Breaking The Shackles

Patrick, maybe you can help make some sense of this? It involves Taxes and International Employment.

Assuming you are a U.S. citizen or permanent resident, you are taxed on your world-wide income regardless of where yuo earn it. Thus, you will file your taxes as your would normally. However, for U.S. persons working abroad, you may become eligible to exclude some of the foreign earned income (if you qualify under the tests below) or to receive a credit for any foreign income taxes paid on your earnings. In order to use the foreign earned income exclusion (you may exclude up to $82,400 annually) you have to establish that your tax home is in a foreign country; and, you must establish a qualified residence in a foreign country through either the bona fide residence test or the physical presence test. A "tax home" is generally established wherever your principal place of business is. Thus, as long as your place of employment is outside the U.S. (in a foreign country) and that your employment there is expected to continue for at least a year, then you have a "tax home" in a foreign country and you meet this test. Bona fide residence is established if you live for an uninterrupted period that includes a full calendar tax year in a foreign country. The physical presence test may be met if you are present in a foreign country for 330 days out of ANY consecutive 12-month period. If you qualify under the bona fide resident or physical presence test for the full year, then you may exclude foreign earned income of up to $82,400. If you qualified under the physical presence test for part of the year, then you may qualify for a partial exclusion (i.e. calculated as the ratio of the number of qualifying days divided by 365 multiplied times $82,400). To claim the exclusion you must fill out form 2555 (see http://www.irs.gov/pub/irs-pdf/f2555.pdf). If you will not meet these tests, then you may not exclude any foreign earned income from U.S. taxation. However, you may be able to take as a credit any foreign income tax paid on the income you earned to the country in which you worked. See IRS Publication 514 at http://www.irs.gov/pub/irs-pdf/p514.pdf. If you are out of the country on 4/15/2007, you receive an automatic two-month extension to 6/15/07 to both file and pay your 2006 income taxes. Please know that if you do owe income taxes and pay by 6/15/07, you will pay interest on the amount owed for the 2-month grace period. You may also want to review IRS Pub 54, which provides information regarding U.S. citizens working abroad at http://www.irs.gov/pub/irs-pdf/p54.pdf.

Of course, this is for last years taxes I imagine. Just trying to figure out the best course of action for when taxes need to be filled. Thanks