Episode 035: Living Tax Free While Traveling the World

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Listener Mack Hackett was the Most Engaged Listener on the Popcorn Finance Anchor Station for four days in a row.  For this amazing feat I promised Mack an episode based around the topic of his choice.  

Of course Mack hit me with a topic that I knew nothing about, the Foreign Earned Income Exclusion.  So I brought is Megan Brinsfield, Director of Financial Planning at Motley Fool Wealth Management, to help break down what the FEIE is all about.

Follow Megan at @CertifiablePF




Foreign Earned Income Exclusion – What is it?

  • Exclude up to $104,100 (in 2018, adjusted for inflation) of your earned income from taxation
  • Unearned income is not eligible (withdrawals from retirement accounts, pensions, capital gains, rental income)
  • You also may qualify to exclude housing costs from taxation if you pay for housing from “employer provided amounts”
  • There is a floor and a ceiling on housing costs, based on location

How to qualify 

Mainly for expats working abroad as an employee of a company, but self-employment counts too.

  • Establish a tax home in another country
  • Be physically in a foreign country (or countries) for a year
    • Two methods
      • Physical presence test (330/365 days)
      • Bona Fide Residence test (calendar year)
  • Does not apply if you are an employee of the federal government

How to claim it

  • Form 2555 to claim the exclusion
  • Form 2350 to file for an extension in order to meet one of the tests

Where to get more info

Apps to track days out of the country

Most of these types of apps use the phone’s GPS to provide an audit log

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