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Home: The Catherine Ditman Group
A Network of Tax & Finance Professionals

We are experienced in helping Americans living overseas, along with nonresident and resident aliens, to unravel the complexities of tax treaties and dual nationality issues.

Here are the top 10 most frequently asked questions concerning expat issues:

  1. What is the foreign income exclusion and how does it apply to me?
    In general, if you are a U.S. citizen or resident alien of the U.S. who lives abroad, the United States taxes you on your worldwide income, but you may elect to exclude a certain maximum amount of your earned income. This maximum was $82,400 for income earned in 2006. U.S. government employees are generally ineligible.

    Beginning in 2006, the calculation of the amount of tax due for individuals electing the exclusion changed dramatically. Generally, you no longer may subtract the excluded amount from your total income (on page 1 of your Form 1040) and compute the tax that follows from the reduced taxable income. You must now compute your regular tax by a formula:

    a) Compute your taxable income as under the old rules, then add the excluded amount to the result; figure your tax on the increased taxable income.
    b) Figure your tax as though the excluded income were your only taxable income.
    c) Subtract b) from a). Your tax is the difference between the two.

    Alternative minimum tax is computed similarly.
  2. What about the foreign housing exclusion or deduction?
    The basic conditions are the same as for the foreign earned income exclusion. The housing exclusion applies to amounts paid by your employer. The housing deduction applies to amounts paid with self-employment earnings. As with the income exclusion, U.S. government employees are generally ineligible.

    However, also as with the earned income exclusion, the computation of the exclusion or deduction changed radically. The general rule for the so-called "housing cost amount" is that it is the qualified foreign housing expenses you pay, but limited to 30 percent of your foreign earned income exclusion for the year, less 16 percent of your foreign earned income exclusion for the year. This in effect limits the maximum housing cost amount to $82,400 x 14%, or $11,536, although if you live in certain high-cost localities, you may be able to claim an increased housing cost amount.
  3. Where do I file my U.S. tax return?
    Mail it to the Internal Revenue Service,
    Austin Service Center
  4. When is my U.S. tax return due?
    April 15 of the following year, for calendar-year taxpayers, to avoid the imposition of interest charges. Generally, if you live outside the U.S. and are a U.S. citizen or resident alien, you are granted an automatic extension to file until June 15, but interest will be charged from April 15 on any balance due.
  5. What about moving expenses?
    To deduct these, you must meet distance and time (worked at new location) tests, and the move must be closely related, in both time and place to the start of work at your new location. Generally, you can deduct the unreimbursed cost of moving your household goods plus transportation to your new home, excluding meals. Expenses incurred that apply to foreign excluded income cannot be deducted.
  6. What if I marry a foreign citizen or national?
    A U.S. citizen or resident can elect to treat a nonresident alien spouse as a U.S. resident for federal income tax purposes. This election will permit you to file a joint return, but your spouse’s worldwide income will be subject to U.S. tax.
  7. I pay foreign taxes. Can I deduct them?
    Generally, foreign income taxes or taxes having the characteristics of an income tax, and real estate taxes are deductible as itemized deductions. Foreign income taxes can also generally be credited against U.S. income tax, as long as the foreign taxes aren’t paid on excluded income.
  8. What about state income taxes while I’m abroad?
    Every state has its own rules on who must file and how they are taxed. Some states don’t impose an income tax at all. Generally, if a state considers you a resident according to its laws, you must continue to file returns and pay taxes as a resident of the state.
  9. Where do I get U.S. tax forms?
    There are many ways. The best is via the internet (www.irs.gov). Also, try Tax Fax. TAX-FORM works inside the U.S. but it may not be accessible for international telephone calls. Or, contact your nearest U.S. embassy or consulate.
  10. Am I a nonresident alien or a resident alien (in the U.S.)?
    You are considered a nonresident alien if you are not a U.S. citizen, unless you meet one of the two tests to be considered a resident alien. These are the green card test and the substantial presence test. The first deals with INS registration and the second with the number of days you are present in the U.S.

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“Overseas taxation for Americans can be a minefield filled with ambiguity and confusion. Catherine Nazarene has the ability to navigate these complex waters with both competence and clarity."

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