Foreign Income Exclusion

[LCP]

Please help me with the calculation.......

As I understand it, you can use any 12 month period to establish physical presense (ex. 6/30/09 to 6/30/10).

Once that is done, you are able to exclude earnings for the year based on the days you worked in the foreign country during that calendar year. So in my example you could qualify for 2010 and exclude roughly half your wages if you moved back home on 7/1.

In that example you would have qualified for 2009 also and could amend your return.

Assuming all of the above is correct, how does the physical presense period correspond to the calendar year. Do you need to overlap by a certain minimum number of days or could you qualify for 2010 by being physically present for the requisite number of days in a period that only includes a few days of the calendar year.

[KBTS]

I had my first one of these last year - it is tough to figure out, but it looks like you are on the right track. The best thing to do is to look at the example given in Publication 54 for how to determine the 330 day requirement. In order to maximize the exclusion, you need to count the days in a certain way - the example in Pub 54 shows how it is done. If the taxpayer came home any during the time period, be careful on how you count the travel days and days out of the foreign country.

Once you establish the 12 month period, then you count the number of days within the calendar year that fall within this period. For example, if your 12 month period runs from August 1, 2009 to July 31, 2010, you have 212 days in 2010. You then take 212/365 x $91,500 to get the income exclusion for 2010.

I think if you just print the example from Pub 54 and replace the dates with your dates, you will see it more clearly.

[LCP]

I think you're suggesting that the exclsuion calculation only applies to earnings during the 12 months you use for the physical presense test.

[Kram BergGold]

correct

If you start the one year period after the person has been in the foreign country for say a month then the income for that one month is taxable by US. You would then have to try to utilize a foreign tax credit against that income.