If you live and work outside of the United States, I may have some very good news for you. Although Americans are taxes on their worldwide income, you may be able to claim a huge deduction.
Dealing With Taxes If You Live and Work Outside The United States
As the global economy continues to integrate companies and workers, you may find yourself living and working full time in another country. From a tax point of view, this can be a bit problematic since the Internal Revenue Service demands you pay taxes on all of your income regardless of where it is earned. If you are paying taxes in the country you are working in, the double whammy can wipe you out. Alas, there is a solution to this problem.
If you meet certain requirements, the IRS allows you to exclude up to $80,000 of your income from being taxed. You may also be able to deduct certain amounts you paid for your housing.
To qualify for these exclusions and deductions, you must have earned the income abroad and be living abroad. You must also claim residency in a foreign country for the entire tax year or be present in that country for 330 days out of 12 consecutive months. If you meet these fairly simple requirements, you will save a bundle on taxes. Please keep in mind that you must file a tax return with the IRS even if you do not owe any money because of the exclusion.
In certain situations, you may also be able to claim the exclusion and deduction if United States and country have a tax treaty covering the issue. To promote trade, many countries enter into tax treaties to address double taxation issues that would otherwise make most trade financially impossible. Many such treaties exist between the United States and other countries, so make sure to review any for your location.
Living and working abroad is much more common than it use to be. Make sure you understand the above requirements so you can avoid unfortunate tax consequences.
Richard A. Chapo is with BusinessTaxRecovery.com - providing information on
taxes.
