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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22702
Experience:  Taxes, Immigration, Labor Relations
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My husband will be working in Afghanistan as a civilian contractor.

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My husband will be working in Afghanistan as a civilian contractor.   Can you explain to us how the bona-fide resident tax exempt rule works? He plans on coming back to the states approx. every 3 months. ie ~ 60/90 days on 30 days off. This will be for an indefinate period... over 12 months.   Obviously the tax exclusion on the 1st $88,000 is one of the reasons he is accepting work there. The company he will be working for is not American. Please help!
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

The person may qualify for the foreign earned income exclusion - he/she should:
-- Work and reside outside the United States for at least 330 days during the year, or
-- Meet either the Bona Fide or Physical Presence tests.
To receive that exclusion - the taxpayer should file either form 2555 or 2555EZ.

Here are forms you likely need:

Please be aware that - the exclusion above will not affect self-employment taxes - only income taxes. Only earned income is excludable. For instance dividends, investment income, etc - are not excludable.

If the person qualifies, he/she may exclude up to $91,400 (2009 in foreign wages -

plus housing allowances (limited to 30% of the earned income exclusion).

 

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. To see if you meet the test of bona fide residence in a foreign country, you must find out if you have established such a residence in a foreign country. - See more details here - http://www.irs.gov/businesses/small/international/article/0,,id=96960,00.html

 

I do not think that your husband is going to established a residence in Afghanistan (and it is likely that the IRS agent will not think so either)

So - to use the foreign earned income exclusion - your husband should be outside the US at least 330 days - he doesn't have to be in the same country of be outside the US for work - instead of coming back to the US - he may spend time - for instance - on vacation in Canada.

Let me know if you need help with reporting.

 

Customer: replied 5 years ago.

OK... just trying to get a grasp on reality here. Generally what you have told me I'd already pulled from IRS pubs & other internet sites.

 

We've known several civilian contractors that claim they pay no taxes on the 1st $80 ~ however, come back into the states 2 or 3 times a year... so that would exclude the 330 days! We do know of 1 that previously came & went via Canada ~ Apparently this has stopped now due to the border Passport reqs?

 

Any additional loopholes here that we could look at?

 

Any additional info would be appreciated ~ Thanks!

Expert:  Lev replied 5 years ago.
Fortunately or unfortunately - we should relay on the IRS information.
You should not expect any information that contradict the information you obtained from IRS publications - if someone tells you otherwise - that would be at least suspicious...

If the person was outside the US less than 330 during the calendar year and the person did not established a permanent residence in the foreign country - such person do no qualify for the foreign earned income exclusion.
There is no limit on the number of visits to the US - but there is still a requirements to be in the foreign country not less than 330 days.

If you know someone who claimed the credit that he/she doesn't qualify - that doesn't necessary mean the person is doing so legally.
The IRS doesn't require to present any supporting documents unless the person gets audited. However if audited - supporting documents that proof qualification would be required.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22702
Experience: Taxes, Immigration, Labor Relations
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