Understanding the detailed provisions about the tax and the exclusions available to foreign earned income will be must to avoid hefty penalties in the future. Whether you are a US citizen or resident alien (Green Card Holder) and you live and/or work in a foreign country, you are always subject to incur US income tax laws that apply to citizens as well as to the residents living in the United States. As a US citizen, you will get the opportunity to claim for the exclusion or deduction for your US tax Hong Kong income. Under this provision, US taxpayers living abroad have foreign earned income, then the qualifying taxpayers can claim for foreign earned income exclusion or deduction.
To claim for the exclusions that you as US taxpayers are eligible, you need to delve deep into the detail of the foreign earned income exclusions guide. To give you a clear understanding of the foreign earned income exclusions details, below is the guide which will help you.
What is foreign earned income?
Foreign earned income is an amount which you receives for the services that you ‘render’ or ‘deliver’ during a period when your tax home is in a foreign country. Such earned income includes salaries and wages, bonuses, commissions, professional fees, and pass-through income from an S corporation.
However, such earned doesn’t include like interests, capital gains, dividends, and pensions as these are not received after rendering services. They can be a part of the profit earned but not in foreign earned income.
Who will qualify for the foreign earned income exclusion?
U.S. citizen or resident alien (Green Card Holder) and those who live and/or work in a foreign country are eligible to claim the foreign earned income exclusion when filing their US federal tax return with no error. If you are one among them and don’t have the expertise for filing returns, then don’t take the risk, instead, initiate to hire the Us Tax Service for Americans in Hong Kong for professional assistance.
Maximum amount to claim for exclusion
In 2017, the maximum limit for foreign earned income claiming amount was $102,100 per qualifying US taxpayer. The same amount is also applicable for married taxpayers filing jointly. However, an unclaimed exclusion for the foreign earned income of one spouse can’t be claimed or used by the other spouse. In addition to this, qualifying taxpayers may also be eligible to claim an exclusion from gross income for housing amounts paid or generated on their behalf.
How a taxpayer can qualify for claiming the exclusion?
In order to claim for the exclusion, you must qualify in any of the two ways; either by using the bonafide residence or must have a living test. To use the bonafide residence test, you will need to reside in another country for the calendar year. To use the living test, you need to be in the country for 330 days in a consecutive 12-month period.
These are the detailed information which can help you in claiming your next applicable foreign earned income exclusion. For a hassle-free exclusion claiming experience, you should not think twice consult your tax advisor on specific issues related to your tax situation.