US Citizen residing abroad and earning US income

Living abroad does not affect your residency if you're a US citizen. It only affects if you're on green card. You still get to take itemized and standard deductions. You continue to deduct property tax on property you own anywhere in the world, such as your house in the US. You can only deduct mortgage interest on your primary and one secondary home provided you live in the secondary home for at least 14 days of the year or 10% of the time it was being rented out.

It looks like because you're working in India you ought to be paying tax to India. You should ask your company to withhold India tax, and no US federal tax. On your US tax return you can exclude about 90k of foreign income. If your income is higher, or if you choose not to use the foreign earned income exclusion, then you report the income on your US tax return (line 7 of 1040) and can claim the foreign tax credit on form 1116 for taxes paid to India, so that you aren't double taxed. If you use the FEIC, the tax credit is only available on the amount above the FEIC -- that is if you make $90,001 and the FEIC is

90k, then the foreign tax credit is only computed on the tax you paid to India on the extra $1.

If you plan to return the US to the same state you were living in before, then you should continue to withhold state tax.

However, if you're a resident of CA and are sent away on a company contract of at least 546 days, and your income is under 200k, then you will be considered a non-resident. See

for "safe harbor".

Does this mean that if a US citizen works in a non taxed place such as some middle east countries like UAE and earns less than $90k, he pays practically no income tax whatsoever. Asking cause that would make me look at that possibility.

Thanks,

-Antony

Yeah, I was thinking of this when I wrote my post. Seems from the instructions to form 2555 that you can apply the exemption.

So your income will be tax free. If the foreign country tax rate is

5% just still get to use the FEIC, so why not if the foreign country tax rate is 0%. Besides, it seems to me that if you in world where there is no income tax, then market forces will make things more expensive, or make the sales tax more, etc so that it all evens out.

I am not sure about the "Till date there has been no foreign income". If that means you are stating you have no Indian income, that may be a wrong assumption. When you telecommute from India, it may be considered Indian source income and hence taxable in India. See

in 'Not Ordinary Resident' category means 'the income in India is taxable in India'. That's practically 30% flat

-Antony