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Just because one is an expat, does not mean they are exempt from taxation. However, that is the view that many have. They think that because they are abroad they do not have to pay United States income and state taxes. That is false, because as a United States expat abroad, you still have a legal obligation to file all your IRS forms for each year that you are earning income in the rest of the world. There are many places where one can find more information about exactly what percentage is owed depending upon early salary, profession and the area you are residing in abroad.

However, there are definitely perks to being an expat, because there are exclusions for people who stay aboard for more than 330 days out of the calendar year. They have the opportunity to exclude up to $91,500 of their yearly income. This was in effect in 2010, and the number has decreased slightly in 2011. In fact, if the couple is married and you are both abroad for 330 days, or more, then another $91,500 can be exempted from your combined incomes. However, it does not mean that you do not have to fill out your IRS forms. These people living abroad must still file their 1040 form otherwise they will not get an exemption and may have to pay other fines in addition to taxes that will be owed to the United States government.

Unfortunately, if you earn more than that specified amount you will have to pay taxes on it to the government. It does not matter if you pay foreign tax as well. Even if you are subject to taxation in the nation you are residing, on all or part of your income, you will still owe the United States income tax. However, there are foreign credits that can help offset the loss of paying the IRS and the country you are living in. Of course, if the country you live in has a higher rate of taxation you will get more credits, as opposed to countries where there is little or no tax that you must pay.

There are also treaties that the United States has with many countries around the world, about 60 to be exact. These taxation treaties have certain provisions that help United States taxpayers. They are aimed at reducing or even eliminating the double tax that occurs on your income. As a result, you may only be paying taxes to the foreign country, or only to the United States. That depends upon the treaty. The key is to always try and find the correct information online through the United States government websites or through an attorney in the United States. They will be able to properly assist you with your particular circumstances so you do not pay too much or too little and do not incur any penalties or charges.

Ricky Dean writes about various topics. For more info on expat tax rules or direct or indirect taxes, visit Dinosauric.

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Moving? Recently moved to another country? What you need to know about US expat tax preparation before you go

The more you know about expat tax preparation requirements before you move abroad, the better prepared you will be to file a complete, accurate tax return and maximize your savings. It is imperative that you gather as much information as you can before you move to another country, because you want to be prepared to file your US expat taxes during the next tax season. In this article we will go over five key points regarding expat tax preparation to ensure that you have all the information you need to file your US expat taxes.

The top five things you should know are:

That you get special tax credits and exclusions when filing abroad,Each state has individual regulations,How to make sure you get your important mail and leave the junk behind,The US filing dates,How your US income will be treated compared to foreign income,

We will go into more details on each of these throughout the article.

Special Tax Credits and Exclusions When Filing as a US Expat

First, it is important to understand what is required of you as a US expat living in a different country. Even though you are no longer living in the United States, you still need to file your US expat taxes. However, you also get some special tax credits and exclusions as a US expat and it is important that you know what they are. It is of extreme importance that you disclose any offshore bank accounts that you have to the US Treasury in addition to filing your US tax return each year. If you have over $10,000 USD or the foreign equivalent in one or more foreign accounts (cumulative), you are required to report this every year. If you fail to report these accounts it may result in fines starting at $10,000 and/or prosecution. You report your foreign bank accounts on Form TDF 90-22-1.

There are two forms that expats can use to help them save money when filing their US tax return from abroad - Form 2555 and Form 1116. Form 2555 is used to exclude a large amount of the income (for 2010, it was $91,500) that you earned while living overseas from US taxation. Even if you make less than $91,500 in a year, it's still extremely important that you file your taxes for that year or you may be liable for penalties and interest.

Form 1116 protects those who are paying income taxes to a foreign government. The downside of this form is that it also comes with a lot of restrictions that you need to familiarize yourself with before you try to complete this form. Essentially, Form 1116 gives you a US tax credit for the taxes you paid to a foreign government. The US government is not unreasonable and recognizes that if you have paid another country's taxes you will not be able to pay that same money to the US. In order to be eligible for the benefits of this form, you need to qualify for residency in the foreign country or live outside the US for a minimum of 330 days each year. A word of caution - these forms are not easy to understand or fill out so we recommend that you hire an expert to help you complete them.

You Need to Understand The Specific Regulations of the State You Previously Resided In

The second thing on the expat tax preparation list should be deciding if you need to sever ties with the State that you formerly resided in. Many States in the US try as hard as they can to continue to collect State taxes from expats, even if the expat has been out of the US for years. By severing as many ties with the State as you can before you leave, you are giving yourself the best opportunity to avoid paying unnecessary taxes.

This advice may sound extreme and there are many States with more favorable tax terms for expats. Alaska, Florida, Nevada, Texas, North Dakota, Washington and Wyoming don't have any State income taxes making these states ideal for both residents and expats! On the other hand, States such as California, South Carolina, Virginia and New Mexico make it incredibly difficult to get rid of your State residency status while living abroad - meaning they still want you to pay taxes even though you are not living in the State. In order to remove your residency from these States the expat will usually have to prove to the State government that they are not planning on becoming residents of that State again. This is typically very hard to do and requires replacing many records with your permanent address in your new country of residence, such as drivers license, bank accounts, etc. Because of this difficulty, the best thing you can do to avoid paying unnecessary State taxes is to get rid of as many physical ties, such as mortgages, bank accounts, and bills, as you can before you move.

Getting Your Mail: Make Sure You Have a Well-Thought Through Plan as to how you will receive documents needed to file your return

Third, it is important to consider how you will deal with your US mail while you're living abroad. You will always receive some mail while you are living and working abroad, so you need to consider what you will do with that mail. The first thing you should try to do is get electronic statements for everything you can - bank statements, credit cards, mortgages, etc. Then you should call 1-888-5OPT OUT (1-888-567-8688) to say you don't want the credit rating bureaus to sell your details. This will allow you to avoid receiving all those credit card offers that pile up in your mailbox. The next thing we recommend is that you consider hiring a mailbox forwarding service. We started using a mailbox scanning service called Mailbox Forwarding, which charges about $15 per month to receive up to 40 items and to scan 10 of them for you. This has proven to be money well spent! There are many other services like this one such as Earth Class Mail (mailbox forwarding just happens to be our favorite).

It is also imperative that you notify the IRS if you are planning on changing your address to ensure that you receive all of the correspondence from them. There are a couple of ways to do this. The easiest way to change your address is to have it officially changed before you file your return, that way you can simply change your address on the mailing label that you send back to the IRS, and they will update your account accordingly. If you change your address after you file your taxes, you need to notify the post office and send a completed form 8822 to the IRS. This will ensure you receive any refund checks.

Deadlines and Dates: Make Sure You Meet Them!

A very important part of expat tax preparation is remembering the filing dates, which are different for Americans living abroad. It's also important to know whether or not you qualify for an extension and if you do, how to file for one. Normally, the deadline to file your taxes as a US resident is April 15th. However, if you are an expat living abroad, the deadline to file your taxes is extended until the 15th of June. This extension gives you some wiggle-room in case your host country has different filing deadlines to receive your foreign tax documents and to allow you to get any important items you will need from the US (setting yourself up properly in step 3 can save some of the hassle of waiting for US documents). If you need to, you can also apply for an additional extension until October 15th of the same calendar year by completing Form 4868. Please note, if you need to submit the Form TDF 90-22-1 (foreign bank account form) to the Treasury, you must submit it by the end of June each year (June 30th), and there are no exceptions.

How will US income vs foreign income be treated?

One final item that is pertinent to your expat tax preparation is to consider how US income will be treated differently than your foreign earned income. For example, if you rent your house or if you earn interest and dividends in the US, this will be taxed differently. The foreign earned income exclusion (filed through Form 2555) offsets income for workers that are living abroad and is only for foreign earned income. This means that your US based income will still be subject to the same taxes as if you were still living inside the US. The expat deductions allow you to exclude most of the income you make. You will also be able to deduct living and housing expenses that you incur while living abroad, but they still don't do much to protect your US based income.

As you can see, there are a lot of things to consider before moving abroad to live and work as an expat. Expat tax preparation is incredibly important and you will make it much easier for yourself and your family if you do your due diligence before you leave. Following these recommendations will help to ensure that you file your taxes correctly and that you save as much money as possible.

About Greenback Expat Tax Services

Greenback Expat Tax Services specializes in preparation of US Expat Taxes for Americans living abroad. Incorporated in New York, Greenback's CPAs have 30+ years specialist experience in US expat taxes. We offer a flat fee ($329 for a federal return), simple process (we don't make you do all the work!) and, most importantly CPAs who are experts in the ins-and-outs of expat tax returns. For more information and to download a free guide to US expat taxes, visit http://www.greenbacktaxservices.com/

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Many American expat tax returns should include each of two benefits that may reduce the expat's tax to zero: the foreign earned income exclusion and the foreign tax credit. This article tells you the basics of the exclusion on Form 2555, and how to get this benefit. A future article will discuss FTC.

Basics of exclusion: The foreign earned income exclusion is the amount of income (salary, bonus, stock options, etc.) earned for services outside the U.S. The exclusion for 2010 is limited to $250.68 per day ($91,500 for the whole year), plus housing expenses in excess of $40.11 per day. The American expat may claim the exclusion on Form 2555. The form must be filed with a timely original or amended return, a return that is no more than a year late, or a return on which no balance is due to the IRS.

Basic requirements: To qualify for the foreign earned income exclusion for a particular day, the American expat must have a tax home in one or more foreign countries for the day. The expat must also meet one of two tests. He or she must either be a bona fide resident of a foreign country for a period that includes the particular day and a full tax year, or must be outside the U.S. for any 330 of any consecutive 365 days that include the particular day. This test must be met for each day for which the $250.68 per day is claimed. Failing to meet one test or the other for the day means that day's $250.68 does not count.

Bona fide resident: An American expat is a bona fide resident of a foreign country if he/she is legally entitled (under that country's law) to live there, and actually does live there. If he/she has a visa that prohibits residency, he/she is not a bona fide resident. If he/she files a nonresident tax return in that country for a year, he/she is not a bona fide resident of that country for that year. Example: Mary lived and worked in Hong Kong from 2008 to May 1, 2010. She took three months of extended R&R traveling in the U.S., and returned to Hong Kong August 1, 2010, for a new job. Mary made $95,000 in 2010. If Mary had a resident visa for Hong Kong, she could get the full $91,500 exclusion. If she did not, she could only qualify for a partial exclusion under the 330 day test.

330 of 365 Days: The physical presence test is easy to say but can be hard to count. No particular visa is required. The American expat need not live in any particular country, but must live somewhere outside the U.S. to meet the 330 day physical presence test. The American expat merely counts the days out. A day qualifies if the day is in any 365 day period during which he/she is outside the U.S. for 330 full days or more. Partial days in the U.S. are considered U.S. days. 365 day periods may overlap, and every day is in 365 such periods (not all of which need qualify).

The mechanism for counting days can be confusing. I find it easiest to draw a time line and add up the days in and out. The results are often better than expected.

Here are two examples: Fred and Julie each lived outside the U.S. and filed nonresident tax returns in the relevant countries.

Fred was in Africa on multiple assignments during all of 2009. His tax home was in Zaire from 2008 through 2011. He returned to the U.S., arriving on March 1, 2010, for extended R&R, and left May 6 to return to Zaire. He was out of the U.S. only 288 days in 2010. He did not return to the U.S. through May, 2011, when he filed his American expat tax return. He earned no U.S. income. His 2010 salary was $91,000. Two of his qualifying periods are April 4, 2009, through April 3, 2010 (35 days in the U.S.) and April 3, 2010 through April 2, 2011 (34 days in the U.S.). These two periods together include all of the days in 2010. Fred can exclude the whole $91,000, because he met a 330 day test for each day during the year.

Julie lived in a rented apartment in Madrid but had a visa that did not permit her to be resident. She paid $1500 per month in rent. She had to leave every 90 days and renew the visa, and did weekend trips in Europe. She was out of the U.S. all of 2009 and 2011. In 2010, she returned to the U.S. to take a course during all of July, and visited friends for three weeks in March and three weeks in October, for a total of 73 days. She earned $100,000 for her work in Spain. Julie qualifies for the foreign earned income exclusion, but not all of her 2010 days qualify. Her two best qualifying periods are July 15, 2009 to July 14, 2010, and July 18, 2010, to July 17, 2011. If she extends her tax return filing deadline and files after July 17, she will have 362 qualifying days, for an exclusion limit of $90,747.

Housing Exclusion: Julie is in luck, though. She can also claim part of the housing exclusion as part of the foreign earned income exclusion. This exclusion is for housing in excess of $40.11 per day. She paid $18,000 in rent, or $49.32 per day. She can exclude the difference times 362 qualifying days, or $3,332.

Julie's total exclusion is $94,079. On her American expat tax return she also gets to claim a personal exemption ($3,650) and standard deduction ($5,700). Thus, her taxable income is negative. She owes no U.S. tax.

Count days before travel. Julie should carefully plan 2011 travel. If she had returned to the U.S. for three weeks in before July 2011, her days after July 14, 2010, would not qualify. Such a trip would have resulted in over $10,000 additional tax. Counting the days can save you a lot of money.

Conclusion: Claim the foreign earned income exclusion using Form 2555 on your American expat tax return to reduce your U.S. tax. You can qualify for the exclusion if you meet either the bona fide resident test or the 330 day test. If you still have taxable income after the exclusion, also claim the foreign tax credit for any foreign income taxes paid. The rules can be complex. Call or e-mail Steve Fox, CPA for the professional help you need to qualify for the exclusion.

Stephen C. Fox, CPA, has been helping expats reduce their international tax bills for over 30 years. He is a frequent speaker at international tax conferences, with articles published in major tax journals. Steve helps clients with tax return preparation, pre move tax and personal planning, and live personal service. Learn more about how to manage your taxes by clicking http://www.sfoxcpa.com/Expatriate-Tax.php or call Steve Fox today at 1(973) 610-5669.

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