Income Eliminated by Foreign Earned Income Exclusion
In determining whether to file a tax return, the Foreign Earned Income Exclusion does not count. Although for 2007, $87,500 in foreign earned income can be excluded from taxation by the exclusion, the income earned in a foreign country is still counted against your Filing Status. Suppose you are married and earned $80,000 abroad. This income would be excluded from taxation by the foreign earned income exclusion but not from reporting on a tax return. $80,000 exceeds the Filing Status amount of $17,500 for a couple who would file jointly. Failure to report this income can result in IRS denying the foreign earned income exclusion and thus taxing this already taxed foreign income stateside.