How to Exempt Income From Working Overseas on Form 1040
- 1). Examine your passport to determine the total number of days you spent abroad during the tax year and the immediately preceding year. Use this information to calculate the fraction of the tax year you spent abroad -- 1/2 for six months, for example.
- 2). Determine if you qualify for the foreign earned income exclusion by applying the physical presence test or the bona fide residence test to your residence abroad. If you spent your time in a single foreign country on a resident visa, you are more likely to qualify under the bona fide residence test. Otherwise, you are more likely to qualify under the physical presence test. To qualify under the physical presence test, you must have spent at least 330 days abroad during a 12-month period that includes at least part of the tax year.
- 3). Multiply the foreign earned income exclusion ($91,500 for the 2010 tax year and $183,000 for married taxpayers filing jointly) by the fraction of the tax year you spend abroad. The result is your income exclusion.
- 4). Complete IRS Form 2555 using the calculations.
- 5). Insert the amount of your foreign earned income exclusion into Line 21 of IRS Form 1040 in parentheses. Next to the amount, enter "Form 2555".
- 6). File Form 2555 and Form 1040 together. If you live in the U.S., send them to your regional IRS service center. If you live abroad, send them to the IRS service center at Austin, Texas 73301-0215.
