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I just returned from three years abroad, where I earned income from an overseas employer. I am in the process of filing my FBARs (TD F 90-22.1), amended tax returns, and seeking the Foreign Earned Income Exclusion (2555-EZ) to report the income yet exclude it from taxes.
What I don't understand is exactly how the Foreign Earned Income Exclusion helps me. From what I see, Line 18 says to transfer the amount of my foreign income to Line 21 of the Form 1040, which is "other income." However, you combine Lines 7-21 to arrive at Line 22, your "total income."
Thus, the foreign income is actually making my "total income" go higher. How is this in any way an "exclusion?" From what I can tell, I will have to pay taxes on this money. What's the point of the 2555-EZ form, then?
What I don't understand is exactly how the Foreign Earned Income Exclusion helps me. From what I see, Line 18 says to transfer the amount of my foreign income to Line 21 of the Form 1040, which is "other income." However, you combine Lines 7-21 to arrive at Line 22, your "total income."
Thus, the foreign income is actually making my "total income" go higher. How is this in any way an "exclusion?" From what I can tell, I will have to pay taxes on this money. What's the point of the 2555-EZ form, then?
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