Good news, the Foreign Earned Income Exclusion for 2016 has increased by $500 to $101,300.
The International Revenue Services has increased Foreign Earned Income Exclusion in 2016 to $101,300, up from $100,800 for 2015. This means that you can earn a salary from your employer, or from your own corporation, of up to $101,300 free of Federal income Tax if you qualify for the FEIE in 2016.
The FEIE is still the most important tax break for Americans living, working and doing business abroad.
The US taxes its citizens on our worldwide income. If you qualify for the FEIE, you can deduct your first $101,300. If your salary is more than the FEIE, you may still get the joy of paying in to the US system.
The 2016 FEIE gives you exclusion on your personal income tax. If your income is $250,000, you pay personal income tax on $250,000 minus $101,300 or $148,700.
Note that the Foreign Earned Income Exclusion for 2016 covers Federal income tax only. If you are self-employed, or operating a business abroad without an offshore corporation, you will pay 15% in self-employment tax. Likewise, if you are employed by a US corporation, you will pay US social taxes.
If you are operating a business outside of the US, you should be doing that through an offshore company. This will save you on SE tax and maximize the benefit of the Foreign Earned Income Exclusion.
My posts on the Foreign Earned Income Exclusion for entrepreneurs include:
- Foreign Earned Income Exclusion Basics
- Benefits of an Offshore Corporation
- How to Prorate the FEIE
- Tax Benefits of Going Offshore
- Eliminate U.S. Tax in 5 Steps with an Offshore Corporation
Please send an email to firstname.lastname@example.org if you have questions about forming an offshore corporation or maximizing the FEIE as an entrepreneur.