| A US citizen or green
card holder, who is either a bona fide resident of a foreign
country for a full calendar year, or is physically present
in a foreign country (or countries) for 11 months in a consecutive
12 month period, and has a foreign tax home, may qualify for
the foreign earnings exclusion. This exempts up to $80,000
(for 2002) of foreign earnings from US taxation.
A qualifying employee may also exclude certain foreign
housing expenses from US taxes. Expenses would include such
items as rent, service charges, utility bills (apart from
telephone charges), property insurance, repairs and maintenance.
Where foreign earnings exceed the exclusions there is still
relief to be had from double taxation. The Internal Revenue
Service will give you credit for any foreign taxes paid
on earnings that are not excluded, up to the maximum payable
in the US. If you do not use all your foreign tax credits
in one year, you may carry them forward for use against
foreign earnings in future years.
Personal circumstances always need to be examined to ascertain
which exclusions can or should be claimed to minimise the
overall tax burden. The answer may differ depending on such
factors as whether you live in a tax jurisdiction that is
more or less burdensome than the USA, on the number of workdays
you spend in the USA, and on levels of unearned income.
Other items which need to be considered in the light of
a foreign assignment, and which complicate the US Tax Return
for the expatriate employee are:
• Qualifying moving expenses.
These are generally not taxable if paid by your employer,
and are deductible if not reimbursed, but the rules are
complex.
• Rental of personal residence.
Profits will be taxable, and losses deductible up to $25,000
so long as adjusted gross income on the Tax Return remains
below certain levels.
• Sale of principal residence.
The rules on ownership/use are modified if the foreign assignment
stops you from meeting the normal tests. If you rent the
property for a time before selling then this can also affect
the taxable gain or deductible loss.
• Filing your US Return.
An individual residing outside the US on April 15 qualifies
for an automatic filing extension to June 15. Unfortunately
this is only an extension to file and does not prevent interest
from accruing if tax is due.
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