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Information provided on this site is for general guidance
only and is often simplified. Actual IRS procedures
are complex, and taxpayers should obtain professional
assistance or use IRS sources for complete information.
Tax
Position Of US Citizens Overseas
Because
the US taxes its citizens on the basis of their nationality
and not on the basis of their residence, the concept
of 'offshore' is not very useful to a US national
from a residence point of view. There is an income
tax concession available during non-residence, but
beyond that the only real option for a US citizen
is to change nationality. In all other respects the
international tax situation of an individual citizen
is about the same whether they are in or out of the
US.
US expatriates
who meet the Physical Presence Test or meet the Bona
Fide Resident Test may be able to take advantage of
the Foreign Earned Income Exclusion and or the Foreign
Housing Exclusion.
You
are considered physically present in a foreign country
(or countries) if you reside in that country (or countries)
for at least 330 full days in a 12-month period. You
can live and work in any number of foreign countries,
but you must be physically present in those countries
for at least 330 full days. The qualifying period
can be any consecutive 12-month period of time. A
"full day" is 24 hours; days of arrival
and departure are generally not counted in the physical
presence test.
A
person is considered a "bona fide resident"
of a foreign country if they reside in that country
for "an uninterrupted period that includes an
entire tax year." A tax year is January 1 through
December 31. Brief trips or vacations outside the
foreign country will not jeopardize status as a bona
fide resident. If the foreign government concerned
has determined that a person is not subject to their
tax laws as a resident, the Exclusions will not be
available.
These
benefits seemed under threat in 2004, but they were
confirmed in the Tax Reconciliation Act of 2005 (passed
in 2006) albeit with restricted terms (see below).
An
IRS 2004 study showed that almost 300,000 individual
income tax returns were filed by Americans working
overseas in 2001.
US citizens and resident aliens who are outside the
United States (and its possessions) have the same
requirements to file tax returns as anyone living
in the United States. Income from worldwide sources
must be considered when determining if a federal tax
return must be filed. In general, foreign earned income
is income received for services performed in a foreign
country.
If you
pay foreign taxes, it may be possible to offset these
against US taxes if there is a double tax treaty with
the country in which you are resident.
The concept of 'tax home' is used in connection with
foreign residence. Generally, a person's tax home
is the general area of her main place of business,
employment, or post of duty where she is permanently
or indefinitely engaged to work. A person is not considered
to have a tax home in a foreign country for any period
during which their abode (the place where they regularly
live) is in the United States.
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