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jgordosea
jgordosea, Enrolled Agent
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Experience:  I've prepared all types of taxes since 1987.
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I have been hired to work abroad in Abu Dhabi, the Middle East.

Resolved Question:

I have been hired to work abroad in Abu Dhabi, the Middle East. I have been told that my 85K salary will be tax exempt if I stay in country for 330 days. I plan on arriving to Abu Dhabi in Jul 2011. I will contracted for about two years, which means I will return to the US on/about Jul 2013. For Jul-Dec 2011 it will only be 6 months in-country. The same for the 2013 tax year. For 2012 it should be the entire 330 days. 1. How will this work out for the tax exampt, if I qualify? 2. Will I have to stay in-country for the entire 330 days without be able to come to the US for vacation or other business meetings during these tax years.
Submitted: 3 years ago.
Category: Tax
Expert:  jgordosea replied 3 years ago.

Greetings,

 

From your description it does appear you can qualify for Foreign Earned Income Exclusion since you likely can meet either the bona fide residence test or the physical presence test for at least some of the time you are working in a foreign country.

 

From http://www.irs.gov/businesses/small/international/article/0,,id=96968,00.html :

"You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. The 330 qualifying days do not have to be consecutive. The physical presence test applies to both U.S. citizens and resident aliens.

The physical presence test is based only on how long you stay in a foreign country or countries."

 

The 12 consecutive months with 330 days out of country do not have to be in the same calendar year.

For example, if I am working out of country from July 1 of one year to June 30 of the next year and was not back in country for more than 35 days I could be eligible (if I meet all the criteria) for a prorated credit in each of the two tax years. In that example I could reduce my foreign earned income in each tax year by one half of the maximum allowed each year.

You may qualify in this manner in 2011 and 2013.

You will not yet have enough time out of the country when the 2011 return is due so you will have to file an extension (and be sure you have paid in sufficient tax) until you have the 12 consecutive month period out of country.

 

Additional examples of using any 12 month period are at the bottom of the page at http://www.irs.gov/businesses/small/international/article/0,,id=96968,00.html

 

The out of country days do not have to be only while you work. You can vacation outside the United States and still include those days in the 330 days out of country.

 

You will want to manage your days inside the United States to remain less than 35 days in a 12 month period for maximum benefit of the Foreign Earned Income Exclusion

 

Please ask if you need clarification.

Best wishes on your new endeavor!

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3095
Experience: I've prepared all types of taxes since 1987.
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jgordosea
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I've prepared all types of taxes since 1987.