Form 2350 Abroad 2023-2024

Hello, I'm Richard, boss at your expatriate tax consultant. I want to discuss today income in excess of the excluded amount. Assuming you're a qualified resident overseas and you made more than $85,700 last year, plus the excess housing allowance. If you're lucky enough to have income above that amount, we can eliminate the US tax obligation on that amount by using Form 1116, the direct foreign tax credit. Now, to get started, you take the excess foreign earned income (the amount above the excluded amount) and you put that on Form 1116, according to general purpose income, which includes foreign earned income and passive foreign source income. This income has no exclusion amount, but it can be covered by your foreign taxes. You divide that up on Form 1116 based on your country and then the next step is to take your total foreign taxes paid, which is usually in several lumps according to local, state, or federal tax, and combine them into one big lump of foreign tax. You then prorate that lump sum over the different kinds of income that you have. You have to take the portion that's attributable to your excluded income and get rid of it. You can't get two credits for it. The rest can be applied pro rata to your excess foreign earned income and your foreign passive income. In the past, the tax rate on your excess foreign earned income started again at zero on the US tax rate table, but Congress changed that in 2007. Now, you have to add back the excluded income to determine the rate of US tax on the excess foreign earned income. Then, you subtract the excluded amount and apply that higher rate to the excess. This is all done on Form 1116. Unfortunately, the tax...