As we know, the rules for filing income, estate, and gift tax returns and paying estimated tax for US citizens or resident aliens are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside. You might be wondering are there legal paths how to cut your income tax and utilize available deductions to save money.

We prepared this infographic for you to learn more about how to legally save money on income tax.

And don’t forget to check our free tool for the Foreign Earned Income Exclusion to see if you qualify!

FEIE – Foreign Earned Income Exclusion

To use FEIE you will need to pass either Physical Presence Test or establish Bona Fide Residency for a full calendar year in a foreign country. FTC will offset or reduce your US tax obligations on the income tax you paid to another country. Foreign Housing Exclusion will help you to exclude costs of rent and utilities on top of the first 100,000 USD. Note that each city has a different limit.

The Physical Presence test requires you to be out of the United States for 330 days minimum in a period of 12 consecutive months. However, the 330 qualifying days do not need to be back-to-back. Being present in a foreign country doesn’t mean that you have to be there for employment purposes. You can be on holiday or for other private reasons.

To meet the requirements of the Physical Presence Test, you must be:
  • a U.S. person (filing Form 1040),
  • be in a foreign country for 330 days out of any 12-month period,
  • and not in violation of an embargo (unauthorized travel to Cuba). Additionally, any income you earn from sources within a country where you were present in violation of U.S. laws, doesn’t qualify as foreign earned income.

Learn more here.