ACA American Citizens Abroad

Basically, the situation is this:  If you're residing abroad  either as a "bona fide" resident or for a definite period  (more than a year) you probably qualify for the $87,600 (for the 2008 tax year) exclusion.    If you've earned more than that, you pay US taxes at full  rates on the part above  $87,600.  From your US tax, you can usually subtract foreign taxes actually paid (on the same  income above  $87,600).

Housing expenses can also be excluded--up to a certain maximum depending on where you live. See the revised Treasury Notice 2007-77

Practical information concerning your taxes when living abroad

Important notice:
ACA provides the information here as an introductory guideline only. The articles by Jane Bruno, tax expert, will also guide you on particular issues. For specific tax advice contact the IRS office serving your area, your closest US Consulate service or your personal fiscal advisor or tax accountant.

Legal obligation to file:

If you are an American citizen or a Green Card holder residing overseas, you are required to file US form 1040 if your worldwide unearned income is more than $2,400 and/or your earned income exceeds $6,400. Publication 501 of the IRS provides more detail on these limits. You must also file if you have realized capital gains while residing overseas.

Foreign Exchange:

All foreign revenues must be translated into US dollars. Generally, the average exchange rate for the year is applied to income. For capital gains calculations in foreign currency investments, you must apply the exchange rate applicable on the purchase date and on the sale date. Go to www.oanda.com on the web for exchange rates.

U.S. taxes due for Americans resident abroad are currently mitigated in three ways under Section 911 of the Internal Revenue Code:

• Foreign earned income exclusion
• Housing exclusion or deduction
• Applying foreign tax credits against your US taxes due

Foreign earned income exclusion

If you're residing abroad either as a "bona fide" resident or for a definite period (more than a year) you probably qualify for the $87,600 (in 2008) exclusion. If you've earned more than that, you pay US taxes on the part above $87,600 at the tax rates applicable to your adjusted gross income (including the amount of foreign earned income excluded).

Housing Exclusion / Deduction

Employer granted Housing allowances can be excluded from your taxable income up to a certain maximum depending on where you live. If you an independent working overseas, you can take a deduction for housing expenses. See Treasury Notice 2007-77 for the 2007 amounts excludable in 2007.

Tax Credits

You can reduce your US taxes due by applying tax credits related to foreign taxes you have paid on the part of your income that exceeds the foreign earned include exclusion allowed. The form used is 1116, with a separate form being required for different types of income – i.e. passive income, salary in excess of the foreign earned income exclusion, other income. Tax credits on any one category cannot exceed the amount of US tax due on that category. If you reside in a very high tax country, your foreign tax credits may eliminate your US tax burden, but if you live in a country with no personal income tax (such as the Middle East), you will not have any foreign tax credits available and will owe taxes to the United States. In many countries with average tax rates, your foreign tax credits may reduce but not completely eliminate your US tax burden.

US Treaties against double taxation

The United States has signed treaties against double taxation with several countries. These treaties are negotiated individually and do not all include the same provisions. If you live in one of these countries, you may want to consult the treaty.

Jane Bruno Tax Advice

Latest updated tax information from ACA's tax expert Jane Bruno. She has a lot of information of interest to US tax-payers living abroad

Check out Jane Bruno's website at www.expattaxpreparation.com where you can buy the latest of edition of the "Expat's guide to US  taxes" as well as join her new blog on taxes abroad .

Taxation on Citizens who renounce their American Nationality

ACA exists to defend the rights of American citizens residing overseas. In no way does ACA encourage Americans to renounce their nationality. Americans residing overseas are patriotic and emotionally attached to their country of origin. However, for various reasons, an individual may need to renounce his/her American citizenship. Very few do so – only a few hundred per year out of the estimated 4 to 6 million Americans overseas.
ACA informs those who wish to renounce their nationality that the US has passed a series of laws over several years on the presumption that the principal reason for renouncing one’s American nationality is for income tax avoidance purposes. These laws come under Section 877 and Section 7701 (n) of the US Tax Code. These laws penalize and discriminate against individuals renouncing their American nationality. In October 2007, the House Ways and Means Committee reviewed even more rigorous rulings in this area. As argued by Professor Michael Kirsch in his paper “The Tax Code as Nationality Law,” Congress has exceeded its Constitutional authority with the laws it has passed concerning the renunciation of US nationality. Anyone facing this dilemma would be wise to seek legal advice and to consult Professor Kirsch’s article. Go to law.nd.edu.