 Qualifying
for foreign income exclusion
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 Dear
Tax Talk,
Both my spouse and I are green-card holders. I have been posted
abroad from June 2005, for a period of two years, and I will be
abroad for at least 330 days in a year. My wife is still in the
United States and will join me abroad in August 2005. Therefore,
she will not have been abroad for 330 days when we file our taxes
for 2005.
Will I be able to qualify for the $80,000 exclusion
on foreign earnings in spite of my wife not having been abroad for
at least 330 days? We file joint returns. Thanks. -- Ram
 Dear
Ram,
Would you still bring your wife if I told you it didn't matter?
A green-card resident can exclude up to $80,000 annually in wages
earned abroad if he is substantially present outside the United
States. Under the substantial-presence test, you have to reside
outside the United States for 330 days in a 12-month period that
can span two tax years. There is no requirement that you live abroad
with your family.
In your case, if you are outside the United States starting on
June 1, 2005, you'll meet the 330 days by April 27, 2006 if you
do not return to the States during these months. Because you are
living abroad, your 2005 return will have an automatic extension
until June 15, 2006. If your wife wants to qualify in 2005 for the
foreign earned income exclusion and she does not meet the 330 days
by the due date of the return, you'll need to file an extension
on Form
4868.
You should be aware that your 2005 exclusion and your wife's will
not be the entire $80,000. In 2005, your exclusion is based on the
number of days you were abroad in 2005, divided by 365 days. From
June 1 to Dec. 31 there are 213 days, so your exclusion is 213/365
multiplied by $80,000, which equals a maximum 2005 exclusion of
$46,685. Your wife's exclusion would be similarly computed, but
based on her number of days abroad. Use Form
2555 to claim the foreign earned income exclusion.
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