I am employed by a U.S. company but live and work overseas. Since I spend the entire year outside of the U.S., I qualify for the foreign income tax exemption, and therefore do not pay U.S. taxes (although I do file an annual return). My income is below $60,000.

My question is the following: This year I have a different situation. I have lived outside the U.S. for the past 4 years, never being in the States for more than 2 weeks time during any of those 4 years. However, I moved back to the States on June 3, 2008, and have resided in the U.S. since that time. How do I file my income taxes this year? Is the income I received prior to June 3 still exempt from U.S. taxes, and if so, is my taxable income only what I have earned after that date? Or, am I required to pay taxes on all my 2008 income, even the income I received before returning to the States. Can someone help me out with this question, and give me direction on how I will need to file for 2008?

In order for you to claim the foreign earned income exclusion, the IRS states that a taxpayer must have foreign earned income, a tax home that must be in a foreign country, and the taxpayer must be one of the following:

1. A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
You fail this test!

2. A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
You fail this test!

3. A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
Please check your records to see if you meet Test 3! If you meet this test, than you would qualify to exclude an amount upto $87,600 of foreign earned income.

If you do qualify for this Foreign Earned Income Exclusion, you should file Form 2555 so that you may claim the foreign earned income exclusion. In some circumstances you can use Form 2555-EZ to claim the foreign earned income exclusion.

Form 2555 shows "how you qualify for the bona fide residence test or physical presence test, how much of your earned income is excluded, and how to figure the amount of your allowable housing exclusion or deduction."

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