Living as a US expat and wondering about taxes

As long as you are a US citizen or resident you are subject to US tax. If you live abroad, you are still required to file a tax return. However, between the foreign earned income credit & foreign tax credit, there may not be any tax liability. ___________________________________

-----> real address on hobokeni or hobokenx

It is referred to as "Foreign Source Income" which means you earned it (read: it is not interest, dividends, or capital gains) while residing outside the United States. Establishing a residence is a critical isssue.

Be aware that some States (e.g., California and Maryland) believe you are a resident of their State until you establish residency in another U.S. State.

Dick

Not as a general rule. It depends, first and foremost, on whether or not you're a U.S. citizen or a non-citizen permanent resident (i.e., greencard holder). If you are, you are taxable on your worldwide income regardless of whether or not you ever set foot in the US again. This rule applies until you either lose your US citizenship or your greencard. However, if you give up your citizenship or your greencard for tax-motivated reasons (which you are presumed to have done in the absence of evidence otherwise), you will continue to be taxed as a resident for ten years following the year in which you give up your citizenship/greencard; further, if, during that 10-year period you are physically present in the US for 30 days or more in any one year, that year does not count. See Code Section 877. If you're not (i.e., you are a resident alien who is not a permanent resident), then once you meet the tests for terminating your US residency for federal tax purposes, see Code Section 7701(b), which could be as quickly as the year following your last year of residency, or as long as three years after that last year (although it's difficult to stretch it out to three years), then you are no longer taxed on your worldwide income and instead are only taxed on your US-source income and certain types of foreign-source income that is effectively connected with a US trade or business and is, as a general matter, connected with a US office or place of business.

The Foreign Earned Income Exclusion may eliminate your taxes but the actual amount of exclusion depends on a number of factors unique to each situation. You may exclude some or all of your earned income if:

1. You are a bona fide resident of a foreitn country. That means you must live and work there and, if necessary, pay taxes to that country, or
2. You are physically outside the US for 330 days out of any

12-month period. Only income earned during the period outside the US may be excluded. Regardless of the basis for the exclusion, your tax home must be outside the US. That is, you must earn the money by providing your services outside the US. The maximum exclusion is $82,400. The allowable amount is pro-rated on the number of days that you qualify. There are other rules but this is the basic summary.

The exclusion is for income tax purposes only. If you are self-employed or an independent contractor you still have to pay the self-employment social security tax and, if you work for a US company or affiliate, you will have the SS taxes withheld. Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

Hmmm...

methinks you have been speaking to people who earn income outside of the US. As a US Citizen, the US Model Tax Treaty ALWAYS reserves the right of the US to tax its citizens as the US sees fit. That clause is in every US Tax Treaty and is a nasty clause. Now, you may have mixed up the Foreign Income Exclusion (FTE) that every US Citizen can take. Form 2555 allows up to about $80,000 USD per person not to be taxed by the US. BUT it has to be taxed by the foreign country. If you are moving around, you won't likely be taxed in the other country. This is an ELECTION and will REVOKE other credits like Child Tax Credits. Alternatively, you can claim the Foreign Tax Credit (FTC) for the taxes paid to the Foreign Country. You are not allowed to claim FTC for those amounts you claimed on the FTE. Unlike the FTE, FTC does allow you to claim other credits like Child Tax Credit, if you are still permitted. The form is 1116 and generally people will have more than one. Claiming FTC or FTE generally requires you to paper file with the foreign tax return attached to the Texas IRS centre. Used to be Philly but that is closed. DO NOT REVOKE YOUR FTE TO CLAIM FTC! This would be a bad thing as it can not be corrected easily or changed for several years.

Actually, that's true of Maryland and many other states, but not of California. California law does not require an individual to establish a domicile elsewhere in order to become a nonresident for income tax purposes. All that is required is that the individual be absent from the state for a purpose that is not temporary or transitory. In addition, California law provides a "safe harbor" for a domiciliary who is absent on an employment-related contract for an uninterrupted period of at least 18 months, during which he or she is not present in California for more than 45 days, in the aggregate, in any calendar year. Subject to some exceptions, such a person is deemed to be absent for a purpose that is not temporary or transitory and, therefore, a nonresident. However, many states consider an individual to remain a tax resident as long as he or she is domiciled in the state. In order to change domicile, a person must abandon the previous domicile, move to and reside in a new location, and intend to remain in the new location permanently or indefinitely. Generally, states do not consider a U.S. citizen to establish a new domicile in a foreign country, because that person generally intends to return to the U.S. eventually. In that case, unless the state law provides a special rule for expatriates (as some do), the individual would remain a tax resident, taxable on all income regardless of source, during his or her absence In addition, many states do conform to the federal earned income exclusion; however, some states, including California, do not. Katie in San Diego

Moderator: I stand corrected as Katie is the resident authority on State Taxation.

Ah,

FICA Taxes are subject to treaty considerations.

The Canada-US Tax Convention allows that a resident pays FICA (Social Security and Medicare) only to the state of residence. So a US Citizen, self-employed in Canada, earning less than $82,000 USD per year can take the Foreign Income Exclusion plus claim treaty benefits to not pay Social Security or Medicare. But better not have any young children. This clause depends on the treaty. I think Canada-US Treaty is unique in this clause but I could be wrong.

It seems based on the above that a California resident can be a resident of two states at the same time. For example, a taxpayer moves to another state for a job that is expected to run for a period of anywhere from 6 to 15 months. As they relocated for a purpose and did not intend to stay permanently, they could still be a CA resident. However, as the job started in Dec 05 and they were a resident in the other state for the entire year of 2006, then that state would also consider them a resident. Is this correct? Would a "resident" state tax return be filed for each state or would the state w/ the temporary job be a non-resident return in spite of the physical presence?

First, thanks everyone for your replies. I was running on wrong information. If I have to be outside the US for over

330 days, declare another country my residence, and pay that country taxes instead, then this is all academic since I do need to be in the US for more than 35 days a year and I would be traveling all over the world pretty much continuously. I will be traveling to the casinos around the world doing reviews of them. Two weeks at one then move onto the next one. As for state taxes, if I am going to be out of the US a lot, I guess it would be a wise decision to make my state of residency in a state without a state income tax. As far as I know, there's only two states like this. Nevada (thanks to the casinos) and Alaska (thanks to the oil). In fact, doesn't Alaska pay its residents money and not collect any? Or am I misinformed on that or more as I was about not having to pay taxes if I'm out of the US for most of the year? And I will be doing the casino reviews as one of the things I will do as a host of an Internet radio show (a.k.a. podcast). A show I will own and be paid to produce. Does that factor into anything here? Like which state to make my state of residence? Right now, I'm a resident of Wisconsin. From what I've read, The Land of the Cheddarheads is one of the most heavily taxed states in the Union and thus one I probably should switch for another state. Good veteran benefits, but since I'll be out of the state pretty much all of the year, I doubt they will be worth the state income taxes I'd have to pay. Scott

"San Diego CPA" wrote:

It is entirely possible, and frequenly happens, that an individual is a tax resident of two states at the same time. In that case, both states require resident income tax returns, taxing all of the individual's income regardless of its source. Each state defines residence by its own statutory rules. Generally a person whose domicile is in the state is a tax resident, although some states (e.g., California, Illinois, Arizona) allow a domiciliary to be a nonresident under some circumstances. A person who is a resident by reason of domicile may be referred to as a domiciliary resident. In addition, most states define a resident to include individuals domiciled elsewhere who are present in the state for a purpose that is not temporary or transitory (as in California), or who maintain a place of abode and spend a minimum amount of time in the state (often, 183 days -- see, e.g., NY, NJ, PA). A person who is a resident by virtue of presence in the state, rather than domicile, may be referred to as a statutory resident. It often happens that an individual is a domiciliary resident of one state and a statutory resident of another at the same time. In these "dual residence" situations, some credit is usually allowed by one state for taxes paid to the other, but some income may not be creditable. Generally, states allow their residents credit for taxes paid to another state on income that has a source in the other state. A few states do allow credit for taxes paid to another state on any income taxed by the other state, whether the other state taxes it on a source or a residence basis. In general, a person who is taxed as a resident by two states can expect to pay state income tax on income from intangibles (interest, dividends, gains/losses on sales of intangibles, etc.) to both states with no credit relief, because intangible income is generally considered to have its source at the residence of the owner -- hence, it is source income in both states, and neither state will allow credit. Income from real property, tangible personal property, business activities, and personal services (salaries, wages, earnings) generally has its source at the location of the property or the place where the services are performed, and the other state generally will allow credit for the tax paid to the source state on that income. But the analysis is complex and has to be done on a state-by-state basis, because there is so much variation. Katie in San Diego