J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

36.1 Claiming the Foreign Earned Income Exclusion

If your tax home is in a foreign country and you meet either the foreign residence test or physical presence test (36.3), you may exclude up to $95,100 of foreign earned income earned in 2012. You must file a U.S. return if your gross income exceeds the filing threshold for your personal status, even though all or part of your foreign earned income may be tax free. For years after 2012, the maximum $95,100 exclusion may be increased by an inflation adjustment. The exclusion is not automatic; you must elect it. You elect the foreign earned income exclusion on Form 2555, which you attach to Form 1040. The housing cost exclusion (36.4) is also elected on Form 2555.

You may file simplified Form 2555-EZ if your 2012 foreign wages are $95,100 or less, you do not have self-employment income, and you do not claim the foreign housing exclusion, housing deduction, business expenses, or moving expenses.

A separate exclusion is allowed for the value of meals and lodging received by employees living in qualified camps; see 36.8.

If you claim the foreign income exclusion of $95,100, you may not:

• Claim business deductions allocable to the excluded income;
• Make a deductible traditional IRA contribution, or a Roth IRA contribution, based on the excluded income; or
• Claim foreign taxes paid on excluded income as a credit or deduction.

In deciding whether to claim the exclusion, compare the overall tax (1) with the exclusion and (2) without the exclusion ...