Foreign Earned Income Exclusion
If you are a US citizen working abroad, you are required to file a tax return and inform the IRS of your total income abroad. However, you may be eligible to exclude a substantial portion of this income depending on how much income you earned.
The IRS allows an exclusion up to $97, 600 (for Tax Year 2013) if you must meet 1) the tax home test and 2) meet either the bona fide residence test or the physical presence test.
Tax Home Test: Your tax home is your regular or principal place of business, employment or post of duty, regardless of where you maintain your family residence. Also, if you do not have a regular place of business, etc., then your tax home is the regular place where you live.
Bona Fide Residence Test: For this test, you must be a bona fide resident of the country for an uninterrupted period that includes an entire tax year. When determining whether you meet this test, the IRS will look at your intentions/actions. During this period, you can leave the country for brief or temporary trips back to the US or elsewhere for vacation, etc. However, you must have a clear intention of returning from temporary trips, without delay, to your foreign residence. For this test, they will take into account several factors, such as the nature of your work, the purpose of your trip, your intentions, the length of your stay abroad, etc.
Physical Presence Test: To meet this test, you must be a US citizen who is physically present in a foreign country or countries for at least 330 full days during any period of 12 months in a row. (A full day means the 24-hour period starting at midnight.) If you are in the US for more than 30 days during this timeframe, you will most likely be ineligible for this test. However, you may still meet the bona fide residence test.