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What is the Foreign-Earned Income Exclusion?

The foreign-earned income exclusion allows US expats to exclude a specific amount of income earned abroad from US taxes.

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How do you qualify for the foreign-earned income exclusion?

There are two main tests to determine eligibility:

  • Physical Presence Test (PPT): Spend at least 330 full days outside the US within a 12-month period. This period can begin at any point during the year.
  • Bona Fide Residence Test (BFR): Live outside the US for an entire calendar year with limited visits back to the US.

Which test should you complete first?

If you have recently moved abroad, the Physical Presence Test is typically the easiest way to establish eligibility.

How do you qualify using the BFR?

To qualify using the Bona Fide Residence Test, you must live abroad for a full calendar year. This test allows more flexibility with trips back to the US compared to the PPT.

What steps should you take to prepare?

  • Understand Your Status: Determine which test suits your situation best.
  • Plan Ahead: Track your travel dates and document your time spent abroad.
  • Consult Experts: Seek advice from tax professionals to navigate complex situations.

US expats can utilize either the PPT or BFR to qualify for the foreign-earned income exclusion, which can result in significant tax savings.

Why partner with a specialist Expat accountant?

Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.


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