|
Tax Position Of US Citizens Overseas
Courtesy of
http://www.usa-international-offshore-expatriate-tax.com
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.
|