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The maximum exclusion is $126,500 for tax year 2024 (future years indexed for inflation). [3] The amount of exclusion that a taxpayer is entitled to is equal to the lesser of foreign earned income for the year or the maximum exclusion, divided by the total number of days (365 or 366) in the year times the number of "qualifying days".
The foreign tax deduction applies to all taxes paid to a foreign country including VAT, sales taxes and property taxes. And for individuals working abroad, the Foreign Earned Income Exclusion ...
The provision increases the Foreign Earned Income Exclusion (FEIE) and advances the inflation-adjustment provision that was set to begin in 2008. However, the Act also includes a "stacking provision" that requires the FEIE to be excluded against the lowest tax brackets first.
In 2024, federal income tax rates remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. While these rates stay the same for 2025, the income thresholds for each bracket will adjust for inflation.
A federal foreign tax credit is granted for foreign income taxes. Individuals residing abroad may also claim the foreign earned income exclusion. Individuals may be a citizen or resident of the United States but not a resident of a state. Many states grant a similar credit for taxes paid to other states.
The IRS also requires foreign taxes to be “basketed” or divided into different categories based on the type of income on which they were paid. These baskets include general, passive and branch ...
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Form 8873 is attached to the taxpayers income tax return. Both corporate and non-corporate taxpayers who have qualifying transactions may now be required to file Form 8873. The exclusion reported on Form 8873 was created by the Foreign Sales Corporation (FSC) Repeal and Extraterritorial Income Exclusion Act of 2000. The new exclusion applies to ...
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