US citizens living abroad can exclude up to $95,100 of foreign earned income for the 2012 tax year if certain requirements are met. Be careful as earned income does not include rental income, dividends, interest, capital gains etc. because they are not earned income and will be subject to taxation. This exclusion is only applicable if you file your tax return so remember to file.
In order to get a benefit for tax exclusions, it is very important to file your taxes – exclusions are not automatic. These exclusions can be claimed on Form 2555 and attached to your Form 1040 to take advantage of these exclusions. The form will also help you to determine what you do and do not qualify for. Exclusions include the foreign earned income exclusion and foreign housing exclusion or foreign housing deduction.
Foreign Tax Credit
If you are making money working in another country, you will likely have to pay taxes in that country. The Foreign Tax credit allows taxpayers to reduce the burden of double taxation. In order to claim this credit, taxpayers must file Form 1040 and Form 1116 which will allow taxpayers to claim a credit for foreign taxes paid.
I have a US Green Card and just moved to Hong Kong. Do I need to file?
Generally, the answer is yes if you earned income. The filing requirements will be the same when you were living in the US. For more information, you can read IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
I received payment in another country’s currency. How do I file my taxes?
US tax returns must be filed in US dollars. Therefore, if you received pay in another currency (like Hong Kong dollars, China Renminbi, or Macau Patacas – MOP), you must use an appropriate exchange rate to figure out your taxable income.
Please contact us today if you would like to discuss your US tax filing requirements with one of our US tax specialists.
The information contained herein serves as a guideline and is only provided for general informational purposes. It should not be considered as offering any tax advice. Since tax laws are complex, you should consult your tax advisor on specific issues related to your tax situation.