Expat Tax Preparation - All you need to know about the Bona Fide Residence Test

by Charles andrew Professional services

In addition to providing reasonably comprehensive tax information for American Expats, we seek to provide the best resources for US Expats, to help them save up on their tax payments. Here, we will inform you about the Bona Fide Resident Test that can help you attain exclusion from foreign earned income and foreign housing. Yes, you absolutely have to take the bona fide resident test, because you won’t automatically gain the bona fide residence test by residing abroad for a year or more.

How can you qualify for it?

To qualify for the bona fide residence test, you have to be a bona fide resident of a foreign country for a continuous uninterrupted period. This period should last the duration of a complete tax year, i.e. January 1 – December 31. Thus, when you go to a foreign country and you know that your stay is going to span an entire tax year, you must establish your residence in that country.

You must beware that you must not make a statement to the authorities of a foreign country that you are not their country’s resident, because the authorities may then determine that you cannot be subjected to their income tax laws.

However, you must bear in mind, that you are only eligible for this test if you are a US citizen, or are a US resident alien. This must be the case despite of you being a national of a foreign country, which has an active income tax treaty with the US.

Factors in consideration

US Expats simply do not get a bona fide resident status by virtue of their US citizenship; it differs from case to case. The IRS takes into account other factors as well. The IRS considers the prime purpose of your visit to a foreign country, the length of your stay in that country, and the nature of work that you do there, before determining your applicability for the bona fide residence test.

You must hence report to the IRS that you have been in effect, a bona fide resident of a foreign country throughout the duration of a whole tax year, and report all the facts to them on Form 2555. The IRS will then evaluate your case according to their criterion.

Benefits of the Bona Fide Residence Test

You might be wondering why you absolutely need to apply for the bona fide residence test – well, first of all, expats can really gain from getting the status of a bona fide resident. It helps them save tax by maximizing exclusion from foreign earned income and foreign housing. This essentially assists you to avoid double taxation.

Even if you leave the foreign country for short business trips or vacations, you can still qualify for the test, as long as you fill all the other relevant criterion.

If you are a resident alien, you have sufficient time at hand to check out your circumstances. You can utilize this time and see if you can be eligible to apply for the bona fide residence test this tax-year. Feel free to contact us if you have any queries, or need more information regarding the test.

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