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Efile free federal and state 4. Efile free federal and state   Foreign Earned Income and Housing: Exclusion – Deduction Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Who Qualifies for the Exclusions and the Deduction? RequirementsTax Home in Foreign Country Bona Fide Residence Test Physical Presence Test Waiver of Time Requirements U. Efile free federal and state S. Efile free federal and state Travel Restrictions Foreign Earned Income Foreign Earned Income ExclusionLimit on Excludable Amount Choosing the Exclusion Foreign Housing Exclusion and DeductionHousing Amount Foreign Housing Exclusion Foreign Housing Deduction Married Couples Form 2555 and Form 2555-EZForm 2555-EZ Form 2555 Topics - This chapter discusses: Who qualifies for the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, The requirements that must be met to claim either exclusion or the deduction, How to figure the foreign earned income exclusion, and How to figure the foreign housing exclusion and the foreign housing deduction. Efile free federal and state Useful Items - You may want to see: Publication 519 U. Efile free federal and state S. Efile free federal and state Tax Guide for Aliens 570 Tax Guide for Individuals With Income from U. Efile free federal and state S. Efile free federal and state Possessions 596 Earned Income Credit (EIC) Form (and Instructions) 1040X Amended U. Efile free federal and state S. Efile free federal and state Individual Income Tax Return 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion See chapter 7 for information about getting these publications and forms. Efile free federal and state Who Qualifies for the Exclusions and the Deduction? If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction. Efile free federal and state If you are a U. Efile free federal and state S. Efile free federal and state citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. Efile free federal and state However, you may qualify to exclude from income up to $97,600 of your foreign earnings. Efile free federal and state In addition, you can exclude or deduct certain foreign housing amounts. Efile free federal and state See Foreign Earned Income Exclusion and Foreign Housing Exclusion and Deduction, later. Efile free federal and state You also may be entitled to exclude from income the value of meals and lodging provided to you by your employer. Efile free federal and state See Exclusion of Meals and Lodging, later. Efile free federal and state Requirements To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all three of the following requirements. Efile free federal and state Your tax home must be in a foreign country. Efile free federal and state You must have foreign earned income. Efile free federal and state You must be one of the following. Efile free federal and state A U. Efile free federal and state S. Efile free federal and state citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Efile free federal and state A U. Efile free federal and state S. Efile free federal and state resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Efile free federal and state A U. Efile free federal and state S. Efile free federal and state citizen or a U. Efile free federal and state S. Efile free federal and state resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. Efile free federal and state See Publication 519 to find out if you are a U. Efile free federal and state S. Efile free federal and state resident alien for tax purposes and whether you keep that alien status when you temporarily work abroad. Efile free federal and state If you are a nonresident alien married to a U. Efile free federal and state S. Efile free federal and state citizen or resident alien, and both you and your spouse choose to treat you as a resident alien, you are a resident alien for tax purposes. Efile free federal and state For information on making the choice, see the discussion in chapter 1 under Nonresident Alien Spouse Treated as a Resident . Efile free federal and state Waiver of minimum time requirements. Efile free federal and state   The minimum time requirements for bona fide residence and physical presence can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. Efile free federal and state This is fully explained under Waiver of Time Requirements , later. Efile free federal and state   See Figure 4-A and information in this chapter to determine if you are eligible to claim either exclusion or the deduction. Efile free federal and state Tax Home in Foreign Country To qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, your tax home must be in a foreign country throughout your period of bona fide residence or physical presence abroad. Efile free federal and state Bona fide residence and physical presence are explained later. Efile free federal and state Tax Home Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Efile free federal and state Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. Efile free federal and state Having a “tax home” in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes. Efile free federal and state If you do not have a regular or main place of business because of the nature of your work, your tax home may be the place where you regularly live. Efile free federal and state 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. Efile free federal and state You are not considered to have a tax home in a foreign country for any period in which your abode is in the United States. Efile free federal and state However, your abode is not necessarily in the United States while you are temporarily in the United States. Efile free federal and state Your abode is also not necessarily in the United States merely because you maintain a dwelling in the United States, whether or not your spouse or dependents use the dwelling. Efile free federal and state “Abode” has been variously defined as one's home, habitation, residence, domicile, or place of dwelling. Efile free federal and state It does not mean your principal place of business. Efile free federal and state “Abode” has a domestic rather than a vocational meaning and does not mean the same as “tax home. Efile free federal and state ” The location of your abode often will depend on where you maintain your economic, family, and personal ties. Efile free federal and state Example 1. Efile free federal and state You are employed on an offshore oil rig in the territorial waters of a foreign country and work a 28-day on/28-day off schedule. Efile free federal and state You return to your family residence in the United States during your off periods. Efile free federal and state You are considered to have an abode in the United States and do not satisfy the tax home test in the foreign country. Efile free federal and state You cannot claim either of the exclusions or the housing deduction. Efile free federal and state Example 2. Efile free federal and state For several years, you were a marketing executive with a producer of machine tools in Toledo, Ohio. Efile free federal and state In November of last year, your employer transferred you to London, England, for a minimum of 18 months to set up a sales operation for Europe. Efile free federal and state Before you left, you distributed business cards showing your business and home addresses in London. Efile free federal and state You kept ownership of your home in Toledo but rented it to another family. Efile free federal and state You placed your car in storage. Efile free federal and state In November of last year, you moved your spouse, children, furniture, and family pets to a home your employer rented for you in London. Efile free federal and state Shortly after moving, you leased a car and you and your spouse got British driving licenses. Efile free federal and state Your entire family got library cards for the local public library. Efile free federal and state You and your spouse opened bank accounts with a London bank and secured consumer credit. Efile free federal and state You joined a local business league and both you and your spouse became active in the neighborhood civic association and worked with a local charity. Efile free federal and state Your abode is in London for the time you live there. Efile free federal and state You satisfy the tax home test in the foreign country. Efile free federal and state Please click here for the text description of the image. Efile free federal and state Figure 4–A Can I Claim the Exclusion or Deduction? Temporary or Indefinite Assignment The location of your tax home often depends on whether your assignment is temporary or indefinite. Efile free federal and state If you are temporarily absent from your tax home in the United States on business, you may be able to deduct your away-from-home expenses (for travel, meals, and lodging), but you would not qualify for the foreign earned income exclusion. Efile free federal and state If your new work assignment is for an indefinite period, your new place of employment becomes your tax home and you would not be able to deduct any of the related expenses that you have in the general area of this new work assignment. Efile free federal and state If your new tax home is in a foreign country and you meet the other requirements, your earnings may qualify for the foreign earned income exclusion. Efile free federal and state If you expect your employment away from home in a single location to last, and it does last, for 1 year or less, it is temporary unless facts and circumstances indicate otherwise. Efile free federal and state If you expect it to last for more than 1 year, it is indefinite. Efile free federal and state If you expect it to last for 1 year or less, but at some later date you expect it to last longer than 1 year, it is temporary (in the absence of facts and circumstances indicating otherwise) until your expectation changes. Efile free federal and state Once your expectation changes, it is indefinite. Efile free federal and state Foreign Country To meet the bona fide residence test or the physical presence test, you must live in or be present in a foreign country. Efile free federal and state A foreign country includes any territory under the sovereignty of a government other than that of the United States. Efile free federal and state The term “foreign country” includes the country's airspace and territorial waters, but not international waters and the airspace above them. Efile free federal and state It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. Efile free federal and state The term “foreign country” does not include Antarctica or U. Efile free federal and state S. Efile free federal and state possessions such as Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U. Efile free federal and state S. Efile free federal and state Virgin Islands, and Johnston Island. Efile free federal and state For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, the terms “foreign,” “abroad,” and “overseas” refer to areas outside the United States and those areas listed or described in the previous sentence. Efile free federal and state American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands Residence or presence in a U. Efile free federal and state S. Efile free federal and state possession does not qualify you for the foreign earned income exclusion. Efile free federal and state You may, however, qualify for an exclusion of your possession income on your U. Efile free federal and state S. Efile free federal and state return. Efile free federal and state American Samoa. Efile free federal and state   There is a possession exclusion available to individuals who are bona fide residents of American Samoa for the entire tax year. Efile free federal and state Gross income from sources within American Samoa may be eligible for this exclusion. Efile free federal and state Income that is effectively connected with the conduct of a trade or business within American Samoa also may be eligible for this exclusion. Efile free federal and state Use Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, to figure the exclusion. Efile free federal and state Guam and the Commonwealth of the Northern Mariana Islands. Efile free federal and state   An exclusion will be available to residents of Guam and the Commonwealth of the Northern Mariana Islands if, and when, new implementation agreements take effect between the United States and those possessions. Efile free federal and state   For more information, see Publication 570. Efile free federal and state Puerto Rico and U. Efile free federal and state S. Efile free federal and state Virgin Islands Residents of Puerto Rico and the U. Efile free federal and state S. Efile free federal and state Virgin Islands cannot claim the foreign earned income exclusion or the foreign housing exclusion. Efile free federal and state Puerto Rico. Efile free federal and state   Generally, if you are a U. Efile free federal and state S. Efile free federal and state citizen who is a bona fide resident of Puerto Rico for the entire tax year, you are not subject to U. Efile free federal and state S. Efile free federal and state tax on income from Puerto Rican sources. Efile free federal and state This does not include amounts paid for services performed as an employee of the United States. Efile free federal and state However, you are subject to U. Efile free federal and state S. Efile free federal and state tax on your income from sources outside Puerto Rico. Efile free federal and state In figuring your U. Efile free federal and state S. Efile free federal and state tax, you cannot deduct expenses allocable to income not subject to tax. Efile free federal and state Bona Fide Residence Test You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Efile free federal and state You can use the bona fide residence test to qualify for the exclusions and the deduction only if you are either: A U. Efile free federal and state S. Efile free federal and state citizen, or A U. Efile free federal and state S. Efile free federal and state resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect. Efile free federal and state You do not automatically acquire bona fide resident status merely by living in a foreign country or countries for 1 year. Efile free federal and state If you go to a foreign country to work on a particular job for a specified period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for 1 tax year or longer. Efile free federal and state The length of your stay and the nature of your job are only two of the factors to be considered in determining whether you meet the bona fide residence test. Efile free federal and state Bona fide residence. Efile free federal and state   To meet the bona fide residence test, you must have established a bona fide residence in a foreign country. Efile free federal and state   Your bona fide residence is not necessarily the same as your domicile. Efile free federal and state Your domicile is your permanent home, the place to which you always return or intend to return. Efile free federal and state Example. Efile free federal and state You could have your domicile in Cleveland, Ohio, and a bona fide residence in Edinburgh, Scotland, if you intend to return eventually to Cleveland. Efile free federal and state The fact that you go to Scotland does not automatically make Scotland your bona fide residence. Efile free federal and state If you go there as a tourist, or on a short business trip, and return to the United States, you have not established bona fide residence in Scotland. Efile free federal and state But if you go to Scotland to work for an indefinite or extended period and you set up permanent quarters there for yourself and your family, you probably have established a bona fide residence in a foreign country, even though you intend to return eventually to the United States. Efile free federal and state You are clearly not a resident of Scotland in the first instance. Efile free federal and state However, in the second, you are a resident because your stay in Scotland appears to be permanent. Efile free federal and state If your residency is not as clearly defined as either of these illustrations, it may be more difficult to decide whether you have established a bona fide residence. Efile free federal and state Determination. Efile free federal and state   Questions of bona fide residence are determined according to each individual case, taking into account factors such as your intention, the purpose of your trip, and the nature and length of your stay abroad. Efile free federal and state   To meet the bona fide residence test, you must show the Internal Revenue Service (IRS) that you have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Efile free federal and state The IRS decides whether you are a bona fide resident of a foreign country largely on the basis of facts you report on Form 2555. Efile free federal and state IRS cannot make this determination until you file Form 2555. Efile free federal and state Statement to foreign authorities. Efile free federal and state   You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country, and the authorities: Hold that you are not subject to their income tax laws as a resident, or Have not made a final decision on your status. Efile free federal and state Special agreements and treaties. Efile free federal and state   An income tax exemption provided in a treaty or other international agreement will not in itself prevent you from being a bona fide resident of a foreign country. Efile free federal and state Whether a treaty prevents you from becoming a bona fide resident of a foreign country is determined under all provisions of the treaty, including specific provisions relating to residence or privileges and immunities. Efile free federal and state Example 1. Efile free federal and state You are a U. Efile free federal and state S. Efile free federal and state citizen employed in the United Kingdom by a U. Efile free federal and state S. Efile free federal and state employer under contract with the U. Efile free federal and state S. Efile free federal and state Armed Forces. Efile free federal and state You are not subject to the North Atlantic Treaty Status of Forces Agreement. Efile free federal and state You may be a bona fide resident of the United Kingdom. Efile free federal and state Example 2. Efile free federal and state You are a U. Efile free federal and state S. Efile free federal and state citizen in the United Kingdom who qualifies as an “employee” of an armed service or as a member of a “civilian component” under the North Atlantic Treaty Status of Forces Agreement. Efile free federal and state You are not a bona fide resident of the United Kingdom. Efile free federal and state Example 3. Efile free federal and state You are a U. Efile free federal and state S. Efile free federal and state citizen employed in Japan by a U. Efile free federal and state S. Efile free federal and state employer under contract with the U. Efile free federal and state S. Efile free federal and state Armed Forces. Efile free federal and state You are subject to the agreement of the Treaty of Mutual Cooperation and Security between the United States and Japan. Efile free federal and state Being subject to the agreement does not make you a bona fide resident of Japan. Efile free federal and state Example 4. Efile free federal and state You are a U. Efile free federal and state S. Efile free federal and state citizen employed as an “official” by the United Nations in Switzerland. Efile free federal and state You are exempt from Swiss taxation on the salary or wages paid to you by the United Nations. Efile free federal and state This does not prevent you from being a bona fide resident of Switzerland. Efile free federal and state Effect of voting by absentee ballot. Efile free federal and state   If you are a U. Efile free federal and state S. Efile free federal and state citizen living abroad, you can vote by absentee ballot in any election held in the United States without risking your status as a bona fide resident of a foreign country. Efile free federal and state   However, if you give information to the local election officials about the nature and length of your stay abroad that does not match the information you give for the bona fide residence test, the information given in connection with absentee voting will be considered in determining your status, but will not necessarily be conclusive. Efile free federal and state Uninterrupted period including entire tax year. Efile free federal and state   To meet the bona fide residence test, you must reside in a foreign country or countries for an uninterrupted period that includes an entire tax year. Efile free federal and state An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. Efile free federal and state   During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business. Efile free federal and state To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country. Efile free federal and state Example 1. Efile free federal and state You arrived with your family in Lisbon, Portugal, on November 1, 2011. Efile free federal and state Your assignment is indefinite, and you intend to live there with your family until your company sends you to a new post. Efile free federal and state You immediately established residence there. Efile free federal and state You spent April of 2012 at a business conference in the United States. Efile free federal and state Your family stayed in Lisbon. Efile free federal and state Immediately following the conference, you returned to Lisbon and continued living there. Efile free federal and state On January 1, 2013, you completed an uninterrupted period of residence for a full tax year (2012), and you meet the bona fide residence test. Efile free federal and state Example 2. Efile free federal and state Assume the same facts as in Example 1, except that you transferred back to the United States on December 13, 2012. Efile free federal and state You would not meet the bona fide residence test because your bona fide residence in the foreign country, although it lasted more than a year, did not include a full tax year. Efile free federal and state You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test (discussed later). Efile free federal and state Bona fide resident for part of a year. Efile free federal and state   Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you are a bona fide resident of that country for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. Efile free federal and state Your period of bona fide residence can include an entire tax year plus parts of 2 other tax years. Efile free federal and state Example. Efile free federal and state You were a bona fide resident of Singapore from March 1, 2011, through September 14, 2013. Efile free federal and state On September 15, 2013, you returned to the United States. Efile free federal and state Since you were a bona fide resident of a foreign country for all of 2012, you were also a bona fide resident of a foreign country from March 1, 2011, through the end of 2011 and from January 1, 2013, through September 14, 2013. Efile free federal and state Reassignment. Efile free federal and state   If you are assigned from one foreign post to another, you may or may not have a break in foreign residence between your assignments, depending on the circumstances. Efile free federal and state Example 1. Efile free federal and state You were a resident of Pakistan from October 1, 2012, through November 30, 2013. Efile free federal and state On December 1, 2013, you and your family returned to the United States to wait for an assignment to another foreign country. Efile free federal and state Your household goods also were returned to the United States. Efile free federal and state Your foreign residence ended on November 30, 2013, and did not begin again until after you were assigned to another foreign country and physically entered that country. Efile free federal and state Since you were not a bona fide resident of a foreign country for the entire tax year of 2012 or 2013 you do not meet the bona fide residence test in either year. Efile free federal and state You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test, discussed later. Efile free federal and state Example 2. Efile free federal and state Assume the same facts as in Example 1, except that upon completion of your assignment in Pakistan you were given a new assignment to Turkey. Efile free federal and state On December 1, 2013, you and your family returned to the United States for a month's vacation. Efile free federal and state On January 2, 2014, you arrived in Turkey for your new assignment. Efile free federal and state Because you did not interrupt your bona fide residence abroad, you meet the bona fide residence test. Efile free federal and state Physical Presence Test 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. Efile free federal and state The 330 days do not have to be consecutive. Efile free federal and state Any U. Efile free federal and state S. Efile free federal and state citizen or resident alien can use the physical presence test to qualify for the exclusions and the deduction. Efile free federal and state The physical presence test is based only on how long you stay in a foreign country or countries. Efile free federal and state This test does not depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your stay abroad. Efile free federal and state 330 full days. Efile free federal and state   Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period. Efile free federal and state You can count days you spent abroad for any reason. Efile free federal and state You do not have to be in a foreign country only for employment purposes. Efile free federal and state You can be on vacation. Efile free federal and state   You do not meet the physical presence test if illness, family problems, a vacation, or your employer's orders cause you to be present for less than the required amount of time. Efile free federal and state Exception. Efile free federal and state   You can be physically present in a foreign country or countries for less than 330 full days and still meet the physical presence test if you are required to leave a country because of war or civil unrest. Efile free federal and state See Waiver of Time Requirements, later. Efile free federal and state Full day. Efile free federal and state   A full day is a period of 24 consecutive hours, beginning at midnight. Efile free federal and state Travel. Efile free federal and state    When you leave the United States to go directly to a foreign country or when you return directly to the United States from a foreign country, the time you spend on or over international waters does not count toward the 330-day total. Efile free federal and state Example. Efile free federal and state You leave the United States for France by air on June 10. Efile free federal and state You arrive in France at 9:00 a. Efile free federal and state m. Efile free federal and state on June 11. Efile free federal and state Your first full day of physical presence in France is June 12. Efile free federal and state Passing over foreign country. Efile free federal and state   If, in traveling from the United States to a foreign country, you pass over a foreign country before midnight of the day you leave, the first day you can count toward the 330-day total is the day following the day you leave the United States. Efile free federal and state Example. Efile free federal and state You leave the United States by air at 9:30 a. Efile free federal and state m. Efile free federal and state on June 10 to travel to Kenya. Efile free federal and state You pass over western Africa at 11:00 p. Efile free federal and state m. Efile free federal and state on June 10 and arrive in Kenya at 12:30 a. Efile free federal and state m. Efile free federal and state on June 11. Efile free federal and state Your first full day in a foreign country is June 11. Efile free federal and state Change of location. Efile free federal and state   You can move about from one place to another in a foreign country or to another foreign country without losing full days. Efile free federal and state If any part of your travel is not within any foreign country and takes less than 24 hours, you are considered to be in a foreign country during that part of travel. Efile free federal and state Example 1. Efile free federal and state You leave Ireland by air at 11:00 p. Efile free federal and state m. Efile free federal and state on July 6 and arrive in Sweden at 5:00 a. Efile free federal and state m. Efile free federal and state on July 7. Efile free federal and state Your trip takes less than 24 hours and you lose no full days. Efile free federal and state Example 2. Efile free federal and state You leave Norway by ship at 10:00 p. Efile free federal and state m. Efile free federal and state on July 6 and arrive in Portugal at 6:00 a. Efile free federal and state m. Efile free federal and state on July 8. Efile free federal and state Since your travel is not within a foreign country or countries and the trip takes more than 24 hours, you lose as full days July 6, 7, and 8. Efile free federal and state If you remain in Portugal, your next full day in a foreign country is July 9. Efile free federal and state In United States while in transit. Efile free federal and state   If you are in transit between two points outside the United States and are physically present in the United States for less than 24 hours, you are not treated as present in the United States during the transit. Efile free federal and state You are treated as traveling over areas not within any foreign country. Efile free federal and state    Please click here for the text description of the image. Efile free federal and state Figure 4-B How to figure the 12-month period. Efile free federal and state   There are four rules you should know when figuring the 12-month period. Efile free federal and state Your 12-month period can begin with any day of the month. Efile free federal and state It ends the day before the same calendar day, 12 months later. Efile free federal and state Your 12-month period must be made up of consecutive months. Efile free federal and state Any 12-month period can be used if the 330 days in a foreign country fall within that period. Efile free federal and state You do not have to begin your 12-month period with your first full day in a foreign country or end it with the day you leave. Efile free federal and state You can choose the 12-month period that gives you the greatest exclusion. Efile free federal and state In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another. Efile free federal and state Example 1. Efile free federal and state You are a construction worker who works on and off in a foreign country over a 20-month period. Efile free federal and state You might pick up the 330 full days in a 12-month period only during the middle months of the time you work in the foreign country because the first few and last few months of the 20-month period are broken up by long visits to the United States. Efile free federal and state Example 2. Efile free federal and state You work in New Zealand for a 20-month period from January 1, 2012, through August 31, 2013, except that you spend 28 days in February 2012 and 28 days in February 2013 on vacation in the United States. Efile free federal and state You are present in New Zealand for at least 330 full days during each of the following two 12-month periods: January 1, 2012 – December 31, 2012 and September 1, 2012 – August 31, 2013. Efile free federal and state By overlapping the 12-month periods in this way, you meet the physical presence test for the whole 20-month period. Efile free federal and state See Figure 4-B, on the previous page. Efile free federal and state Waiver of Time Requirements Both the bona fide residence test and the physical presence test contain minimum time requirements. Efile free federal and state The minimum time requirements can be waived, however, if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. Efile free federal and state You must be able to show that you reasonably could have expected to meet the minimum time requirements if not for the adverse conditions. Efile free federal and state To qualify for the waiver, you must actually have your tax home in the foreign country and be a bona fide resident of, or be physically present in, the foreign country on or before the beginning date of the waiver. Efile free federal and state Early in 2014, the IRS will publish in the Internal Revenue Bulletin a list of the only countries that qualify for the waiver for 2013 and the effective dates. Efile free federal and state If you left one of the countries on or after the date listed for each country, you can meet the bona fide residence test or physical presence test for 2013 without meeting the minimum time requirement. Efile free federal and state However, in figuring your exclusion, the number of your qualifying days of bona fide residence or physical presence includes only days of actual residence or presence within the country. Efile free federal and state U. Efile free federal and state S. Efile free federal and state Travel Restrictions If you are present in a foreign country in violation of U. Efile free federal and state S. Efile free federal and state law, you will not be treated as a bona fide resident of a foreign country or as physically present in a foreign country while you are in violation of the law. Efile free federal and state Income that you earn from sources within such a country for services performed during a period of violation does not qualify as foreign earned income. Efile free federal and state Your housing expenses within that country (or outside that country for housing your spouse or dependents) while you are in violation of the law cannot be included in figuring your foreign housing amount. Efile free federal and state For 2013, the only country to which travel restrictions applied was Cuba. Efile free federal and state The restrictions applied for the entire year. Efile free federal and state However, individuals working at the U. Efile free federal and state S. Efile free federal and state Naval Base at Guantanamo Bay in Cuba are not in violation of U. Efile free federal and state S. Efile free federal and state law. Efile free federal and state Personal service income earned by individuals at the base is eligible for the foreign earned income exclusion provided the other requirements are met. Efile free federal and state Foreign Earned Income To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income. Efile free federal and state Foreign earned income generally is income you receive for services you perform during a period in which you meet both of the following requirements. Efile free federal and state Your tax home is in a foreign country. Efile free federal and state You meet either the bona fide residence test or the physical presence test. Efile free federal and state To determine whether your tax home is in a foreign country, see Tax Home in Foreign Country, earlier. Efile free federal and state To determine whether you meet either the bona fide residence test or the physical presence test, see Bona Fide Residence Test and Physical Presence Test, earlier. Efile free federal and state Foreign earned income does not include the following amounts. Efile free federal and state The value of meals and lodging that you exclude from your income because the meals and lodging were furnished for the convenience of your employer. Efile free federal and state Pension or annuity payments you receive, including social security benefits (see Pensions and annuities, later). Efile free federal and state Pay you receive as an employee of the U. Efile free federal and state S. Efile free federal and state Government. Efile free federal and state (See U. Efile free federal and state S. Efile free federal and state Government Employees, later. Efile free federal and state ) Amounts you include in your income because of your employer's contributions to a nonexempt employee trust or to a nonqualified annuity contract. Efile free federal and state Any unallowable moving expense deduction that you choose to recapture as explained under Moving Expense Attributable to Foreign Earnings in 2 Years in chapter 5. Efile free federal and state Payments you receive after the end of the tax year following the tax year in which you performed the services that earned the income. Efile free federal and state Earned income. Efile free federal and state   This is pay for personal services performed, such as wages, salaries, or professional fees. Efile free federal and state The list that follows classifies many types of income into three categories. Efile free federal and state The column headed Variable Income lists income that may fall into either the earned income category, the unearned income category, or partly into both. Efile free federal and state For more information on earned and unearned income, see Earned and Unearned Income, later. Efile free federal and state Earned Income Unearned Income Variable Income Salaries and wages Dividends Business profits Commissions Interest Royalties Bonuses Capital gains Rents Professional fees Gambling winnings Scholarships and fellowships Tips Alimony     Social security benefits     Pensions     Annuities     In addition to the types of earned income listed, certain noncash income and allowances or reimbursements are considered earned income. Efile free federal and state Noncash income. Efile free federal and state   The fair market value of property or facilities provided to you by your employer in the form of lodging, meals, or use of a car is earned income. Efile free federal and state Allowances or reimbursements. Efile free federal and state   Earned income includes allowances or reimbursements you receive, such as the following amounts. Efile free federal and state    Cost-of-living allowances. Efile free federal and state Overseas differential. Efile free federal and state Family allowance. Efile free federal and state Reimbursement for education or education allowance. Efile free federal and state Home leave allowance. Efile free federal and state Quarters allowance. Efile free federal and state Reimbursement for moving or moving allowance (unless excluded from income as discussed later in Reimbursement of employee expenses under Earned and Unearned Income). Efile free federal and state Source of Earned Income The source of your earned income is the place where you perform the services for which you received the income. Efile free federal and state Foreign earned income is income you receive for working in a foreign country. Efile free federal and state Where or how you are paid has no effect on the source of the income. Efile free federal and state For example, income you receive for work done in Austria is income from a foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City. Efile free federal and state Example. Efile free federal and state You are a U. Efile free federal and state S. Efile free federal and state citizen, a bona fide resident of Canada, and working as a mining engineer. Efile free federal and state Your salary is $76,800 per year. Efile free federal and state You also receive a $6,000 cost-of-living allowance, and a $6,000 education allowance. Efile free federal and state Your employment contract did not indicate that you were entitled to these allowances only while outside the United States. Efile free federal and state Your total income is $88,800. Efile free federal and state You work a 5-day week, Monday through Friday. Efile free federal and state After subtracting your vacation, you have a total of 240 workdays in the year. Efile free federal and state You worked in the United States during the year for 6 weeks (30 workdays). Efile free federal and state The following shows how to figure the part of your income that is for work done in Canada during the year. Efile free federal and state   Number of days worked in Canada during the year (210) × Total income ($88,800) = $77,700     Number of days of work during the year for which payment was made (240)   Your foreign source earned income is $77,700. Efile free federal and state Earned and Unearned Income Earned income was defined earlier as pay for personal services performed. Efile free federal and state Some types of income are not easily identified as earned or unearned income. Efile free federal and state Some of these types of income are further explained here. Efile free federal and state Income from a sole proprietorship or partnership. Efile free federal and state   Income from a business in which capital investment is an important part of producing the income may be unearned income. Efile free federal and state If you are a sole proprietor or partner and your personal services are also an important part of producing the income, the part of the income that represents the value of your personal services will be treated as earned income. Efile free federal and state Capital a factor. Efile free federal and state   If capital investment is an important part of producing income, no more than 30% of your share of the net profits of the business is earned income. Efile free federal and state   If you have no net profits, the part of your gross profit that represents a reasonable allowance for personal services actually performed is considered earned income. Efile free federal and state Because you do not have a net profit, the 30% limit does not apply. Efile free federal and state Example 1. Efile free federal and state You are a U. Efile free federal and state S. Efile free federal and state citizen and meet the bona fide residence test. Efile free federal and state You invest in a partnership based in Cameroon that is engaged solely in selling merchandise outside the United States. Efile free federal and state You perform no services for the partnership. Efile free federal and state At the end of the tax year, your share of the net profits is $80,000. Efile free federal and state The entire $80,000 is unearned income. Efile free federal and state Example 2. Efile free federal and state Assume that in Example 1 you spend time operating the business. Efile free federal and state Your share of the net profits is $80,000; 30% of your share of the profits is $24,000. Efile free federal and state If the value of your services for the year is $15,000, your earned income is limited to the value of your services, $15,000. Efile free federal and state Capital not a factor. Efile free federal and state   If capital is not an income-producing factor and personal services produce the business income, the 30% rule does not apply. Efile free federal and state The entire amount of business income is earned income. Efile free federal and state Example. Efile free federal and state You and Lou Green are management consultants and operate as equal partners in performing services outside the United States. Efile free federal and state Because capital is not an income- producing factor, all the income from the partnership is considered earned income. Efile free federal and state Income from a corporation. Efile free federal and state   The salary you receive from a corporation is earned income only if it represents a reasonable allowance as compensation for work you do for the corporation. Efile free federal and state Any amount over what is considered a reasonable salary is unearned income. Efile free federal and state Example 1. Efile free federal and state You are a U. Efile free federal and state S. Efile free federal and state citizen and an officer and stockholder of a corporation in Honduras. Efile free federal and state You perform no work or service of any kind for the corporation. Efile free federal and state During the tax year you receive a $10,000 “salary” from the corporation. Efile free federal and state The $10,000 clearly is not for personal services and is unearned income. Efile free federal and state Example 2. Efile free federal and state You are a U. Efile free federal and state S. Efile free federal and state citizen and work full time as secretary-treasurer of your corporation. Efile free federal and state During the tax year you receive $100,000 as salary from the corporation. Efile free federal and state If $80,000 is a reasonable allowance as pay for the work you did, then $80,000 is earned income. Efile free federal and state Stock options. Efile free federal and state   You may have earned income if you disposed of stock that you got by exercising a stock option granted to you under an employee stock purchase plan. Efile free federal and state   If your gain on the disposition of stock you got by exercising an option is treated as capital gain, your gain is unearned income. Efile free federal and state   However, if you disposed of the stock less than 2 years after you were granted the option or less than 1 year after you got the stock, part of the gain on the disposition may be earned income. Efile free federal and state It is considered received in the year you disposed of the stock and earned in the year you performed the services for which you were granted the option. Efile free federal and state Any part of the earned income that is due to work you did outside the United States is foreign earned income. Efile free federal and state   See Publication 525, Taxable and Nontaxable Income, for a discussion of the treatment of stock options. Efile free federal and state Pensions and annuities. Efile free federal and state    For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, amounts received as pensions or annuities are unearned income. Efile free federal and state Royalties. Efile free federal and state   Royalties from the leasing of oil and mineral lands and patents generally are a form of rent or dividends and are unearned income. Efile free federal and state   Royalties received by a writer are earned income if they are received: For the transfer of property rights of the writer in the writer's product, or Under a contract to write a book or series of articles. Efile free federal and state Rental income. Efile free federal and state   Generally, rental income is unearned income. Efile free federal and state If you perform personal services in connection with the production of rent, up to 30% of your net rental income can be considered earned income. Efile free federal and state Example. Efile free federal and state Larry Smith, a U. Efile free federal and state S. Efile free federal and state citizen living in Australia, owns and operates a rooming house in Sydney. Efile free federal and state If he is operating the rooming house as a business that requires capital and personal services, he can consider up to 30% of net rental income as earned income. Efile free federal and state On the other hand, if he just owns the rooming house and performs no personal services connected with its operation, except perhaps making minor repairs and collecting rents, none of his net income from the house is considered earned income. Efile free federal and state It is all unearned income. Efile free federal and state Professional fees. Efile free federal and state   If you are engaged in a professional occupation (such as a doctor or lawyer), all fees received in the performance of these services are earned income. Efile free federal and state Income of an artist. Efile free federal and state   Income you receive from the sale of paintings you created is earned income. Efile free federal and state Scholarships and fellowships. Efile free federal and state   Any portion of a scholarship or fellowship grant that is paid to you for teaching, research or other services is considered earned income if you must include it in your gross income. Efile free federal and state If the payer of the grant is required to provide you with a Form W-2, Wage and Tax Statement, these amounts will be listed as wages. Efile free federal and state    Certain scholarship and fellowship income may be exempt under other provisions. Efile free federal and state See Publication 970, Tax Benefits for Education, chapter 1. Efile free federal and state Use of employer's property or facilities. Efile free federal and state   If you receive fringe benefits in the form of the right to use your employer's property or facilities, the fair market value of that right is earned income. Efile free federal and state Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being required to buy or sell, and both having reasonable knowledge of all the necessary facts. Efile free federal and state Example. Efile free federal and state You are privately employed and live in Japan all year. Efile free federal and state You are paid a salary of $6,000 a month. Efile free federal and state You live rent-free in a house provided by your employer that has a fair rental value of $3,000 a month. Efile free federal and state The house is not provided for your employer's convenience. Efile free federal and state You report on the calendar-year, cash basis. Efile free federal and state You received $72,000 salary from foreign sources plus $36,000 fair rental value of the house, or a total of $108,000 of earned income. Efile free federal and state Reimbursement of employee expenses. Efile free federal and state   If you are reimbursed under an accountable plan (defined below) for expenses you incur on your employer's behalf and you have adequately accounted to your employer for the expenses, do not include the reimbursement for those expenses in your earned income. Efile free federal and state   The expenses for which you are reimbursed are not considered allocable (related) to your earned income. Efile free federal and state If expenses and reimbursement are equal, there is nothing to allocate to excluded income. Efile free federal and state If expenses are more than the reimbursement, the unreimbursed expenses are considered to have been incurred in producing earned income and must be divided between your excluded and included income in determining the amount of unreimbursed expenses you can deduct. Efile free federal and state (See chapter 5. Efile free federal and state ) If the reimbursement is more than the expenses, no expenses remain to be divided between excluded and included income and the excess reimbursement must be included in earned income. Efile free federal and state   These rules do not apply to the following individuals. Efile free federal and state Straight-commission salespersons. Efile free federal and state Employees who have arrangements with their employers under which taxes are not withheld on a percentage of the commissions because the employers consider that percentage to be attributable to the employees' expenses. Efile free federal and state Accountable plan. Efile free federal and state   An accountable plan is a reimbursement or allowance arrangement that includes all three of the following rules. Efile free federal and state The expenses covered under the plan must have a business connection. Efile free federal and state The employee must adequately account to the employer for these expenses within a reasonable period of time. Efile free federal and state The employee must return any excess reimbursement or allowance within a reasonable period of time. Efile free federal and state Reimbursement of moving expenses. Efile free federal and state   Reimbursement of moving expenses may be earned income. Efile free federal and state You must include as earned income: Any reimbursements of, or payments for, nondeductible moving expenses, Reimbursements that are more than your deductible expenses and that you do not return to your employer, Any reimbursements made (or treated as made) under a nonaccountable plan (any plan that does not meet the rules listed above for an accountable plan), even if they are for deductible expenses, and Any reimbursement of moving expenses you deducted in an earlier year. Efile free federal and state This section discusses reimbursements that must be included in earned income. Efile free federal and state Publication 521, Moving Expenses, discusses additional rules that apply to moving expense deductions and reimbursements. Efile free federal and state   The rules for determining when the reimbursement is considered earned or where the reimbursement is considered earned may differ somewhat from the general rules previously discussed. Efile free federal and state   Although you receive the reimbursement in one tax year, it may be considered earned for services performed, or to be performed, in another tax year. Efile free federal and state You must report the reimbursement as income on your return in the year you receive it, even if it is considered earned during a different year. Efile free federal and state Move from U. Efile free federal and state S. Efile free federal and state to foreign country. Efile free federal and state   If you move from the United States to a foreign country, your moving expense reimbursement is generally considered pay for future services to be performed at the new location. Efile free federal and state The reimbursement is considered earned solely in the year of the move if you qualify for the exclusion for a period that includes at least 120 days during that tax year. Efile free federal and state   If you are neither a bona fide resident of nor physically present in a foreign country or countries for a period that includes 120 days during the year of the move, a portion of the reimbursement is considered earned in the year of the move and a portion is considered earned in the year following the year of the move. Efile free federal and state To figure the amount earned in the year of the move, multiply the reimbursement by a fraction. Efile free federal and state The numerator (top number) is the number of days in your qualifying period that fall within the year of the move, and the denominator (bottom number) is the total number of days in the year of the move. Efile free federal and state   The difference between the total reimbursement and the amount considered earned in the year of the move is the amount considered earned in the year following the year of the move. Efile free federal and state The part earned in each year is figured as shown in the following example. Efile free federal and state Example. Efile free federal and state You are a U. Efile free federal and state S. Efile free federal and state citizen working in the United States. Efile free federal and state You were told in October 2012 that you were being transferred to a foreign country. Efile free federal and state You arrived in the foreign country on December 15, 2012, and you are a bona fide resident for the remainder of 2012 and all of 2013. Efile free federal and state Your employer reimbursed you $2,000 in January 2013 for the part of the moving expense that you were not allowed to deduct. Efile free federal and state Because you did not qualify for the exclusion under the bona fide residence test for at least 120 days in 2012 (the year of the move), the reimbursement is considered pay for services performed in the foreign country for both 2012 and 2013. Efile free federal and state You figure the part of the reimbursement for services performed in the foreign country in 2012 by multiplying the total reimbursement by a fraction. Efile free federal and state The fraction is the number of days during which you were a bona fide resident in 2012 (the year of the move) divided by 366. Efile free federal and state The remaining part of the reimbursement is for services performed in the foreign country in 2013. Efile free federal and state This computation is used only to determine when the reimbursement is considered earned. Efile free federal and state You would include the amount of the reimbursement in income in 2013, the year you received it. Efile free federal and state Move between foreign countries. Efile free federal and state   If you move between foreign countries, any moving expense reimbursement that you must include in income will be considered earned in the year of the move if you qualify for the foreign earned income exclusion for a period that includes at least 120 days in the year of the move. Efile free federal and state Move to U. Efile free federal and state S. Efile free federal and state   If you move to the United States, the moving expense reimbursement that you must include in income is generally considered to be U. Efile free federal and state S. Efile free federal and state source income. Efile free federal and state   However, if under either an agreement between you and your employer or a statement of company policy that is reduced to writing before your move to the foreign country, your employer will reimburse you for your move back to the United States regardless of whether you continue to work for the employer, the includible reimbursement is considered compensation for past services performed in the foreign country. Efile free federal and state The includible reimbursement is considered earned in the year of the move if you qualify for the foreign earned income exclusion for a period that includes at least 120 days during that year. Efile free federal and state Otherwise, you treat the includible reimbursement as received for services performed in the foreign country in the year of the move and the year immediately before the year of the move. Efile free federal and state   See the discussion under Move from U. Efile free federal and state S. Efile free federal and state to foreign country , earlier, to figure the amount of the includible reimbursement considered earned in the year of the move. Efile free federal and state The amount earned in the year before the year of the move is the difference between the total includible reimbursement and the amount earned in the year of the move. Efile free federal and state Example. Efile free federal and state You are a U. Efile free federal and state S. Efile free federal and state citizen employed in a foreign country. Efile free federal and state You retired from employment with your employer on March 31, 2013, and returned to the United States after having been a bona fide resident of the foreign country for several years. Efile free federal and state A written agreement with your employer entered into before you went abroad provided that you would be reimbursed for your move back to the United States. Efile free federal and state In April 2013, your former employer reimbursed you $4,000 for the part of the cost of your move back to the United States that you were not allowed to deduct. Efile free federal and state Because you were not a bona fide resident of a foreign country or countries for a period that included at least 120 days in 2013 (the year of the move), the includible reimbursement is considered pay for services performed in the foreign country for both 2013 and 2012. Efile free federal and state You figure the part of the moving expense reimbursement for services performed in the foreign country for 2013 by multiplying the total includible reimbursement by a fraction. Efile free federal and state The fraction is the number of days of foreign residence during the year (90) divided by the number of days in the year (365). Efile free federal and state The remaining part of the includible reimbursement is for services performed in the foreign country in 2012. Efile free federal and state You report the amount of the includible reimbursement in 2013, the year you received it. Efile free federal and state    In this example, if you met the physical presence test for a period that included at least 120 days in 2013, the moving expense reimbursement would be considered earned entirely in the year of the move. Efile free federal and state Storage expense reimbursements. Efile free federal and state   If you are reimbursed for storage expenses, the reimbursement is for services you perform during the period of time for which the storage expenses are incurred. Efile free federal and state U. Efile free federal and state S. Efile free federal and state Government Employees For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, foreign earned income does not include any amounts paid by the United States or any of its agencies to its employees. Efile free federal and state This includes amounts paid from both appropriated and nonappropriated funds. Efile free federal and state The following organizations (and other organizations similarly organized and operated under United States Army, Navy, or Air Force regulations) are integral parts of the Armed Forces, agencies, or instrumentalities of the United States. Efile free federal and state United States Armed Forces exchanges. Efile free federal and state Commissioned and noncommissioned officers' messes. Efile free federal and state Armed Forces motion picture services. Efile free federal and state Kindergartens on foreign Armed Forces installations. Efile free federal and state Amounts paid by the United States or its agencies to persons who are not their employees may qualify for exclusion or deduction. Efile free federal and state If you are a U. Efile free federal and state S. Efile free federal and state Government employee paid by a U. Efile free federal and state S. Efile free federal and state agency that assigned you to a foreign government to perform specific services for which the agency is reimbursed by the foreign government, your pay is from the U. Efile free federal and state S. Efile free federal and state Government and does not qualify for exclusion or deduction. Efile free federal and state If you have questions about whether you are an employee or an independent contractor, get Publication 15-A, Employer's Supplemental Tax Guide. Efile free federal and state American Institute in Taiwan. Efile free federal and state   Amounts paid by the American Institute in Taiwan are not foreign earned income for purposes of the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Efile free federal and state If you are an employee of the American Institute in Taiwan, allowances you receive are exempt from U. Efile free federal and state S. Efile free federal and state tax up to the amount that equals tax-exempt allowances received by civilian employees of the U. Efile free federal and state S. Efile free federal and state Government. Efile free federal and state Allowances. Efile free federal and state   Cost-of-living and foreign-area allowances paid under certain acts of Congress to U. Efile free federal and state S. Efile free federal and state civilian officers and employees stationed in Alaska and Hawaii or elsewhere outside the 48 contiguous states and the District of Columbia can be excluded from gross income. Efile free federal and state Post differentials are wages that must be included in gross income, regardless of the act of Congress under which they are paid. Efile free federal and state More information. Efile free federal and state   Publication 516, U. Efile free federal and state S. Efile free federal and state Government Civilian Employees Stationed Abroad, has more information for U. Efile free federal and state S. Efile free federal and state Government employees abroad. Efile free federal and state Exclusion of Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. Efile free federal and state The meals are furnished: On the business premises of your employer, and For the convenience of your employer. Efile free federal and state The lodging is furnished: On the business premises of your employer, For the convenience of your employer, and As a condition of your employment. Efile free federal and state If these conditions are met, do not include the value of the meals or lodging in your income, even if a law or your employment contract says that they are provided as compensation. Efile free federal and state Amounts you do not include in income because of these rules are not foreign earned income. Efile free federal and state If you receive a Form W-2, excludable amounts should not be included in the total reported in box 1 as wages. Efile free federal and state Family. Efile free federal and state   Your family, for this purpose, includes only your spouse and your dependents. Efile free federal and state Lodging. Efile free federal and state   The value of lodging includes the cost of heat, electricity, gas, water, sewer service, and similar items needed to make the lodging fit to live in. Efile free federal and state Business premises of employer. Efile free federal and state   Generally, the business premises of your employer is wherever you work. Efile free federal and state For example, if you work as a housekeeper, meals and lodging provided in your employer's home are provided on the business premises of your employer. Efile free federal and state Similarly, meals provided to cowhands while herding cattle on land leased or owned by their employer are considered provided on the premises of their employer. Efile free federal and state Convenience of employer. Efile free federal and state   Whether meals or lodging are provided for your employer's convenience must be determined from all the facts and circumstances. Efile free federal and state Meals furnished at no charge are considered provided for your employer's convenience if there is a good business reason for providing them, other than to give you more pay. Efile free federal and state   On the other hand, if your employer provides meals to you or your family as a means of giving you more pay, and there is no other business reason for providing them, their value is extra income to you because they are not furnished for the convenience of your employer. Efile free federal and state Condition of employment. Efile free federal and state   Lodging is provided as a condition of employment if you must accept the lodging to properly carry out the duties of your job. Efile free federal and state You must accept lodging to properly carry out your duties if, for example, you must be available for duty at all times or you could not perform your duties if the lodging was not furnished. Efile free federal and state Foreign camps. Efile free federal and state   If the lodging is in a camp located in a foreign country, the camp is considered part of your employer's business premises. Efile free federal and state The camp must be: Provided for your employer's convenience because the place where you work is in a remote area where satisfactory housing is not available to you on the open market within a reasonable commuting distance, Located as close as reasonably possible in the area where you work, and Provided in a common area or enclave that is not available to the general public for lodging or accommodations and that normally houses at least ten employees. Efile free federal and state Foreign Earned Income Exclusion If your tax home is in a foreign country and you meet the bona fide residence test or the physical presence test, you can choose to exclude from your income a limited amount of your foreign earned income. Efile free federal and state Foreign earned income was defined earlier in this chapter. Efile free federal and state You also can choose to exclude from your income a foreign housing amount. Efile free federal and state This is explained later under Foreign Housing Exclusion. Efile free federal and state If you choose to exclude a foreign housing amount, you must figure the foreign housing exclusion before you figure the foreign earned income exclusion. Efile free federal and state Your foreign earned income exclusion is limited to your foreign earned income minus your foreign housing exclusion. Efile free federal and state If you choose to exclude foreign earned income, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. Efile free federal and state This includes any expenses, losses, and other normally deductible items allocable to the excluded income. Efile free federal and state For more information about deductions and credits, see chapter 5 . Efile free federal and state Limit on Excludable Amount You may be able to exclude up to $97,600 of your foreign earned income in 2013. Efile free federal and state You cannot exclude more than the smaller of: $97,600, or Your foreign earned income (discussed earlier) for the tax year minus your foreign housing exclusion (discussed later). Efile free federal and state If both you and your spouse work abroad and each of you meets either the bona fide residence test or the physical presence test, you can each choose the foreign earned income exclusion. Efile free federal and state You do not both need to meet the same test. Efile free federal and state Together, you and your spouse can exclude as much as $195,200. Efile free federal and state Paid in year following work. Efile free federal and state   Generally, you are considered to have earned income in the year in which you do the work for which you receive the income, even if you work in one year but are not paid until the following year. Efile free federal and state If you report your income on a cash basis, you report the income on your return for the year you receive it. Efile free federal and state If you work one year, but are not paid for that work until the next year, the amount you can exclude in the year you are paid is the amount you could have excluded in the year you did the work if you had been paid in that year. Efile free federal and state For an exception to this general rule, see Year-end payroll period, later. Efile free federal and state Example. Efile free federal and state You were a bona fide resident of Brazil for all of 2012 and 2013. Efile free federal and state You report your income on the cash basis. Efile free federal and state In 2012, you were paid $84,200 for work you did in Brazil during that year. Efile free federal and state You excluded all of the $84,200 from your income in 2012. Efile free federal and state In 2013, you were paid $117,300 for your work in Brazil. Efile free federal and state $18,800 was for work you did in 2012 and $98,500 was for work you did in 2013. Efile free federal and state You can exclude $10,900 of the $18,800 from your income in 2013. Efile free federal and state This is the $95,100 maximum exclusion in 2012 minus the $84,200 actually excluded that year. Efile free federal and state You must include the remaining $7,900 in income in 2013 because you could not have excluded that income in 2012 if you had received it that year. Efile free federal and state You can exclude $97,600 of the $98,500 you were paid for work you did in 2013 from your 2013 income. Efile free federal and state Your total foreign earned income exclusion for 2013 is $108,500 ($10,900 for work you did in 2012 and $97,600 for work you did in 2013). Efile free federal and state You would include in your 2013 income $8,800 ($7,900 for the work you did in 2012 and $900 for the work you did in 2013). Efile free federal and state Year-end payroll period. Efile free federal and state   There is an exception to the general rule that income is considered earned in the year you do the work for which you receive the income. Efile free federal and state If you are a cash-basis taxpayer, any salary or wage payment you receive after the end of the year in which you do the work for which you receive the pay is considered earned entirely in the year you receive it if all four of the following apply. Efile free federal and state The period for which the payment is made is a normal payroll period of your employer that regularly applies to you. Efile free federal and state The payroll period includes the last day of your tax year (December 31 if you figure your taxes on a calendar-year basis). Efile free federal and state The payroll period is not longer than 16 days. Efile free federal and state The payday comes at the same time in relation to the payroll period that it would normally come and it comes before the end of the next payroll period. Efile free federal and state Example. Efile free federal and state You are paid twice a month. Efile free federal and state For the normal payroll period that begins on the first of the month and ends on the fifteenth of the month, you are paid on the sixteenth day of the month. Efile free federal and state For the normal payroll period that begins on the sixteenth of the month and ends on the last day of the month, you are paid on the first day of the following month. Efile free federal and state Because all of the above conditions are met, the pay you received on January 1, 2013, is considered earned in 2013. Efile free federal and state Income earned over more than 1 year. Efile free federal and state   Regardless of when you actually receive income, you must apply it to the year in which you earned it in figuring your excludable amount for that year. Efile free federal and state For example, a bonus may be based on work you did over several years. Efile free federal and state You determine the amount of the bonus that is considered earned in a particular year in two steps. Efile free federal and state Divide the bonus by the number of calendar months in the period when you did the work that resulted in the bonus. Efile free federal and state Multiply the result of (1) by the number of months you did the work during the year. Efile free federal and state This is the amount that is subject to the exclusion limit for that tax year. Efile free federal and state Income received more than 1 year after it was earned. Efile free federal and state   You cannot exclude income you receive after the end of the year following the year you do the work to earn it. Efile free federal and state Example. Efile free federal and state   You were a bona fide resident of Sweden for 2011, 2012, and 2013. Efile free federal and state You report your income on the cash basis. Efile free federal and state In 2011, you were paid $69,000 for work you did in Sweden that year and in 2012 you were paid $74,000 for that year's work in Sweden. Efile free federal and state You excluded all the income on your 2011 and 2012 returns. Efile free federal and state   In 2013, you were paid $92,000; $82,000 for your work in Sweden during 2013, and $10,000 for work you did in Sweden in 2011. Efile free federal and state You cannot exclude any of the $10,000 for work done in 2011 because you received it after the end of the year following the year in which you earned it. Efile free federal and state You must include the $10,000 in income. Efile free federal and state You can exclude all of the $82,000 received for work you did in 2013. Efile free federal and state Community income. Efile free federal and state   The maximum exclusion applies separately to the earnings of spouses. Efile free federal and state Ignore any community property laws when you figure your limit on the foreign earned income exclusion. Efile free federal and state Part-year exclusion. Efile free federal and state   If the period for which you qualify for the foreign earned income exclusion includes only part of the year, you must adjust the maximum limit based on the number of qualifying days in the year. Efile free federal and state The number of qualifying days is the number of days in the year within the period on which you both: Have your tax home in a foreign country, and Meet either the bona fide residence test or the physical presence test. Efile free federal and state   For this purpose, you can count as qualifying days all days within a period of 12 consecutive months once you are physically present and have your tax home in a foreign country for 330 full days. Efile free federal and state To figure your maximum exclusion, multiply the maximum excludable amount for the year by the number of your qualifying days in the year, and then divide the result by the number of days in the year. Efile free federal and state Example. Efile free federal and state You report your income on the calendar-year basis and you qualified for the foreign earned income exclusion under the bona fide residence test for 75 days in 2013. Efile free federal and state You can exclude a maximum of 75/365 of $97,600, or $20,055, of your foreign earned income for 2013. Efile free federal and state If you qualify under the bona fide residence test for all of 2014, you can exclude your foreign earned income up to the 2014 limit. Efile free federal and state Physical presence test. Efile free federal and state   Under the physical presence test, a 12-month period can be any period of 12 consecutive months that includes 330 full days. Efile free federal and state If you qualify for the foreign earned income exclusion under the physical presence test for part of a year, it is important to carefully choose the 12-month period that will allow the maximum exclusion for that year. Efile free federal and state Example. Efile free federal and state You are physically present and have your tax home in a foreign country for a 16-month period from June 1, 2012, through September 30, 2013, except for 16 days in December 2012 when you were on vacation in the United States. Efile free federal and state You figure the maximum exclusion for 2012 as follows. Efile free federal and state Beginning with June 1, 2012, count forward 330 full days. Efile free federal and state Do not count the 16 days you spent in the United States. Efile free federal and state The 330th day, May 12, 2013, is the last day of a 12-month period. Efile free federal and state Count backward 12 months from May 11, 2013, to find the first day of this 12-month period, May 12, 2012. Efile free federal and state This 12-month period runs from May 12, 2012, through May 11, 2013. Efile free federal and state Count the total days during 2012 that fall within this 12-month period. Efile free federal and state This is 234 days (May 12, 2012 – December 31, 2012). Efile free federal and state Multiply $95,100 (the maximum exclusion for 2012) by the fraction 234/366 to find your maximum exclusion for 2012 ($60,802). Efile free federal and state You figure the maximum exclusion for 2013 in the opposite manner. Efile free federal and state Beginning with your last full day, September 30, 2013, count backward 330 full days. Efile free federal and state Do not count the 16 days you spent in the United States. Efile free federal and state That day, October 20, 2012, is the first day of a 12-month period. Efile free federal and state Count forward 12 months from October 20, 2012, to find the last day of this 12-month period, October 19, 2013. Efile free federal and state This 12-month period runs from October 20, 2012, through October 19, 2013. Efile free federal and state Count the total days during 2013 that fall within this 12-month period. Efile free federal and state This is 292 days (January 1, 2013 – October 19, 2013). Efile free federal and state Multiply $97,600, the maximum limit, by the fraction 292/365 to find your maximum exclusion for 2013 ($78,080). Efile free federal and state Choosing the Exclusion The foreign earned income exclusion is voluntary. Efile free federal and state You can choose the exclusion by completing the appropriate parts of Form 2555. Efile free federal and state When You Can Choose the Exclusion Your initial choice of the exclusion on Form 2555 or Form 2555-EZ generally must be made with one of the following returns. Efile free federal and state A return filed by the due date (including any extensions). Efile free federal and state A return amending a timely-filed return. Efile free federal and state Amended returns generally must be filed by the later of 3 years after the filing date of the original return or 2 years after the tax is paid. Efile free federal and state A return filed within 1 year from the original due date of the return (determined without regard to any extensions). Efile free federal and state Filing after the above periods. Efile free federal and state   You can choose the exclusion on a return filed after the periods described above if you owe no federal income tax after taking into account the exclusion. Efile free federal and state If you owe federal income tax after taking into account the exclusion, you can choose the exclusion on a return filed after the periods described earlier if you file before the IRS discovers that you failed to choose the exclusion. Efile free federal and state Whether or not you owe federal income tax after taking the exclusion into account, if you file your return after the periods described earlier, you must type or legibly print at the top of the first page of the Form 1040 “Filed pursuant to section 1. Efile free federal and state 911-7(a)(2)(i)(D). Efile free federal and state ” If you owe federal income tax after taking into account the foreign earned income exclusion and the IRS discovered that you failed to choose the exclusion, you may still be able to choose the exclusion. Efile free federal and state You must request a private letter ruling under Income Tax Regulation 301. Efile free federal and state 9100-3 and Revenue Procedure 2013-1, 2013-1 I. Efile free federal and state R. Efile free federal and state B. Efile free federal and state 1, available at www. Efile free federal and state irs. Efile free federal and state gov/irb/2013-01_IRB/ar06. Efile free federal and state html. Efile free federal and state Effect of Choosing the Exclusion Once you choose to exclude your foreign earned income, that choice remains in effect for that year and all later years unless you revoke it. Efile free federal and state Foreign tax credit or deduction. Efile free federal and state  
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Efile free federal and state Publication 583 - Introductory Material Table of Contents Introduction Introduction Table 1. Efile free federal and state What New Business Owners Need To Know About Federal Taxes   (Note: This table is intended to help you, as a new business owner, learn what you need to know about your federal tax responsibilities. Efile free federal and state To use it, ask yourself each question in the left column, then see the related discussion in the right column. Efile free federal and state ) What Must I Know? Where To Find the Answer Which form of business will I use? See Forms of Business. Efile free federal and state Will I need an employer identification number (EIN)? See Identification Numbers. Efile free federal and state Do I have to start my tax year in January, or may I start it in any other month? See Tax Year. Efile free federal and state What method can I use to account for my income and expenses? See Accounting Method. Efile free federal and state What kinds of federal taxes will I have to pay? How should I pay my taxes? See Business Taxes. Efile free federal and state What must I do if I have employees? See Employment Taxes. Efile free federal and state Which forms must I file? See Table 2 and Information Returns. Efile free federal and state Are there penalties if I do not pay my taxes or file my returns? See Penalties. Efile free federal and state What business expenses can I deduct on my federal income tax return? See Business Expenses. Efile free federal and state What records must I keep? How long must I keep them? See Recordkeeping. Efile free federal and state This publication provides basic federal tax information for people who are starting a business. Efile free federal and state It also provides information on keeping records and illustrates a recordkeeping system. Efile free federal and state Throughout this publication we refer to other IRS publications and forms where you will find more information. Efile free federal and state In addition, you may want to contact other government agencies, such as the Small Business Administration (SBA). Efile free federal and state See How To Get More Information later. Efile free federal and state Comments and suggestions. Efile free federal and state   We welcome your comments about this publication and your suggestions for future editions. Efile free federal and state   You can write to us at the following address: Internal Revenue Service Business Forms and Publications Branch SE:W:CAR:MP:T:B 1111 Constitution Ave. Efile free federal and state NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Efile free federal and state Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Efile free federal and state   You can email us at taxforms@irs. Efile free federal and state gov. Efile free federal and state Please put “Publications Comment” on the subject line. Efile free federal and state You can also send us comments from www. Efile free federal and state irs. Efile free federal and state gov/formspubs, select “Comment on Tax Forms and Publications” under “Information about. Efile free federal and state ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Efile free federal and state Ordering forms and publications. Efile free federal and state Visit www. Efile free federal and state irs. Efile free federal and state gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received. Efile free federal and state Internal Revenue Service 1201 N. Efile free federal and state Mitsubishi Motorway Bloomington, IL 61705–6613 Tax questions. Efile free federal and state   If you have a tax question, check the information available on IRS. Efile free federal and state gov or call 1-800-829-1040. Efile free federal and state We cannot answer tax questions sent to either of the above addresses. Efile free federal and state Future Developments. Efile free federal and state   The IRS has created a page on IRS. Efile free federal and state gov for information about Publication 583 at www. Efile free federal and state irs. Efile free federal and state gov/pub583. Efile free federal and state Information about any future developments affecting Publication 583 (such as legislation enacted after we release it) will be posted on that page. Efile free federal and state Prev  Up  Next   Home   More Online Publications