Avoiding American taxes working abroad

Pennsylvania is a wonderful place to live in many respects, but many residents of the state might yearn for sandy shores, exotic cuisine or simply a change of pace. Those who follow through on these impulses could end up living and working overseas, but they may still owe US taxes. Failure to pay could end up in an audit.

The United States is one of just a few countries in the world that taxes foreign income earned by its citizens. However, for those who intend to establish a more permanent residence in a foreign nation, there could be a way to avoid paying US taxes on average-to-high out-of-country incomes.

One of the most complex steps in the process towards earning the foreign income exclusion is establishing a tax home outside of the USA. The IRS states establishment of bona fide residence abroad requires evidence of intent to stay indefinitely in the new location, among other things. 

Tax agents examine claims of foreign residence on a case-by-case basis. This tends to make it worthwhile to submit as much evidence of intent to leave the USA and intent to reside in the foreign nation as possible. Going to all this trouble is often well worth it, as the amount excluded from double taxation by establishing foreign residency is significant to the vast majority of workers.

According to the IRS, the figure for the total exclusion changes every year based on inflation. It is currently over $100,000. There are also often other deductible expenses that would further reduce tax burden ineligible situations.

Most people who go to work overseas do not have a typical income stream. In these situations, it is even more important to examine every aspect of the situation. This attention to detail should help expatriates and foreign workers get the most out of the IRS exclusions and deductions. It should also help safeguard against unpleasant audits arising from breaches of the various rules.

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John A. Cochran, Esquire
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