1. What is the Foreign Earned Income Exclusion (FEIE) and how does it benefit U.S. citizens living in Sweden?
The Foreign Earned Income Exclusion (FEIE) is a tax provision that allows U.S. citizens living abroad to exclude a certain amount of their foreign earned income from U.S. taxation. For the tax year 2021, the maximum exclusion amount is $108,700. This means that U.S. citizens living in Sweden can exclude up to this amount of their income earned in Sweden from U.S. federal income tax, potentially leading to significant tax savings.
To qualify for the FEIE, U.S. expats must meet either the Physical Presence Test or the Bona Fide Residence Test. The Physical Presence Test requires the individual to be physically present in a foreign country for at least 330 full days in a 12-month period. The Bona Fide Residence Test, on the other hand, is based on establishing a bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year.
By taking advantage of the FEIE, U.S. citizens living in Sweden can reduce their overall tax liability, potentially eliminating U.S. federal income tax on their foreign earned income up to the maximum exclusion amount. This can provide significant financial benefits and alleviate the burden of double taxation for Americans residing in Sweden. It is important for U.S. expats to understand the requirements and limitations of the FEIE to ensure compliance with U.S. tax laws while optimizing their tax situation.
2. What are the eligibility requirements for the Foreign Earned Income Exclusion for U.S. citizens residing in Sweden?
1. To be eligible for the Foreign Earned Income Exclusion (FEIE) as a U.S. citizen residing in Sweden, you must meet certain criteria set forth by the Internal Revenue Service (IRS). Firstly, you must pass either the Physical Presence Test or the Bona Fide Residence Test. The Physical Presence Test requires you to be physically present in a foreign country for at least 330 full days during a 12-month period. The Bona Fide Residence Test, on the other hand, examines if you have established a true and permanent residence in Sweden.
2. Additionally, to qualify for the FEIE, your tax home must be in Sweden, meaning that Sweden is where your main place of business or employment is located. You also need to have foreign-earned income, which includes wages, salaries, professional fees, and other compensation received for personal services rendered while living in Sweden. This income must be earned from a foreign employer or be self-employment income generated in a foreign country.
3. It’s crucial to note that the FEIE has a maximum exclusion limit that adjusts annually. For tax year 2021, the maximum exclusion amount is $108,700. Any foreign-earned income above this threshold may be subject to U.S. taxation. It’s advisable to consult with a tax professional well-versed in international tax matters to ensure compliance with U.S. tax laws and maximize the benefits of the Foreign Earned Income Exclusion while living in Sweden.
3. How much foreign earned income can a U.S. citizen in Sweden exclude from their U.S. tax return under the FEIE?
A U.S. citizen living in Sweden can exclude up to $108,700 (for tax year 2021) of foreign earned income from their U.S. tax return under the Foreign Earned Income Exclusion (FEIE) program. This exclusion amount is adjusted annually for inflation. To qualify for the FEIE, the U.S. citizen must meet either the Physical Presence Test or the Bona Fide Residence Test, among other requirements. By taking advantage of the FEIE, U.S. citizens living and working abroad can reduce their U.S. tax liability on their foreign earned income up to the allowable exclusion limit. It is important to understand and meet all the criteria set forth by the IRS to properly claim this exclusion.
4. Can a U.S. citizen in Sweden claim both the Foreign Earned Income Exclusion and the Foreign Tax Credit on their tax return?
Yes, a U.S. citizen living in Sweden can potentially claim both the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit on their U.S. tax return. Here’s a breakdown:
1. Foreign Earned Income Exclusion (FEIE): This allows U.S. citizens living abroad to exclude a certain amount of their foreign earned income from U.S. taxation. For tax year 2021, the maximum exclusion amount is $108,700 per qualifying individual. To qualify for the FEIE, the individual must meet either the Physical Presence Test or the Bona Fide Residence Test.
2. Foreign Tax Credit: This allows U.S. citizens to offset their U.S. tax liability on foreign income by the amount of foreign taxes paid on that income. To claim the Foreign Tax Credit, the taxpayer must file Form 1116 with their U.S. tax return.
It’s important to note that these benefits cannot be claimed on the same income – meaning the income that is excluded under the FEIE cannot also be used to claim the Foreign Tax Credit. Taxpayers must carefully evaluate their individual situation to determine the most beneficial tax treatment for their foreign income. Consulting with a tax professional or accountant with experience in international tax matters is recommended to ensure compliance with U.S. tax laws.
5. What types of income can be excluded under the Foreign Earned Income Exclusion for U.S. citizens living in Sweden?
1. As a U.S. citizen living in Sweden, you may be eligible to utilize the Foreign Earned Income Exclusion (FEIE) to exclude certain types of income from your U.S. federal income tax. The types of income that can typically be excluded under the FEIE for U.S. citizens in Sweden include wages, salaries, bonuses, commissions, professional fees, and other forms of compensation received for personal services performed in a foreign country.
2. Additionally, self-employment income earned by U.S. citizens in Sweden can also be excluded under the FEIE, as long as the individual meets the eligibility requirements specified by the IRS. This can be particularly beneficial for freelancers, consultants, and other self-employed individuals working in Sweden.
3. It is important to note that not all types of income are eligible for exclusion under the FEIE. For example, passive income such as interest, dividends, capital gains, rental income, and certain other investment income are generally not eligible for exclusion under the FEIE. Instead, these types of income may be subject to U.S. taxation, depending on the specific tax treaties between the U.S. and Sweden.
4. To take advantage of the Foreign Earned Income Exclusion as a U.S. citizen in Sweden, you must meet certain requirements, including passing either the Physical Presence Test or the Bona Fide Residence Test. Additionally, there are annual limits to the amount of income that can be excluded under the FEIE, which are adjusted each year for inflation.
5. It is recommended that you consult with a tax professional or accountant who is knowledgeable about U.S. tax laws and regulations regarding foreign income to ensure that you are properly utilizing the Foreign Earned Income Exclusion and complying with all relevant tax obligations.
6. Are there any reporting requirements or forms that need to be filed in order to claim the Foreign Earned Income Exclusion while living in Sweden?
Yes, in order to claim the Foreign Earned Income Exclusion (FEIE) while living in Sweden as a U.S. citizen, several reporting requirements and forms need to be filed. Here are the key points to consider:
1. Form 2555: To claim the FEIE, you must file Form 2555 with your U.S. tax return. This form is used to calculate the amount of foreign earned income that may be excluded from your taxable income.
2. Form 1040: Your worldwide income must still be reported on your U.S. tax return, even if you qualify for the FEIE. Form 2555 is then used to exclude the qualifying foreign earned income.
3. Physical Presence Test or Bona Fide Residence Test: You must meet either the Physical Presence Test or Bona Fide Residence Test to qualify for the FEIE. These tests determine whether you have been physically present in a foreign country for a certain period of time or have established a bona fide residence in that country.
4. Tax Treaties: It’s also important to consider any tax treaties between the U.S. and Sweden that may impact your tax obligations. These treaties can affect the treatment of certain types of income and provide guidance on avoiding double taxation.
5. Other Reporting Requirements: Depending on your individual circumstances, you may have additional reporting requirements, such as the Foreign Bank Account Report (FBAR) if you have foreign financial accounts exceeding certain thresholds.
6. Consult with a Tax Professional: Given the complexity of tax laws and regulations, especially when dealing with international taxation, it is highly recommended to consult with a tax professional or accountant specializing in U.S. expat taxes to ensure compliance with all reporting requirements and maximize the benefits of the FEIE.
7. Can self-employed individuals or freelancers qualify for the Foreign Earned Income Exclusion in Sweden?
Self-employed individuals or freelancers can qualify for the Foreign Earned Income Exclusion (FEIE) in Sweden if they meet the necessary requirements. To be eligible for FEIE as a self-employed individual or freelancer in Sweden, the following conditions must be satisfied:
1. Physical Presence Test: The individual must meet either the bona fide residence test or the physical presence test. For the physical presence test, the individual must be physically present in a foreign country for at least 330 full days in a 12-month period. In Sweden, this requirement can be met by staying in the country for the required number of days.
2. Tax Home in a Foreign Country: The individual must have a tax home in a foreign country, which means their primary place of business or employment must be located outside the United States.
3. Income from Self-Employment: The income that the self-employed individual or freelancer wishes to exclude must be earned from their work performed in Sweden. This can include income generated from services provided, consulting work, or any other self-employment activities.
If these criteria are met, self-employed individuals or freelancers can potentially qualify for the Foreign Earned Income Exclusion in Sweden. It is advisable to consult with a tax professional or account to ensure compliance with all requirements and regulations.
8. How does the Foreign Earned Income Exclusion impact the calculation of Social Security taxes for U.S. citizens living in Sweden?
The Foreign Earned Income Exclusion (FEIE) allows U.S. citizens living abroad to exclude a certain amount of their foreign earned income from U.S. federal income taxes. However, the FEIE does not impact the calculation of Social Security taxes for U.S. citizens living in Sweden. This is because Social Security taxes are separate from income taxes and are based on the individual’s total income, including any foreign earned income that may be excluded under the FEIE.
Generally, for U.S. citizens living and working in Sweden, they may be subject to Social Security taxes in both the U.S. and Sweden due to the bilateral Social Security agreement between the two countries. This means that they may need to pay Social Security taxes to both countries based on their total income earned in each country. It’s important for individuals in this situation to understand their tax obligations in both countries to ensure compliance with the respective tax laws and regulations.
9. How does the Foreign Earned Income Exclusion affect the calculation of state taxes for U.S. citizens living in Sweden?
The Foreign Earned Income Exclusion (FEIE) allows U.S. citizens living abroad, including those in Sweden, to exclude a certain amount of their foreign earned income from U.S. federal income tax. However, when it comes to state taxes, the treatment of the FEIE can vary depending on the state in which the individual is considered a resident. Here is how the FEIE may affect the calculation of state taxes for U.S. citizens living in Sweden:
1. State Residency: State tax laws typically consider an individual’s residency status to determine their tax liabilities. If a U.S. citizen living in Sweden maintains residency in a specific U.S. state, that state may still require them to report their worldwide income, including income excluded under the FEIE. This means that the excluded income may still be subject to state taxes.
2. Non-Reciprocal Treaties: Some states may not recognize the FEIE or have non-reciprocal tax treaties with foreign countries like Sweden. In such cases, the excluded foreign income may not be eligible for tax exemption at the state level, leading to potential state tax liabilities on that income.
3. Tax Credits: States that do recognize the FEIE may offer tax credits or deductions for the foreign taxes paid on the excluded income. This can mitigate the impact of double taxation and reduce the overall state tax liability for U.S. citizens living in Sweden.
4. Tax Filing Requirements: U.S. expatriates are often required to file state tax returns even if they are living abroad. The treatment of the FEIE on state tax returns may vary based on the specific state’s tax laws and regulations.
Overall, the Foreign Earned Income Exclusion can have implications for the calculation of state taxes for U.S. citizens living in Sweden, with the specific impact depending on factors such as state residency status, tax treaties, and filing requirements. It is advisable for individuals in this situation to consult with a tax professional or accountant familiar with both U.S. and Swedish tax laws to ensure compliance and optimize their tax situation.
10. Are there any key mistakes or common misconceptions that U.S. citizens in Sweden should be aware of when claiming the Foreign Earned Income Exclusion?
Yes, there are several key mistakes or common misconceptions that U.S. citizens in Sweden should be aware of when claiming the Foreign Earned Income Exclusion (FEIE):
1. Meeting the Physical Presence Test: One common mistake is misconstruing the requirements of the Physical Presence Test. To qualify for the FEIE, a U.S. citizen must be physically present in a foreign country for at least 330 full days in a 12-month period. Some individuals may fail to keep accurate records of their time abroad, leading to miscalculations and potential disqualification for the exclusion.
2. Understanding Foreign Sourcing of Income: Another misconception is that all income earned in a foreign country automatically qualifies for the FEIE. It’s important to understand the sourcing rules to determine which income is considered foreign-earned and eligible for the exclusion. Income sourced within the U.S. or from sources not related to services performed abroad may not qualify.
3. Filing Errors and Documentation: Properly filing for the FEIE requires careful attention to detail and accurate documentation. Many U.S. citizens in Sweden may make errors on their tax return, such as incorrect completion of Form 2555 or failure to include all necessary supporting documents. These inaccuracies can lead to delays in processing or potential audits by the IRS.
4. Not Seeking Professional Guidance: Lastly, one of the biggest mistakes is not seeking professional guidance from a tax advisor or accountant familiar with the intricacies of the FEIE. Tax laws and regulations can be complex, especially when dealing with foreign income, and a qualified professional can provide valuable assistance in maximizing your tax benefits while ensuring compliance with all requirements.
Being aware of these key mistakes and misconceptions can help U.S. citizens in Sweden navigate the process of claiming the Foreign Earned Income Exclusion effectively and avoid potential pitfalls that could impact their tax status.
11. How does the Foreign Earned Income Exclusion apply to U.S. citizens in Sweden who are married to non-U.S. citizens?
1. As a U.S. citizen residing in Sweden and married to a non-U.S. citizen, you may still be eligible to claim the Foreign Earned Income Exclusion (FEIE) on your U.S. tax return. The FEIE allows qualifying individuals to exclude a certain amount of their foreign earned income from U.S. taxation.
2. To qualify for the FEIE, you must meet either the Physical Presence Test or the Bona Fide Residence Test. Under the Physical Presence Test, you must be physically present in a foreign country for at least 330 full days in a 12-month period. The Bona Fide Residence Test requires you to be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year.
3. If you meet the requirements for the FEIE, you can exclude up to a certain amount of your foreign earned income from U.S. taxation. For tax year 2021, the maximum exclusion amount is $108,700. This means that you can exclude up to this amount from your taxable income on your U.S. tax return.
4. It is important to note that the FEIE applies individually, so your spouse, who is a non-U.S. citizen, would not be able to take advantage of this exclusion on their income. However, you can still file jointly with your non-U.S. citizen spouse if you choose to do so.
5. It is recommended to consult with a tax professional or accountant familiar with the U.S. tax laws and regulations regarding the Foreign Earned Income Exclusion to ensure that you are maximizing your tax benefits and complying with all necessary requirements.
12. Can income from investments or rental properties be excluded under the Foreign Earned Income Exclusion for U.S. citizens residing in Sweden?
Income from investments or rental properties cannot be excluded under the Foreign Earned Income Exclusion (FEIE) for U.S. citizens residing in Sweden. The FEIE allows eligible U.S. citizens to exclude their foreign earned income from U.S. taxation, but it specifically applies to wages, salaries, bonuses, and other compensation earned through personal services. Investment income, such as dividends, interest, and capital gains, as well as rental income from real estate properties, are considered passive income and do not qualify for the FEIE. However, U.S. citizens may be able to reduce their tax liability on such income through other means, such as foreign tax credits or deductions. It is important for U.S. citizens living abroad to consult with a tax professional to understand their tax obligations and available strategies for minimizing their tax liability on all types of income earned overseas.
13. How does the Foreign Earned Income Exclusion interact with other U.S. tax laws, such as the Tax Cuts and Jobs Act of 2017?
The Foreign Earned Income Exclusion (FEIE) interacts with other U.S. tax laws, such as the Tax Cuts and Jobs Act of 2017 (TCJA), in several ways:
1. Changes to tax rates: The TCJA brought significant changes to tax rates for individuals, and these changes can affect the amount of tax savings that can be achieved through the FEIE. The interaction between the two laws can impact the overall tax liability of U.S. citizens working abroad.
2. Changes to deductions and credits: The TCJA also made adjustments to deductions and credits available to taxpayers. This can affect the overall tax strategy for individuals claiming the FEIE, as certain deductions and credits may no longer be available or may be subject to new rules under the TCJA.
3. Interaction with other foreign income provisions: The FEIE is just one part of the U.S. tax laws that apply to foreign income. Other provisions, such as the foreign tax credit and the taxation of passive foreign investment companies, can also interact with the FEIE to determine the overall tax treatment of foreign income for U.S. citizens.
Understanding how the FEIE interacts with other U.S. tax laws, such as the TCJA, is crucial for individuals working abroad to effectively plan their tax strategy and ensure compliance with tax obligations. Consulting with a tax professional who is knowledgeable about these laws can help individuals navigate the complexities of the U.S. tax system as it relates to foreign income.
14. What are the key differences between the Foreign Earned Income Exclusion and the Foreign Housing Exclusion for U.S. citizens in Sweden?
1. One key difference between the Foreign Earned Income Exclusion (FEIE) and the Foreign Housing Exclusion (FHE) for U.S. citizens in Sweden is the purpose of each exclusion. The FEIE allows eligible taxpayers to exclude a certain amount of their foreign earned income from U.S. taxation, while the FHE allows for the exclusion of certain housing expenses from taxable income.
2. Another difference lies in the limits and calculations for each exclusion. The FEIE has a maximum exclusion amount that is adjusted annually for inflation, which can vary depending on the tax year. On the other hand, the FHE is based on specific housing expenses incurred while living abroad, such as rent, utilities, and certain household expenses, subject to certain limitations.
3. Furthermore, the FEIE is often used by expatriates to reduce their overall U.S. tax liability, while the FHE provides relief specifically for housing costs incurred while living overseas. It’s important for U.S. citizens in Sweden to understand the differences and requirements for both exclusions to maximize their tax benefits and comply with U.S. tax laws while living abroad.
15. How does the Foreign Earned Income Exclusion impact the taxation of income earned from a Swedish employer for U.S. citizens living in Sweden?
1. The Foreign Earned Income Exclusion (FEIE) allows U.S. citizens living and working abroad, such as those in Sweden, to exclude a certain amount of their foreign earned income from U.S. taxation. For tax year 2021, the maximum amount that can be excluded is $108,700. This means that if a U.S. citizen working for a Swedish employer in Sweden earns income below this threshold, they may be able to exclude the entirety of their foreign earned income from U.S. taxation.
2. To qualify for the FEIE, the individual must meet either the Physical Presence Test or the Bona Fide Residence Test. The Physical Presence Test requires the individual to be physically present in a foreign country for at least 330 full days in a 12-month period. The Bona Fide Residence Test is based on an individual’s intention to remain in the foreign country indefinitely and their actual physical presence in that country.
3. If a U.S. citizen living in Sweden meets the requirements for the FEIE, they must file Form 2555 with their U.S. tax return to claim the exclusion. By excluding their foreign earned income, they may significantly reduce their U.S. tax liability on that income.
4. It is important to note that while the FEIE can provide tax benefits for U.S. citizens living abroad, it does not exempt them from all U.S. tax obligations. They may still be required to report their foreign income, foreign assets, and foreign financial accounts to the IRS, depending on the total value of their assets and accounts.
Overall, the Foreign Earned Income Exclusion can have a significant impact on the taxation of income earned from a Swedish employer for U.S. citizens living in Sweden, allowing them to potentially exclude a substantial amount of their foreign earned income from U.S. taxation, thereby reducing their overall tax liability.
16. Are there any limitations on the length of time a U.S. citizen can claim the Foreign Earned Income Exclusion while residing in Sweden?
1. Yes, there are limitations on the length of time a U.S. citizen can claim the Foreign Earned Income Exclusion (FEIE) while residing in Sweden. As a U.S. citizen living in Sweden or any foreign country, you must meet certain requirements to qualify for the FEIE, one of which is the bona fide residence test or the physical presence test. If you meet either of these tests, you can qualify for the FEIE.
2. The bona fide residence test requires you to be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. This means that you would have to establish a true, permanent residence in Sweden, intending to make it your home for the foreseeable future. If you meet this test, there is no specific limitation on how long you can claim the FEIE while residing in Sweden.
3. On the other hand, the physical presence test requires you to be physically present in a foreign country for at least 330 full days during a 12-month period. If you meet this test, you can claim the FEIE for the tax year in which those 330 days fall. This test is more about the physical presence in a foreign country rather than establishing a permanent residence like the bona fide residence test.
4. It’s important to note that while there is no set limit on how long you can claim the FEIE while residing in Sweden if you meet the requirements, you must continue to meet the eligibility criteria each year to qualify for the exclusion. Additionally, it’s recommended to consult with a tax professional or accountant who is familiar with U.S. tax laws and the specific circumstances of living in Sweden to ensure compliance with all relevant regulations and requirements.
17. How does the Foreign Earned Income Exclusion apply to U.S. citizens in Sweden who work remotely for a U.S.-based company?
As a U.S. citizen working remotely for a U.S.-based company while living in Sweden, you may be eligible to claim the Foreign Earned Income Exclusion (FEIE) on your U.S. federal tax return. Here’s how the FEIE applies in this scenario:
1. Qualifying for the FEIE: To qualify for the FEIE, you must meet either the Physical Presence Test or the Bona Fide Residence Test. Since you are living and working in Sweden, you may be able to qualify under the Bona Fide Residence Test if your stay in Sweden is considered indefinite and you have established a closer connection to Sweden than to the U.S.
2. Excluding Foreign Earned Income: If you meet the requirements for the FEIE, you can exclude up to a certain amount of your foreign earned income from U.S. taxation. For the tax year 2021, the maximum exclusion amount is $108,700 per qualifying individual.
3. Filing Requirements: To claim the FEIE, you must file Form 2555 along with your U.S. tax return. This form is used to calculate the amount of foreign earned income that can be excluded from your taxable income.
4. Tax Obligations in Sweden: While you may be able to exclude your foreign earned income from U.S. taxes, you may still have tax obligations in Sweden. It’s important to understand the tax laws in both countries and consider any tax treaties that may impact your situation.
Overall, the Foreign Earned Income Exclusion can be a valuable tax benefit for U.S. citizens living and working abroad, including those working remotely for a U.S.-based company in countries like Sweden. It’s essential to consult with a tax advisor or accountant familiar with international tax laws to ensure compliance and maximize the tax benefits available to you.
18. Are there any circumstances under which it may be more advantageous for a U.S. citizen in Sweden to not claim the Foreign Earned Income Exclusion?
Yes, there are circumstances under which it may be more advantageous for a U.S. citizen in Sweden to not claim the Foreign Earned Income Exclusion (FEIE):
1. High Foreign Taxes: If you are paying a significant amount of foreign taxes in Sweden, it may be more beneficial to take advantage of the Foreign Tax Credit (FTC) instead of the FEIE. The FTC allows you to offset your U.S. tax liability with foreign taxes paid, which can sometimes result in a lower overall tax burden compared to claiming the FEIE.
2. Income Below Exclusion Limit: If your foreign earned income is below the FEIE threshold, it might not be necessary to claim the exclusion. In such cases, it may be simpler to report your income without utilizing the FEIE, especially if the administrative burden of claiming the exclusion outweighs the tax benefits.
3. Tax Treaty Benefits: Depending on the specific provisions of the tax treaty between the U.S. and Sweden, it may be more advantageous for some individuals to forego the FEIE in favor of other treaty benefits. Consulting with a tax advisor or accountant familiar with international tax laws can help you determine the best approach in your situation.
4. Future Tax Planning: If you anticipate changes in your income or tax situation in the near future, it’s crucial to evaluate whether claiming the FEIE now aligns with your long-term tax planning goals. Opting out of the exclusion in certain years may offer more flexibility in managing your tax obligations over time.
Ultimately, the decision to forego claiming the FEIE in favor of alternative tax strategies depends on individual circumstances and requires a thorough analysis of your financial situation, tax liabilities, and long-term objectives. Consulting with a tax professional can provide personalized guidance tailored to your specific needs.
19. What documentation or proof is required to support a U.S. citizen’s claim for the Foreign Earned Income Exclusion while living in Sweden?
To support a U.S. citizen’s claim for the Foreign Earned Income Exclusion (FEIE) while living in Sweden, several key pieces of documentation are typically required:
1. Proof of foreign residency in Sweden, such as a lease agreement, utility bills, or a residency permit.
2. Documentation of foreign earned income, including pay stubs, contracts, or income statements from an employer in Sweden.
3. Evidence of physical presence in Sweden for the required amount of time to qualify for the FEIE, such as entry and exit stamps in a passport or travel records.
4. Any applicable tax forms or official documentation from the Swedish tax authorities to show taxes paid or owed in Sweden on the foreign earned income.
Additionally, it is important for U.S. citizens living in Sweden to maintain thorough and accurate records of their income, residency, and presence in the country to substantiate their claim for the Foreign Earned Income Exclusion. Having a complete and organized set of documentation will help support the claim and ensure compliance with U.S. tax laws.
20. How can a U.S. citizen in Sweden best optimize their tax situation by utilizing the Foreign Earned Income Exclusion?
A U.S. citizen living in Sweden can optimize their tax situation utilizing the Foreign Earned Income Exclusion (FEIE) in several ways:
1. Meet the Physical Presence Test or Bona Fide Residence Test: To qualify for the FEIE, the individual must either pass the Physical Presence Test by being present in a foreign country for at least 330 full days in a 12-month period or meet the Bona Fide Residence Test by establishing residency in Sweden.
2. Maximize the Exclusion Amount: For the tax year 2021, eligible individuals can exclude up to $108,700 of their foreign earned income from U.S. taxation. By ensuring that all qualifying income is included in the exclusion, the taxpayer can minimize their U.S. tax liability.
3. Utilize Housing Exclusion or Deduction: In addition to the FEIE, individuals living in high-cost foreign locations like Sweden may also benefit from the Foreign Housing Exclusion or Deduction. This provision allows for the exclusion of certain housing expenses from taxable income, providing further tax savings.
4. Consider Tax Treaty Benefits: The U.S. has a tax treaty with Sweden which may provide additional opportunities to optimize the tax situation. Understanding the provisions of the treaty and how they interact with the FEIE can help in reducing the overall tax burden.
By strategically leveraging the Foreign Earned Income Exclusion and other available tax benefits, a U.S. citizen living in Sweden can effectively optimize their tax situation and minimize their U.S. tax liability.