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In a recent press release, Greenback Expat Tax Services President, David McKeegan, cautioned Americans living abroad to take note of their holiday travels in order to meet the guidelines of certain exclusions available when filing US expat taxes. The precise amount of time US expatriates spend outside of the US per tax year determines whether they qualify for specific US expat tax deductions, credits, and allowances. The difference between qualifying and not meeting the guidelines could result in significant additional taxes.

According to Mr. McKeegan:

US expats must meet specific guidelines that speak to the amount of time they are outside of the US in order to claim many available credits and deductions on their US expat taxes. As they plan for their holiday travel, it’s important they take into consideration the amount of time they’ve spent outside of the United States over the span of a tax year.

How To Qualify For Special Exclusions When Filing US Expat Taxes

There are two key tests used by the IRS to determine eligibility for certain exclusions when filing US expat taxes. Those include the Physical Presence Test and the Bona Fide Residence Test. Both were designed to give tax breaks to Americans who live and work abroad, including avoiding dual taxation.

The parameters of each are very specific, so it’s very important US expats know the exact provisions of each when planning their holiday travel. Otherwise, they may lose the opportunity to take advantage of significant US expat tax credits and deductions.

What Are The Physical Presence Test and the Bona Fide Residence Test?

The Physical Presence Test is designed to give a tax break to those who are away from home for eleven months or more. They must be inside a foreign country for at least 330 days within a 365-day period. Individuals who qualify for the Physical Presence Test are typically on foreign assignment through their employers, location independent professionals, or entrepreneurs working overseas, though there are other exceptions.

The Bona Fide Residence Test is geared more towards American expats who plan to reside overseas for an indefinite amount of time. To qualify, the US expat must have an established residence within a foreign country; reside in that foreign residence for a full calendar year; and have intentions of staying inside that country indefinitely.

The criteria involved in both the Physical Presence and Bona Fide Residence Tests are not complicated,” said Mr. McKeegan. “However, it’s important to know them in order to qualify for such allowances as the Foreign Earned Income Exclusion, Foreign Tax Credit, and the Foreign Housing Credit,” he said. “Meeting either test can have a big impact on US expat taxes by potentially saving US expats thousands of dollars each year.

More Information About US Expat Taxes

Have a look at our “US Expat Taxes Explained” series for an overview of available deductions, important considerations and deadlines you need to remember for your US expat taxes. If you have any other questions about your US expat taxes, or if you would like to learn about our expat tax services, please contact us.