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  Dear
Tax Talk,
I have been living and working in the Czech Republic for a U.S.
company. I arrived in country on July 1, 2004, and will remain in
country through July 1, 2005, and possibly through Jan. 1, 2006.
Does this situation qualify me as a bona fide resident, or am I
just considered a person with physical residence status? Thanks.
-- George
 Dear
George,
As a U.S. citizen or resident, you have to continue to file and
pay taxes on your worldwide income while abroad. One benefit afforded
taxpayers abroad is an annual exemption of up to $80,000 on foreign
earned income. Earned income is income you work for, such as wages
or salary.
You
qualify to claim the exclusion if you're either considered a bona fide resident
of a foreign country or if you're physically present in the other country for
a period of 330 days within 12 consecutive months. Generally, only a U.S. citizen
can be considered a bona fide resident of another country. A U.S. resident would
have to meet the physical presence test in order to claim the exclusion.
You are considered a bona fide resident if you maintain
your tax home outside of the United States for an entire tax year.
In your case, you would not meet this test until 2005 and only then
if you get extended through January 2006. The advantage of bona
fide resident over physical presence is that the former would allow
you to exceed 35 days in the United States, provided that your trips
back home were of a temporary nature.
Under the physical presence test, you could claim
the exclusion if you were outside the United States for 330 days
in a 12-month period. The 12 months do not have to be all within
the same tax year. In your case, you would count from July 1, 2004
through June 30, 2005 to see if you meet the test. If you did not
return to the United States in that period, or if you did so for
35 days or less, you would be eligible for the exclusion under the
physical presence test.
Your maximum exclusion in 2004 would be based on the
number of days in 2004 that you were outside the United States (July
1 to Dec. 31), divided by 366 days in 2004, multiplied by the maximum
exclusion of $80,000. So for 2004, under the physical presence test
you would claim an exclusion on up to $40,000 in foreign wages.
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