According to the recently announced annual inflation adjustments for 2013 by the IRS, US Expats and stateside taxpayers in certain tax brackets will enjoy an even higher tax savings than in previous years while taxpayers in higher tax brackets will experience more limitations. Here is a list of updated exclusion and deduction amounts which will impact your US expat tax return for 2013.
- The Foreign Earned Income Exclusion amount was increased from $95,100 ($190,200 for couples who are married and filing a joint return) in 2012 to $97,600 ($195,200 for couples who are married and filing a joint return) in 2013.
- The Alternative Minimum Tax exemption amount has increased from $50,600 ($78,750 for couples who are married and filing a joint return) in 2012 to $51,900 ($80,800 for couples who are married and filing a joint return) in 2013. The increase was established by the American Taxpayer Relief Act of 2012, and increases are expected to occur in future years with inflation.
- Another result of the American Taxpayer Relief Act of 2012 is that of a limitation being set on the amount of itemized deductions that taxpayers with an income of $250K ($300K for couples who are married and filing a joint return) or more are able to claim.
- The standard deduction has increased from $5,950 ($11,900 for couples who are married and filing a joint return) in 2012 to $6,100 ($12,200 for couples who are married and filing a joint return) in 2013.
Understanding the Foreign Earned Income Exclusion
The Foreign Earned Income Exclusion, or FEIE, is sometimes a large area of confusion for American Expats. It’s important to understand that – for one reason or another – not every US Expat will qualify for the FEIE. In order to qualify, the following conditions must be met:
In addition to the FEIE amount being raised, the Foreign Housing Allowance is also increased by default, since the Foreign Housing Allowance is calculated based on your FEIE. The Foreign Housing Allowance allows you to deduct certain housing expenses incurred throughout the year, and you are allowed to claim up to 30% of the amount claimed in your FEIE. For example, if you had $80K in foreign income and you claimed the entire amount on your US expat tax return, you will be able to deduct up to $24K ($80K x .3) on your Foreign Housing Deduction. Because this amount is based on your FEIE, it will be different for every US Expat. Additional adjustments are made to the allowable amount based on where in the world you live.
Completing a US expat tax return isn’t always easy, and it can be difficult to understand the intimate details of each available deduction. If you need help understanding these tax changes and how they affect you, make sure to contact one of our tax professionals at Taxes for Expats today.
I.J. Zemelman, EA is the founder of Taxes for Expats