Tax Deduction for Living Overseas

The federal government has a deduction available for people who work overseas called the Foreign Earned Income Exclusion. To qualify you must (i) work full time inside a foreign country for a full calendar year (called the bona fide residence test), or (ii) work outside of the USA for 330 days out of any 365 day period (called the physical presence test). The income must be earned to qualify for the exclusion. This means it has to be wages and can’t be real estate income, interest, dividends, etc. The IRS pays close attention when you claim it, so you must be able to validate your days out of the country. However, if you qualify you can exclude up to $108,700 of earnings for 2021. That being said, the deduction is complex (i.e. you’ll likely still need to pay self-employment taxes) so it is best to consult a tax professional if you think you qualify.