# Will I qualify for foreign earned income exclusion or be able to deduct expenses?



## malindamm (Feb 26, 2013)

I have a pretty specific situation and am finding it difficult to understand how the US tax code applies. I would be willing to seek professional legal/tax advice if it seems like it will be worth my effort/cost (i.e., it is likely I could realize some savings by doing so).

My husband and I are US citizens currently living in Washington state. I am a self employed consultant and work from home. The company that sends me my 1099 is located in Washington state. My husband is a W2 employee of a company located in Washington and he also works from home by his choice (he has a desk at the company office as well).

In a few months, we are selling our home and will be traveling throughout Europe and Asia for a year. We will continue our same employment, doing work for companies in Washington via computer/internet. This is a trip for fun and not for work purposes, but we will be working the entire time. Every foreign country we visit will consider us to be tourists as we will not be staying in one place longer than 28 days. We will only get tourist visas, if any. We will come back to the US for approximately 28 days in the middle of the year. At the end of the year, we will come back to the US permanently, although not sure what state yet.

From what I understand, we must meet three criteria for taking the foreign earned income exclusion:
1) We must have foreign earned income (This is the part I'm confused about. Do we or don't we? I believe yes because "foreign earned income is income you receive for services you perform in a foreign country during a period your tax home is in a foreign country and during which you meet either the bona fide residence test or the physical presence test." Technically we are performing the work overseas, not in Washington, right?)
2) Our tax home must be in a foreign country. (From what I can tell, we will be considered itinerant and our tax home is wherever we work, which would be foreign countries. "If you have neither a regular or main place of business nor a place where you regularly live, you are considered an itinerant and your tax home is wherever you work.")
3) We must be physically present in foreign countries for at least 330 full days during any consecutive 12 months. (We would be.)

So I believe the answer is Yes, we would qualify for the foreign earned income exclusion. Am I missing anything? Is there any reasons not to take this exclusion?

If we do qualify, we would unqualify simply by staying in the US even one day longer than 35 days out of the year, correct?

Quoted sections are from irs.gov.


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## Bevdeforges (Nov 16, 2007)

From what you've said, it certainly sounds like you will qualify for the FEIE - however this may be split over two tax years.

You say you are leaving "in a few months" - let's assume you leave in, say September. Then September is when your foreign presence starts. So, you get to the end of 2013 and the tax reporting deadline approaches. You can't file a tax return claiming the FEIE until you have been out of the country for a full 12 months, so you'll have to file extensions until September 2014 to file your 2013 taxes. (How to do this is explained in Publication 54.)

You'll only be entitled to a partial FEIE (for the portion of the year you were out of the country). And if you return a year after you left, then you'll have another partial year FEIE for your 2014 return, assuming you fulfilled the physical presence test requirements.



> If we do qualify, we would unqualify simply by staying in the US even one day longer than 35 days out of the year, correct?


Not certain what you're asking here, but if (for example) you decide to return home a few days early - say, mid-August rather than after the first anniversary of your departure in the example I gave above - then you don't qualify under the physical presence test and you would just file your 2013 return as normal (possibly being subject to penalties for not having made adequate quarterly estimated payments). The really do count those 330 days quite literally. (And it's the days outside the US that count, not your days visiting the US.)
Cheers,
Bev


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