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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: 8bits who wrote (15306)	3/13/2007 4:24:00 PM
From: Elroy Jetson	Respond to of 217936

The "Foreign Earned Income Exclusion" for US citizens has been substantially gutted by the AMT (Alternate Minimum Tax). Ostensibly the foreign domiciled US employee can exclude the first $82,400 of their total compensation from US income tax. In addition to income, this compensation includes the cost of company supplied housing, which goes untaxed in the US. Now for the catch. Everyone whose income exceeds the $42,500 AMT exemption must calculate the AMT tax on their income. Under AMT rules, the "Foreign Earned Income Exclusion" is a preference item which must be removed in the AMT calculation. As the IRS wryly notes (see below), "In many cases this will have the effect of increasing an individual’s U.S. federal income tax to an amount greater than it would have been under prior law." You must pay the higher of: the AMT tax of 26% on your total income (which means all of your foreign income, including company paid housing, or; the tax on your income after the "Foreign Earned Income Exclusion" plus your other deductions. Basically, the maximum benefit for employees earning more than $42,500 per year and less than is a reduction in tax rate from 28%, 33%, or 35% to 26% on $82,400 of their income. A total tax savings of: up to $1,484 for those earning less than $154,800; up to $5,894 for those earning up to $336,500; and up to $7,578 for those earning more than $336,500. Who would move to Dubai for this sort of "tax break"? Secretaries and other employees who earn less than $42,500 in total compensation including housing will enjoy not having to pay the roughly $3,100 maximum in Federal Taxes they normally have to pay while living in the US. Of course, lower incomes would receive less tax savings than $3,100. Halliburton did not move to Dubai for tax reasons. http://www.irs.gov/businesses/small/international/article/0,,id=96817,00.html Effective for tax years beginning after 2005, the amount of foreign earned income (and foreign housing costs) excluded from an individual's gross income will be used for purposes of determining the rate of income and alternative minimum tax (AMT) that applies to his or her nonexcluded income. The Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) adds a new section 911(f) to the Internal Revenue Code. An individual's tax will be the excess of the tax that would be imposed if his or her taxable income were increased by the amount(s) excluded, and the tax that would be imposed if his or her taxable income were equal to the excluded amount(s). For this purpose, the excluded amount(s) will be reduced by the aggregate amount of any deductions or other exclusions otherwise disallowed. In many cases this will have the effect of increasing an individual’s U.S. federal income tax to an amount greater than it would have been under prior law. .