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Q: Living abroad ( Answered 5 out of 5 stars,   3 Comments )
Subject: Living abroad
Category: Miscellaneous
Asked by: regino-ga
List Price: $15.00
Posted: 01 Nov 2006 16:48 PST
Expires: 01 Dec 2006 16:48 PST
Question ID: 779255
Can you tell me what the IRS rule is on Americans living abroad for an
extended period of time.  I have heard over the years that if you
don't come back to the U S for a certain period of time you are not
required to pay taxes to the U S government.  Example, if I, (an
American citizen), retired in italy and stayed there for two years
before returning to the U S, would I have to pay the IRS any taxes on
investment income I received while abroad?
Subject: Re: Living abroad
Answered By: hummer-ga on 01 Nov 2006 17:32 PST
Rated:5 out of 5 stars
Hi regino,

Sorry, but it doesn't matter how long you stay abroad, all U.S.
citizens must declare their worldwide income. Even people with dual
citizenship who have made their permanent homes abroad must still mail
in their 1040 forms every year. That is the bad news, the good news is
you may qualify for the $80,000 Foreign Earned Income Exclusion (must
be earned income, not income from investments).

I am a U.S. citizen working abroad. Are my foreign earnings taxable?
"A U.S. citizen or resident alien is generally subject to U.S. tax on
total worldwide income. However, if you are a United States citizen or
a resident alien who lives and works abroad, you may qualify to
exclude all or part of your foreign earned income."

Topic 853 - Foreign Earned Income Exclusion ? General
"If you are a United States citizen or a resident alien who lives and
works abroad, you may qualify to exclude all or part of your foreign
salary or wages, or amounts received as compensation for personal
services rendered from your income..."

Topic 854 - Foreign Earned Income Exclusion ?Who Qualifies?
"To be eligible to claim the foreign earned income exclusion or the
foreign housing exclusion, you must have a tax home in a foreign
country and meet either the bona fide residence test or the physical
presence test."

"If you are a U.S. citizen or a resident alien of the United States
and you live abroad, you are taxed on your worldwide income. However,
you may qualify to exclude from income up to $80,000 of your foreign
earnings. In addition, you can exclude or deduct certain foreign
housing amounts. See Foreign Earned Income Exclusion and Foreign
Housing Exclusion and Deduction, later."
To claim the foreign earned income exclusion, the foreign housing
exclusion, or the foreign housing deduction, you must satisfy all
three of the following requirements.
 1. Your tax home must be in a foreign country.
 2. You must have foreign earned income.
 3. You must be either:
    1. A U.S. citizen who is a bona fide resident of a foreign country
or countries for an uninterrupted period that includes an entire tax
    2. A U.S. resident alien who is a citizen or national of a country
with which the United States has an income tax treaty in effect and
who is a bona fide resident of a foreign country or countries for an
uninterrupted period that includes an entire tax year, or
    3. A U.S. citizen or a U.S. resident alien who is physically
present in a foreign country or countries for at least 330 full days
during any period of 12 consecutive months."
Tax Home
"Your tax home is the general area of your main place of business,
employment, or post of duty, regardless of where you maintain your
family home. Your tax home is the place where you are permanently or
indefinitely engaged to work as an employee or self-employed
individual. Having a ?tax home? in a given location does not
necessarily mean that the given location is your residence or domicile
for tax purposes."

Form 2555  Foreign Earned Income Exclusion

Form 2555-EZ
"Form 2555-EZ has fewer lines than Form 2555. You can use this form if
all seven of the following apply.
 * You are a U.S. citizen or a resident alien.
 * Your total foreign earned income for the year is $80,000 or less.
 * You have earned wages/salaries in a foreign country.
 * You are filing a calendar year return that covers a 12-month period.
 * You did not have any self-employment income for the year.
 * You did not have any business or moving expenses for the year.
 * You are not claiming the foreign housing exclusion or deduction."

Form 2555 - EZ

Proposed Tax Treaty with Italy,,id=96739,00.html

U.S. Citizens and Resident Aliens Abroad - Automatic 2 Month Extension
of Time to File
How To Get The Extension
"To use this automatic 2-month extension, you must attach a statement
to your return explaining which of the two situations listed earlier
qualified you for the extension.",,id=96768,00.html

I hope this helps. If you have any questions, please post a
clarification request and wait for me to respond before closing/rating
my answer.

Thank you,

Search strategy:
I know the subject well and I searched the IRS website for relevant links.
regino-ga rated this answer:5 out of 5 stars and gave an additional tip of: $5.00
Excellent work.  Thank you very much.

Subject: Re: Living abroad
From: myoarin-ga on 02 Nov 2006 04:15 PST
Hummer-ga does indeed know the subject well  - as answers to many
questions has shown.  I am an US citizen living in Germany for
decades; the information is correct.

I am sorry that someone raised false hopes.  It is good that you asked
and got correct information, even if is is not what you wanted to
hear.  I am writing this because questioners who are disappointed by a
correct answer sometimes let this affect the way they rate the answer,
which is unfair to the Researcher - sort of liking punishing the
bearer of bad news.

Enjoy your stay in Italy.

Regards, Myoarin
Subject: Re: Living abroad
From: frde-ga on 02 Nov 2006 05:32 PST
The double taxation stuff is not that onerous.

You can offset local taxation which is generally higher than that of the US.
Subject: Re: Living abroad
From: hummer-ga on 02 Nov 2006 17:21 PST
You're welcome, regino, and thank you very much too! As frde
mentioned, filing a 1040/2555 every year in addition to the country
where you are living isn't too bad once you get the hang of it, just a
bit of a pain.


Hi myoarin, as usual, tis nice to hear from you.  H

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