How Foreign Earned Income Exclusion Does Reduce Tax For Expats?

In the year 2018, if you qualify for the foreign earned income exclusion, you can exclude the first $104,100 of your income earned from a foreign country from your federal income tax. Even, you can double this money, if both you and your spouse are employed overseas and earn. However, to double the exclusion, it is important that your spouse will also have a qualifying foreign income.

foreign earned income exclusion

Increasing foreign earned income exclusion:

The relaxing thing for you is that the excluded amount is increased every year to reflect the increasing cost of living because of the inflation. Here is the list of amounts excluded for the past 5 years:

  • 2018 – $104,100
  • 2017 – $102,100
  • 2016 – $101,300
  • 2015 – $100,800
  • 2014 – $99,200

You can very well understand from the date above that you can get better foreign earned income exclusion the next year as well.

Foreign Housing Credit to increase foreign earned income exclusion:

In most instances, you can also qualify for a foreign housing credit. You can add this amount on top of the foreign earned income exclusion. It will be possible for you to exclude anything that you paid for housing more than 16% of FEIE. In general, the more expensive your housing, the better you will get. For instance, if you live in Japan, you will be able to claim a smaller housing credit as compared to those living in Costa Rica.

Who will benefit the most from Foreign Earned Income Exclusion?

This exclusion will mainly benefit businesses that do not rely on any location like freelancers, Amazon sellers, internet business owners and consultants. In addition, it will help those practicing flag theory, perpetual travelers and digital nomads. It will also benefit someone, who is living in a country with tax rates lower than that of the United States or even those living in the country without any tax at all.

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