Form 2555, Foreign Earned Income Exclusion
If you meet certain tests related to the length and nature of your stay in a foreign country, you may qualify to exclude some of your foreign earned income from your return, and you may also be able to exclude or deduct some of your reimbursed housing costs. You cannot exclude or deduct more than your foreign earned income for the year. For 2012, the maximum foreign earned income exclusion is $95,100.
You qualify for the tax benefits available to taxpayers who have foreign earned income if both of the following apply.
- You meet the tax home test (see below).
- You meet either the bona fide residence test or the physical presence test (see below).
Form 2555 and TurboTax
Form 2555 can be one of the most complex forms to complete when preparing your return, but don't worry! When you use TurboTax to prepare your taxes, we’ll ask you questions about your foreign earned income, figure out how much you can exclude, and fill in all the right forms for you.
If you've already gone through the step-by-step interview and want to jump directly to the entry screen for Form 2555, follow these directions:
- Select the Federal Taxes tab (the Personal tab in the Home & Business edition).
- Select the Wages & Income subtab, click on Explore on My Own.
- Scroll down the Wages & Income screen until you see the Less Common Income group.
- Click on the Start/Update button to the right of the Foreign Earned Income and Exclusions category.
- Follow the prompts.
The Tax Home Test
The Bona Fide Residence Test
Whether you are a bona fide resident of a foreign country depends on your intention about the length and nature of your stay. Evidence of your intention may be your words and acts. If these conflict, your acts carry more weight than your words.
Generally, if you go to a foreign country for a definite, temporary purpose and return to the United States after you accomplish it, you are not a bona fide resident of the foreign country. If accomplishing the purpose requires an extended, indefinite stay, and you make your home in the foreign country, you may be a bona fide resident.
See IRS Pub 54 for more information and examples.