2007 Tax Announcement

Unclassified – Approved for Theater Distribution
Date: November 28, 2007
To: US Expats
From: Steven Palazzo, Expat CPA
Re: 2007 Tax Announcement

(Note: this will be the only email you receive from Palazzo & Company unless you request to be added to our email list or unless you are already a current client)

Foreign Earned Income Exclusion
Most important change affecting Expats is the maximum foreign earned income exclusion is now adjusted annually for inflation. For tax year 2007, the maximum exclusion has increased to $85,700. For 2008 it will increase again and each year thereafter.

State Specific
Mississippi will now recognize the foreign earned income exclusion effective January 1, 2007. Palazzo & Company has worked tirelessly for over two years to bring about this change in Mississippi’s tax law.

States that do not allow the foreign earned income exclusion are NJ, MA, PA and AL.

Self Employment Tax
Employees paid from overseas payrolls (ie Dubai) are not required to pay self employment taxes. If you have been required to pay self employment taxes you should consider amending your return for a refund. Self Employment taxes can be as high as 15.3% of your net earnings. To make sure you were not assessed this tax go to page 2 of your form 1040 tax return and on line 58 the amount should be zero.

Employees paid from US based payrolls are required to have social security and medicare taxes withheld from paychecks because this entity is a US based company. This comes out of your pay automatically.

330 Day Requirement
The 330 full days in a foreign country during a twelve month period is still a requirement to earn the foreign earned income exclusion. Contrary to rumors there has been no change to this rule and there are no exceptions. It can be any twelve month period that gives you the greatest tax benefit. In addition you can have up to two presence tests in the same year that may allow you to maximize your exclusion if you are working contract to contract instead of on a calendar year basis.

Filing Requirement
Even if your earnings fall below the $85,700 exclusion all US Taxpayers are still required to file a tax return to claim the exclusion of income if they meet the exclusion requirements.

Combat Zone
There are no combat zone tax exclusions for civilian contractors. Again contrary to rumors the only exclusion of income is the foreign earned income exclusion and the max for 2007 is $85,700. And you must meet the 330 day requirement and in very limited circumstances you may qualify for this under bona fide residence (not allowed in Iraq or Afghanistan). There are no IRS memos or secret waivers this is just wishful thinking and could be very harmful to Expats if relied upon.

Housing Exclusion
Employees in some countries may live on the economy and not in tent cities or man camps and they receive a housing and utility allowance, which is included in their gross pay. This could increase your exclusion of income thus reducing your taxable income.

Cash Back Referral Program
New for 2007 tax year any Expat is eligible to earn a $50 cash payment if they refer three Expats to our firm that become clients. If interested just email me.

Please contact us directly with any Expat questions you may have.

Thank you for your time but more importantly thank you for what you are doing for our troops abroad and your country.

Have a safe and blessed Holiday Season!

Steven M. Palazzo, CPA
Palazzo & Company, CPAs
PO Box 4634
Biloxi, MS 39535
228-396-8800 - Office
866-272-9224 - Toll Free
305-768-0483 - Fax
WWW.PALAZZOCPA.COM
spalazzo@palazzocpa.com

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Disclaimer –
Employers do not provide tax advice and by no means can they be held responsible for reliance on anything contained in the email. This email was sent as a public service by Palazzo and Company Expat CPAs

Employers recommend you contact a tax professional if you need assistance and this email in no way represents, endorses, supports, implies or warrants the use of the informaton contained within this email nor the possible use of our services past, present or future.