Bona Fide Residence Test – Qualifying for the Foreign Earned Income Exclusion

If you are living and working outside the US, taxes can become tricky. Several tax codes are in existence to help you out in filing taxes while living in a foreign country. Any income that is generated overseas is still subject to US taxation. A major exclusion can be made if you lived in the foreign country where the income was generated for 330 days in a twelve month period. You must be able to prove that you were in residence in the country for that amount of time in order to claim the exclusion. One way is through the bona fide residence test and the other is the physical presence test Ki Residences.

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Qualifying for the Foreign Earned Income Exclusion requires that you have permanent residence in the foreign country. You must live in a permanent residence for 330 days in a twelve month period. A short term job abroad may not qualify if it will be completed in less than 330 days. If you intend to return to the US at some point, you will still qualify for the exclusion as long as you reside in the country for most of a year. A bona fide residence test can help to prove your intentions.

The bona fide residence test requires that applicants be US citizens, or US resident aliens from a country that has an income tax treaty with the US. To gain bona fide status, applicants must form a permanent residence in a foreign country and filing of form 2555 to the IRS. Each case will be considered individually based on the answers provided on the form. The form will ask for information about the nature of your residence and work in the foreign country, intentions, and the length of stay in the foreign country.

Applicants should be aware that any statements to foreign governments will also be considered in the bona fide residence test. If foreign authorities are informed that a stay is not permanent or has excluded the payment of taxes to the foreign government; then bona fide residence status will not be given. The exclusion is based on the fact that taxes will be paid in the foreign country. Tax treaties, however, will not exclude an applicant from getting bona fide status. Tax treaties are to eliminate the double taxation of the same income. Paying taxes while abroad can be difficult, but that is lessened by the Foreign Earned Income Exclusion.