Foreign Earned Income Exclusion Optimization
Maximize your FEIE benefits and understand the physical presence vs bona fide residence tests for optimal tax savings.
Table of Contents
FEIE Overview and 2024 Limits
2024 FEIE Exclusion Amount
$126,500
Maximum foreign earned income exclusion for tax year 2024 (increased from $120,000 in 2023)
The Foreign Earned Income Exclusion (FEIE) is one of the most powerful tax benefits available to US expats. It allows qualifying taxpayers to exclude foreign earned income from US taxation, potentially saving thousands in tax liability.
What Qualifies as Foreign Earned Income?
- Wages, salaries, and professional fees earned abroad
- Self-employment income from services performed outside the US
- Bonuses and commissions from foreign sources
- Tips and gratuities received while working abroad
Important: Investment income, rental income, and pension payments do NOT qualify for FEIE.
Physical Presence Test
The Physical Presence Test is often easier to meet and requires you to be physically present in a foreign country for at least 330 full days during any 12 consecutive months.
Requirements
- • 330 full days in foreign countries
- • Any 12 consecutive months
- • No minimum time per country
- • Travel days count as US days
Best For
- • Digital nomads
- • Frequent travelers
- • Short-term assignments
- • First-year expats
Calculating Your 330 Days
Example: If you travel from the US to Germany on March 1st, 2024:
- • March 1: Travel day = US day
- • March 2-365: Potential foreign days
- • Need 330 full days in foreign countries
- • Can include multiple countries
Bona Fide Residence Test
The Bona Fide Residence Test requires establishing genuine residence in a foreign country for an uninterrupted period that includes an entire tax year.
Key Factors IRS Considers
- • Length of stay abroad
- • Nature of your job
- • Establishment of home abroad
- • Family location
- • Business and social ties
- • Tax home location
- • Intent to return to US
- • Visa/residency status
Advantages of Bona Fide Residence
- More flexibility for US visits (no day counting)
- Can claim partial year exclusion in arrival/departure years
- Easier to maintain once established
- Better for long-term expats
Optimization Strategies
Timing Your Move
- • Start your 330-day period strategically
- • Consider partial year exclusions
- • Plan around family visits
- • Coordinate with spouse's schedule
Combining with Other Benefits
- • Foreign Tax Credit for excess income
- • Foreign Housing Exclusion
- • Treaty benefits where applicable
- • State tax considerations
Pro Tip: The "Stacking" Strategy
If your foreign earned income exceeds the FEIE limit, use the Foreign Tax Credit for the excess amount. This combination often provides better tax benefits than using FTC alone.
Record Keeping Best Practices
- Maintain detailed travel logs with entry/exit dates
- Keep passport stamps and boarding passes
- Document your foreign residence (lease, utility bills)
- Track days using apps or spreadsheets
- Save evidence of local ties (bank accounts, memberships)
Common Mistakes to Avoid
Mistake #1: Miscounting Travel Days
Travel days to/from the US count as US days, not foreign days. Plan accordingly when calculating your 330 days.
Mistake #2: Ignoring the Tax Home Requirement
Your tax home must be in a foreign country. Having US business activities can disqualify you from FEIE.
Mistake #3: Late Form 2555 Filing
FEIE must be claimed on your original return or first amended return. Missing the deadline can be costly.
Mistake #4: Switching Tests Mid-Year
Choose your qualifying test carefully. Switching between physical presence and bona fide residence can create complications.
Need Help Optimizing Your FEIE?
FEIE planning requires careful consideration of your unique situation. Get personalized advice from an IRS Enrolled Agent specializing in expat taxes.