here.

[norts]

Thanks. I will look into and ask my CPA.

[leopardprey]

Bona Fide Residence Test

You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. You can use the bona fide residence test to qualify for the exclusions and the deduction only if you are either:

A U.S. citizen, or

A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect.


You do not automatically acquire bona fide resident status merely by living in a foreign country or countries for 1 year. If you go to a foreign country to work on a particular job for a specified period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for 1 tax year or longer. The length of your stay and the nature of your job are only some of the factors to be considered in determining whether you meet the bona fide residence test.

Bona fide residence. To meet the bona fide residence test, you must have established such a residence in a foreign country.

Your bona fide residence is not necessarily the same as your domicile. Your domicile is your permanent home, the place to which you always return or intend to return.

Example.

You could have your domicile in Cleveland, Ohio, and a bona fide residence in Edinburgh, Scotland, if you intend to return eventually to Cleveland.

The fact that you go to Scotland does not automatically make Scotland your bona fide residence. If you go there as a tourist, or on a short business trip, and return to the United States, you have not established bona fide residence in Scotland. But if you go to Scotland to work for an indefinite or extended period and you set up permanent quarters there for yourself and your family, you probably have established a bona fide residence in a foreign country, even though you intend to return eventually to the United States.

You are clearly not a resident of Scotland in the first instance. However, in the second, you are a resident because your stay in Scotland appears to be permanent. If your residency is not as clearly defined as either of these illustrations, it may be more difficult to decide whether you have established a bona fide residence.

Determination. Questions of bona fide residence are determined according to each individual case, taking into account factors such as your intention, the purpose of your trip, and the nature and length of your stay abroad.

You must show the Internal Revenue Service (IRS) that you have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. The IRS decides whether you qualify as a bona fide resident of a foreign country largely on the basis of facts you report on Form 2555. IRS cannot make this determination until you file Form 2555.

Statement to foreign authorities. You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country, and the authorities:
Hold that you are not subject to their income tax laws as a resident, or

Have not made a final decision on your status.


Special agreements and treaties. An income tax exemption provided in a treaty or other international agreement will not in itself prevent you from being a bona fide resident of a foreign country. Whether a treaty prevents you from becoming a bona fide resident of a foreign country is determined under all provisions of the treaty, including specific provisions relating to residence or privileges and immunities.

Example 1.

You are a U.S. citizen employed in the United Kingdom by a U.S. employer under contract with the U.S. Armed Forces. You do not qualify for special status under the North Atlantic Treaty Status of Forces Agreement. You are subject to United Kingdom income taxes and may qualify as a bona fide resident.

Example 2.

You are a U.S. citizen in the United Kingdom who qualifies as an “employee” of an armed service or as a member of a “civilian component” under the North Atlantic Treaty Status of Forces Agreement. You do not qualify as a bona fide resident.

Example 3.

You are a U.S. citizen employed in Japan by a U.S. employer under contract with the U.S. Armed Forces. You are subject to the agreement of the Treaty of Mutual Cooperation and Security between the United States and Japan. You do not qualify as a bona fide resident.

Example 4.

You are a U.S. citizen employed as an “official” by the United Nations in Switzerland. You are exempt from Swiss taxation on the salary or wages paid to you by the United Nations. This does not prevent you from qualifying as a bona fide resident if you meet all the requirements for that status.

Effect of voting by absentee ballot. If you are a U.S. citizen living abroad, you can vote by absentee ballot in any election held in the United States without risking your status as a bona fide resident of a foreign country.

However, if you give information to the local election officials about the nature and length of your stay abroad that does not match the information you give for the bona fide residence test, the information given in connection with absentee voting will be considered in determining your status, but will not necessarily be conclusive.

Uninterrupted period including entire tax year. To qualify for bona fide residence, you must reside in a foreign country for an uninterrupted period that includes an entire tax year. An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis.

During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business. To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country.

Example 1.

You arrived with your family in Lisbon, Portugal, on November 1, 2004. Your assignment is indefinite, and you intend to live there with your family until your company sends you to a new post. You immediately established residence there. On April 1, 2005, you arrived in the United States to meet with your employer, leaving your family in Lisbon. You returned to Lisbon on May 1, and continued living there. On January 1, 2006, you completed an uninterrupted period of residence for a full tax year (2005), and you meet the bona fide residence test.

Example 2.

Assume the same facts as in Example 1, except that you transferred back to the United States on December 13, 2005. You would not meet the bona fide residence test because your bona fide residence in the foreign country, although it lasted more than a year, did not include a full tax year. You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test (discussed later).

Bona fide resident for part of a year. Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you will qualify as a bona fide resident for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. You could qualify as a bona fide resident for an entire tax year plus parts of 1 or 2 other tax years.

Example.

You were a bona fide resident of Singapore from March 1, 2004, through September 14, 2006. On September 15, 2006, you returned to the United States. Since you were a bona fide resident of a foreign country for all of 2005, you also qualify as a bona fide resident from March 1, 2004, through the end of 2004 and from January 1, 2006, through September 14, 2006.

Reassignment. If you are assigned from one foreign post to another, you may or may not have a break in foreign residence between your assignments, depending on the circumstances.

Example 1.

You were a resident of Pakistan from October 1, 2005, through November 30, 2006. On December 1, 2006, you and your family returned to the United States to wait for an assignment to another foreign country. Your household goods also were returned to the United States.

Your foreign residence ended on November 30, 2006, and did not begin again until after you were assigned to another foreign country and physically entered that country. Since you were not a bona fide resident of a foreign country for the entire tax year of 2005 or 2006, you do not meet the bona fide residence test in either year. You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test, discussed later.

Example 2.

Assume the same facts as in Example 1, except that upon completion of your assignment in Pakistan you were given a new assignment to Turkey. On December 1, 2006, you and your family returned to the United States for a month's vacation. On January 2, 2007, you arrived in Turkey for your new assignment. Because you did not interrupt your bona fide residence abroad, you meet the bona fide residence test.

[Greenhat]

Don't forget the tax liability incurred in the country where you actually earned the income. Double taxation, anyone?

Country of residence
Most countries tax their residents (individuals and companies) on all their worldwide income: Taxation can not be avoided by simply transferring assets abroad. One way a person or company may take advantage of tax havens is by becoming a tax exile - moving to, and becoming resident for tax purposes in, a low tax country - a tax haven.


[edit] Country of citizenship
The United States is unlike almost all other countries in that its citizens are subject to U.S. tax on their worldwide income even if they reside permanently outside the USA. U.S. citizens therefore cannot avoid U.S. taxes by emigrating. According to Forbes magazine some nationals choose to give up their United States citizenship rather than be subject to the U.S. tax system.[11] However, U.S. citizens who reside (or spend long periods of time) outside the U.S. may be able to exclude some salaried income earned overseas (but not other types of income) from U.S. tax. The 1995 limit on the amount which can be excluded was US$80,000.


[edit] Double taxation
Most countries impose taxes on income earned or gains realised within that country regardless of the country of residence of the person or firm. Most countries have entered into bilateral double taxation treaties with many other countries to avoid taxing non-residents twice - once where the income is earned and again in the country of residence (and perhaps, for US citizens, taxed yet again in the country of citizenship.) Often, however, there are no double taxation treaties with countries widely recognised as tax havens. To avoid tax, it is usually not enough to simply move one's assets to a tax haven. One must also move to a tax haven (and, for U.S. nationals, renounce one's citizenship) to avoid tax.

[DY]

Slight deviation here. I was told that if your work includes instruction and is included in your job description, that there are tax breaks related to that. Anyone know about this?

[PanaVet]

Slight deviation here. I was told that if your work includes instruction and is included in your job description, that there are tax breaks related to that. Anyone know about this?

Never heard that before....

[rgrdrew]

You can read the entire publication online at:
http://www.irs.gov/publications/p54/

This publication discusses special tax rules for U.S. citizens and resident
aliens who work abroad or who have income earned in foreign countries. As a U.S.
citizen or resident alien, your worldwide income generally is subject to U.S.
income tax, regardless of where you are living. Also, you are subject to the
same income tax filing requirements that apply to U.S. citizens or resident
aliens living in the United States.


What's New
Exclusion amount. The maximum foreign earned income exclusion is now adjusted
annually for inflation. For 2006, the maximum exclusion has increased to
$82,400. See Limit on Excludable Amount under Foreign Earned Income Exclusion in
chapter 4.

Figuring tax on income not excluded. If you claim the foreign earned income
exclusion, the housing exclusion, or both, you must figure the tax on your
nonexcluded income using the tax rates that would have applied had you not
claimed the exclusions. See the instructions for Form 1040 and complete the
Foreign Earned Income Tax Worksheet to figure the amount of tax to enter on Form
1040, line 44. If you must attach Form 6251 to your return, use the Foreign
Earned Income Tax Worksheet provided in the instructions for Form 6251.

Housing expenses—base amount. The computation of the base housing amount (line
32 of Form 2555) has changed and is now tied to the maximum foreign earned
income exclusion. The amount is 16 percent of the exclusion amount (computed on
a daily basis), multiplied by the number of days in your qualifying period that
fall within your 2006 tax year. For 2006, this amount is $36.12 per day ($13,184
per year). See Housing Amount under Foreign Housing Exclusion and Deduction in
Chapter 4.

Housing expenses—maximum amount. The amount of qualified housing expenses
eligible for the housing exclusion and housing deduction is now limited. See
Limit on housing expenses under Foreign Housing Exclusion and Deduction in
chapter 4.

Exemption amount. The amount you can deduct for each exemption has increased to
$3,300 in 2006.

Exemption phaseout. You lose part of the benefit of your exemptions if your
adjusted gross income is above a certain amount. The amount at which the
phaseout begins depends on your filing status. For 2006, the phaseout begins at:

a.. $112,875 for married persons filing separately,

b.. $150,500 for single individuals,

c.. $188,150 for heads of household, and

d.. $225,750 for married persons filing jointly or qualifying widow(er)s.

However, beginning in 2006, you can lose no more than â…” of the amount of your
exemptions. In other words, each exemption cannot be reduced to less than
$1,100.

Standard deduction. The standard deduction for people who do not itemize
deductions on Schedule A (Form 1040) is, in most cases, higher for 2006. The
amount depends on your filing status, whether you are 65 or older or blind, and
whether an exemption can be claimed for you by another person. The amounts for
the standard deduction for 2006 are shown in the instructions for your tax
return.

Itemized deductions. If your adjusted gross income is above a certain amount,
you may lose part of your itemized deductions. In 2006, this amount has
increased to $150,500 ($75,250 if married filing separately). However, beginning
in 2006, the amount by which these deductions are reduced is only 2/3 of the
amount of the reduction that otherwise would have applied.

Filing requirements. Generally, the amount of income you can receive before you
must file an income tax return has increased. These amounts are shown in chapter
1 under Filing Requirements.

Maximum self-employment tax. For 2006, the maximum amount of net earnings from
self-employment that is subject to the social security part of the
self-employment tax has increased to $94,200. All net earnings are subject to
the Medicare part of the tax. For more information, see chapter 3.

Maximum contribution to individual retirement arrangements (IRAs) for those age
50 or older. . The maximum amount you can contribute to your traditional IRA for
2006 has increased to $5,000 if you are age 50 or older. IRAs are discussed in
detail in Publication 590, Individual Retirement Arrangements (IRAs).

[KevinB]

Holy Shit Andy -- your a fricken plethora of knowledge.
or, as I suspect, you copy/pasted ;)

[rgrdrew]

And where did you get that vocabulary? We know you Canucks can't talk so good! Eh? :D

[flb3]

When I was there as a contractor, it was your 1st 80k that was tax free. Being an independent contractor, I should have put money aside to handle the taxes, but wanted to pay off credit cards and fix the house up a bit, which at the time was more important. Good thing I am married, have kids, house and other right offs. I still owed the government about $5k. It was a learning experience for me being an independent contractor. A lesson I will never forget!

Good luck.

Previous post was edited: Rgrdrew beat me to the pub information.

flb3

[mdwest]

i have a CPA that is VERY GOOD, and has a strong understanding of the regs regarding working overseas... she has taken excellent care of me for the past several years and saved me a bundle of money that i wouldnt have kept otherwise...

she is very familir with how the tax code applies to both contractors and to direct employees...

and she will do taxes for anyone working "in the box" at a very reasonable rate (patriotic and all that jazz...)

lastly.. she has a MARVELOUS rack!

anyone looking for a good CPA, let me know and ill pass on her contact information...

[flb3]

mdwest,

You are lucky. I went through HR Block and felt that I got totally reamed, not to mention no reach around either. Oh well, I paid it all off now.

flb3

[mdwest]

mdwest,

You are lucky. I went through HR Block and felt that I got totally reamed, not to mention no reach around either. Oh well, I paid it all off now.

flb3

That sucks dude... the problem wit HR Block and the other big "tax companies" is that they are set up for the "common man", and their tax preparers typically are graduates of a 1-3 week tax clinic.. not CPA's... so their computers and systems arent really set up to help you out in your unique situation (unique to them), and their people arent educated enough to know where to find the information or what to do with it once they get their hands on it..

not all CPA's are really qualified either.. unless they do alot of tax work, and have experience in international tax law, they may screw you (accidentally) as well.. the tax code is always changing, and is vast... a CPA with a solid amount of experience in dealing with international tax code, etc.. is your best bet..

you may pay slightly more than you will for HR Block.. and you may not get the "in and out" service... but you the few buck extra you pay, and the couple of extra days you wait to get your business handled can save you THOUSANDS of dollars..

im telling you.. My CPA has saved me THOUSANDS of dollars every single year... it is well worth the extra effort..

a good CPA can also advise you how to start setting things up this year in preparation for next years tax season.. HR Block isnt going to do that for you.. do you need to set up a corporation and shelter your income? do you need to start putting money into a IRA, a 401K, or some other investment account to shelter funds, put yourself into a lower tax bracket, and actually SAVE tax liability (pay less taxes), while saving money at the same time, etc..etc..

im tell you guys.. if you dont call my CPA... call SOME CPA.. the few hundred bucks you are going to pay now will make THOUSANDS of dollars difference next year, and could potentially make THOUSANDS of dollars difference this tax year (if you havent screwed the pooch terribly pver the past 12 months and are in an unwinnable position)...

[Silverbullet]

call SOME CPA.

Exactly. That has been a consistent msg of this site for a number of yrs.

You need a tax pro to do your taxes unless you're that common man who can live with a tax preparer who only does what a computer screen tells them to do.

It's deductible so why go cheap? You only end up paying in the end.

BTW, I would look into amending your prior returns if you feel you left too much money on the table.

[mdwest]

absolutely correct...

getting your CPA to file a 1040X (ammendment) to your old taxes will cost you next to nothing (unless they have to go through a ton of paperwork for you), and will almost certainly get you money back for the past couple of tax seasons if you just filed a 1040A or 1040EZ yourself or had HR Block do it for you...

another couple of hundred bucks spent that will get you thousands of dollars back..

very good advice...

[forcemed]

How about us poor saps that are US citizens but work for international companies (non US) here in the box. A 8-4 rotation with more that 30 days stateside...no 80K deduction! My employer reports zip to the IRS and I have to self declare my income......got hosed last year being fairly honest.........hmmmm

[Lannister]

What about those of us who started overseas on let's say april 1 or may 1...???

How in the hell do we get the 330 days...:confused:

[MixedLoad]

What about those of us who started overseas on let's say april 1 or may 1...???

How in the hell do we get the 330 days...:confused:

The 330 rule ($84k exclusion) works in that you have to spend 330 out of 365 "consecutive" days outside of the US. If you started 01 April 2006 and didn't spend more than 35 days in the US, you will be able to return NLT 01 April 2007.

Talk to a CPA for specifics on how it is filed.

[Greenhat]

How about us poor saps that are US citizens but work for international companies (non US) here in the box. A 8-4 rotation with more that 30 days stateside...no 80K deduction! My employer reports zip to the IRS and I have to self declare my income......got hosed last year being fairly honest.........hmmmm


I suggest you don't spend more than 30 days stateside. Bangkok is a great place for a holiday...

[Silverbullet]

How about us poor saps that are US citizens but work for international companies (non US) here in the box. A 8-4 rotation with more that 30 days stateside...no 80K deduction! My employer reports zip to the IRS and I have to self declare my income......got hosed last year being fairly honest.........hmmmm

I suspect you had expenses you did not deduct.

Someone self employed can deduct many things.

[norts]

What about those of us who started overseas on let's say april 1 or may 1...???

How in the hell do we get the 330 days...


[I]Physical Presence Test
You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. The 330 days do not have to be consecutive. Any U.S. citizen or resident alien can use the physical presence test to qualify for the exclusions and the deduction.

As Matador summarised, the 365 can start the day you leave the states.

How about us poor saps that are US citizens but work for international companies (non US) here in the box. A 8-4 rotation with more that 30 days stateside...no 80K deduction! My employer reports zip to the IRS and I have to self declare my income......got hosed last year being fairly honest.........hmmmm

The physical presence test is based only on how long you stay in a foreign country or countries. This test does not depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your stay abroad.

Like greenhat said. Take a cheap holiday. Do the math, maybe its cheaper to fly your family to meet you in Mexico than it is to go home.

If you don't have at least a very basic understanding of the tax you are paying you can potentialy pay a lot more than you have to. Personally, I think the 15 minutes it would take to read this entire thread before posting, when it could save you thousands is worth the investment of your time. Certainly you should defer to a good CPA, but if you have no idea to begin with it can make being confident your CPA really is good very difficult.

[bundio]

Lannister-My contract started June 1. My accountant is going to figure out the my tax bill based on being out the 330, so I can pay april 15, but file an extension. Then by the time the extension is up I will have the 330 out, and I will get 7/12 of the deduction for '06 and 5/12 for next year. Find a good tax accountant, doesn't necessarily need to be a CPA. It's just that CPA's have to learn more to pass the exam so seem to be more knowledgeable on tax law or at least know where to find the right information.

Forcemed- I work for a British company with 90 days leave. I just take vacations out of the US to stay within the exclusion. I would rather spend the equivalent in nice holidays then pay it in taxes, but thats just me. :D

[Jobe]

Calling some CPA will get you nothing more then what you get at one of those H&R offices. The key is to find a CPA that has a long history of clients that work out of the country. The company that I found and have used the past four/five years charges $500.00 and has a long long long history of IC and overseas work.

[yojinbukai]

Careful with the 330 day physical presence test. If I remember correctly, time in flight to or from the US IS NOT included in the 330 days. In other words, travel time counts against you.

Mexico or the Bahamas is nice and not far from the US, right? So is Canada.

Also, don't forget to bring last year's tax records. Your refund from last year will count as income for this year in most situations. If you have records from the last few years, many things can be deducted at a depreciated rate, while others are a one time only deduction. Keep receipts, do business of some sort on R&R (go visit CRG and have a conference with someone, visit someone in Dubai to talk about gear, or something like that.)

[GracieLou]

Lannister-My contract started June 1. My accountant is going to figure out the my tax bill based on being out the 330, so I can pay april 15, but file an extension. Then by the time the extension is up I will have the 330 out, and I will get 7/12 of the deduction for '06 and 5/12 for next year. Find a good tax accountant, doesn't necessarily need to be a CPA. It's just that CPA's have to learn more to pass the exam so seem to be more knowledgeable on tax law or at least know where to find the right information.

That is similar to what happened to me last year...

My contract started May 05 and at tax time on 15 April 06 I was still overseas and was granted an automatic 60 day extension. By the time I filed in June 06, I met the 330 day rule and the taxes were pro-rated.

Definitely find a tax professional familiar with expatriate tax information and regulations. There are numerous different contracts out there with their own rules/regulations regarding taxes; therefore, what may work for one individual may doom another depending on the situation...

[Raven #821]

After researching vigorously I have found no information helps if you are not overseas long enough for the foreign residence. I have an S Corp, maximizing deductions but as of yet have found no one with info regarding "danger pay" and/or per diem for ICs out of country only 270 days a year. My accountant who has done me great the previous year (and saved me a hoop) has been unable to get any additional info if there are additional exemptions I may qualify for. I hear the answer "go to one that does" coming, but he already has the personal taxes and set up my corp. So I want to educate him (and me) and be good to go.

QUESTION (I know, finallly), does anyone know if there are any additional exemptions for ICs regarding "danger pay?

[Silverbullet]

Raven,
I'm confused. You state you have a S Corp but ask about IC danger pay. Were you paid under an invoice submitted by your company? If not was your company paid vice you being paid, as in you have no 1099 income?

Income for your company and 1099 income are 2 separate issues.

Can you clarify your question for me?

[Raven #821]

Sorry about that, trying to write this early (here) without the brain being in gear. Yes, the company gets paid, with nothing withheld (1099) then pays me as an employee, and at the end of the year a W-2 is generated by my company for me. As the employee, I am trying to find out if there is any exemptions regarding danger pay, while deployed. So far I have found nothing, so I thought I would throw it out for anyones input.

[rgrjoe175]

Jeezus H. You folks wouldn't know a CPA if one bit you on the ass....LOL

Just to clear a few things up folks. A CPA is a Certified Public Accountant. You guys probably figured that out already...LOL However, just because someone is a CPA does not make them an expert on individual income taxes. CPAs just like attorneys specialize in different areas. To become a CPA one must pass the uniform CPA exam. It is now just two days, it was 2.5 day when I passed it plus now they get to use a calculator...bastards...I had to take off my shoes and use my toes...LOL A portion of the exam deals with taxation. To be a licensed CPA, the person must meet that states laws/regs regarding experience, education...yada yada... to maintain your license you must meet that states continuing professional education requirements...etc etc.

Like all professionals, you get what you pay for regardless if you go to H&R Block or use a tax program or tax attorney or CPA or IRS registered agent or use some mom and pop tax prep firm or do it yourself.

So be selective in your choice of tax professional, make sure they have experience with your issues. A large CPA firm is not necessarily better than an individual firm. Large CPA firms typically have more resources readily available. What you have to do is ask what experience they have relating to your situation and if you want, ask for references........

There are CPAs out there that dont want to have anything to do with individual income taxes....some will not even do their own tax returns because they do not keep abreast of the ever changing federal, state and local tax regulations.

And no, I am not going to research your tax questions for you folks.... I dont have the time nor inclination to do it. I am one of those that could give flying fuck about individual income taxes other than those that affect me individually.

Seek a qualified tax professional that meets your needs.

Regards,

JP

[Silverbullet]

Sorry about that, trying to write this early (here) without the brain being in gear. Yes, the company gets paid, with nothing withheld (1099) then pays me as an employee, and at the end of the year a W-2 is generated by my company for me. As the employee, I am trying to find out if there is any exemptions regarding danger pay, while deployed. So far I have found nothing, so I thought I would throw it out for anyones input.

You the employee aren't receiving the danger pay. Your company is. How is your company paying you danger pay? You should be paying yourself yr rd not just when you are deployed. Is that what you are doing?

To be a legal company in the eyes of the IRS you need to run like a company. You can't (you can but if you get caught, you can't) just set up a company for tax purposes.

Unless I'm missing something you can't take a deduction for this. When you file your Corp tax returns there may be a slim possibility to deduct part of the danger offset but I doubt it.

[usacivpol]

If you are in NC I can give you the information of a CPA that has done very well for me.
I started contract work in 2000 and he has filed for me every year.
The first year he admitted that this was new to him and he hired a tax researcher to check the specifics of OCONUS employment tax law.

PM me.
usacivpol

[Guinness]

Ok, forget the foreign earned income exclusion. What about self employment tax? As an independent contractor SE tax is a requirement. All of us IC's are self employed according to the IRS. I live in Costa Rica, and get to do the foreign income exclusion but the SE tax is not excluded. Does anyone have any methods for getting rid or minimize this 15% tax without setting up an SCorp?

[Silverbullet]

Ok, forget the foreign earned income exclusion. What about self employment tax? As an independent contractor SE tax is a requirement. All of us IC's are self employed according to the IRS. I live in Costa Rica, and get to do the foreign income exclusion but the SE tax is not excluded. Does anyone have any methods for getting rid or minimize this 15% tax without setting up an SCorp?

You can't get rid of it, you can only mitigate it. Use the search function for past discussions regarding this.