We get the question “Do I Qualify for the foreign earned income exclusion?” pretty often, specially from members of the armed forces. Remember you can take an online assesment of your eligibility using our Foreign Earned Income Exclusion Online Eligibility test.
Being a US government employee, a member of the armed forces is not eligible for the foreign earned income exclusion. However they can still take advantage of a tax break that extends their due date for both filing their return and paying their income tax if they work in a Combat zone. It might not be as great as the Foreign Earned Income Exclusion which allows your first $91.4K earned abroad to be tax free… But think about how much your tax is – then simply invest it in any financial instrument instead of sending it to the IRS and you can keep the earnings. See the Internal Revenue Code Sec. 7508 TIME FOR PERFORMING CERTAIN ACTS POSTPONED BY REASON OF SERVICE IN COMBAT ZONE OR CONTINGENCY OPERATION.
Now, if you are not a government employee, but an independent contractor, pending an analysis of your employment relationship you can expect to qualify for the foreign earned income exclusion as well as this extension to file and pay. Not only will your first $91.4K (2009) be excluded but you can also earn financial performance by investing your tax due instead of sending it to the IRS. You should still have your tax returns prepared, so you can properly plan the amount to invest, you just won’t have to file them or pay any amounts until 180 days after you return from the combat zone.
7508(a)Time To Be Disregarded.—
In the case of an individual serving in the Armed Forces of the United States, or serving in support of such Armed Forces, in an area designated by the President of the United States by Executive order as a “combat zone” for purposes of section 112, or when deployed outside the United States away from the individual’s permanent duty station while participating in an operation designated by the Secretary of Defense as a contingency operation (as defined in section 101(a)(13) of title 10, United States Code) or which became such a contingency operation by operation of law, at any time during the period designated by the President by Executive order as the period of combatant activities in such zone for purposes of such section or at any time during the period of such contingency operation, or hospitalized as a result of injury received while serving in such an area or operation during such time, the period of service in such area or operation, plus the period of continuous qualified hospitalization attributable to such injury, and the next 180 days thereafter, shall be disregarded in determining, under the internal revenue laws, in respect of any tax liability (including any interest, penalty, additional amount, or addition to the tax) of such individual.
Contact us if you have questions regarding the Foreign Earned Income Exclusion.