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Foreign Earned Income and Exclusion - Can I reduce the amount excluded?

Hello,

I am trying to reduce the amount of the Foreign Earned Income and Exclusion within the turbotax app. In other words I do not wish to exclude my entire Foreign Earned Income. Is this possible? The reason I ask is I contributed to my Regular IRA in 2023 and Turbotax is telling me "Your IRA Contribution Isn't Permitted" due to more than my earned income (as a result of the FEI Exclusion). 

 

Thanks you in advance for your advice and feedback. 

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4 Replies
pk
Level 15
Level 15

Foreign Earned Income and Exclusion - Can I reduce the amount excluded?

@WiredShut , if the base question ( ignoring the reason i.e. to influence the eligibility of  IRA contribution ) is can one choose to exclude  ONLY a part of Foreign Earned Income,  the answer would be of course you can.  Thus you would have  both  FEIE and a larger unexcluded income  (being taxed by both your  Tax-Home country and the US ).   Note that for US tax purposes, the tax bracket is  based on your total world income ( i.e. including the income excluded by FEIE).   Therefore  ( and  because my knowledge on IRAs and other tax advantaged schemes is limited ) I am not sure that you would achieve  the benefit you are seeking.  I generally defer to  @dmertz  on Pensions etc.

 

Is there more I can do for you ?

 

Foreign Earned Income and Exclusion - Can I reduce the amount excluded?

from 2555 instructions

Foreign Earned Income
Enter in this part the total foreign earned income you earned and
received (including income constructively received) during the
tax year. If you are a cash basis taxpayer, include in income on
Form 1040 or 1040-SR the foreign earned income you received
during the tax year regardless of when you earned it.

 

from from 2555 part IV

Note: Enter on lines 19 through 23 all income, including noncash income, you earned and actually or constructively received during your 2023 tax year for services you performed in a foreign country. If any of the foreign earned income received this tax year was earned in a prior tax year, or will be earned in a later tax year (such as a bonus), see the instructions. Don’t include income from line 14, column (d), or line 18, column (f). Report amounts in U.S. dollars, using the exchange rates in effect when you actually or constructively received the income. If you are a cash basis taxpayer, report on Form 1040 or 1040-SR all income you received in 2023, no matter when you performed the service.

 

 

 

it's an all or nothing election. the FEIE is voluntary in which case perhaps taking the foreign tax credit, if available, is better.  

Foreign Earned Income and Exclusion - Can I reduce the amount excluded?

Hello @pk PK. This makes sense, thank you for sharing that with me. I am in fact able to use the unexcluded income to achieve  the benefit I am seeking. Cheers!

Foreign Earned Income and Exclusion - Can I reduce the amount excluded?

Hello @Mike9241 Thank you for the info provided! Indeed it's all or nothing 🙂 

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