Foreign Earned Income Exclusion

[JkobM97]

Hello, I am a U.S. citizen working in Iraq, I've been here since 08/26/2021 and i'm still currently in Iraq, planning to leave 07/31/2023. On last year's taxes I filed an extension, and when I finished filing my taxes, I placed 08/25/2022 as the end for the period for the exclusion, which all was fine and it went through. I was guessing that this next period for exclusion for this years taxes I will have to put down 08/25/2022, using last years end of the period as this years start of the period; though, I wasn't sure, and I would love and appreciate any insight into that. Also, I wanted to file an extension again, and finish filing 08/24/2023, but I will be leaving Iraq 07/31/2023. Weird question I'm sure, and I apolpgize for my ignorance, but Is something like that allowed? 

Also, just an fyi, my time here has been consecutive, as I haven't left Iraq at all and don't plan to until I actually leave on the planned date of 07/31/2023.

[RalphH1 · Accepted solution]

The "Physical Presence Test" rules actually allow you to overlap the 12-month periods in consecutive calendar years (as the IRS tells us in Publication 54). And although you’re allowed to choose any 12-month period, it’s best to include as many days in the current tax year as possible, as Form 2555 adjusts your exclusion(s) according to the percentage of the total days in the year that you were out of the U.S. So 1/1/2022 to 12/31/2022 would be best for you this year (your current 2022 return), and it’s definitely allowed!

Those same rules make next year’s return a little complicated, but in a good way(!). Since your 12-month period doesn’t have to end on the date you leave, you’ll be able to move the period back, to include more days of 2023. I’m thinking 9/4/2022 to 9/3/2023 gives you the best outcome (assuming you actually leave on July 31, so you’re not there midnight to midnight that day). Of course, if your departure date changes, you’ll want to do some math or contact us if things aren’t completely clear…

Also, assuming you filed the extension last year to get your Physical Presence Test met first (which many people do), that would not be needed this time around, as you’ve already met the test for your 2022 return with the minimum 330 days out of the calendar year itself.  (Of course, that doesn’t mean you can’t still file one for any other reason, including just your personal preference on the timing.) I hope this is all clear, but don’t hesitate to confer with us some more if needed, jkobM97!

[JkobM97]

Hello for next years taxes, when i get the return for 2023, would it be better to put down 7/31/2022 to 7/31/2023? 7/31/2023 is when I'm leaving, but I saw you said 9/2022 to 9/2023, and that seemed like that would place me with two months not in country and would throw it off. I apologize, I'm ignorant to this, and I appreciate all your help, I just wanted to grasp a real understanding.

[JkobM97]

Nevermind, I believe I understand 9/4/2022 - 9/3/2023 would set me with 35 days back in the U.S., which 36 is what is allowed in the period, and August could be included within the income exlcusion of that year.