Money is not created in today’s world by the amount of work you do, how much you spend or where you spend it. Information is everything and it is very important to know where you can maximize your savings, and where you must be able to put your investments so they may grow. Taxation becomes part of these saving measures, and most people do not know how much can be gained by filing with the US IRS under particular forms, especially people who work abroad and feel they have to pay dual taxes – one as citizens of the United States, and another as residents of the country they may be living and working in. For example, under the Foreign Income Exclusion, you can actually eliminate your entire tax liability if you are an expatriate – imagine how much you can end up saving in taxes simply being aware of what the rules are. While this is no comprehensive list, and everything should be checked and spoken with again by your auditor, here are some ways you can check if you are eligible for tax savings, and what you can do to save the money that you earn abroad.
1. To begin with, check all your financial records and compare them with the time you began earning abroad, including the number of days you spent there. Even if you haven’t lived abroad while you were paid for working on a service that was rendered while you were living abroad, that is still considered foreign income, so ensure that you know which is considered as foreign income and which is not. There are many ways to determine this, by checking under the Residence Tests or Physical Presence tests will let you know if your income qualifies as foreign earned or not.
2. Next, get the Foreign Income Exclusion to work for you by filing for a tax return via the Form 2555 and Form 1040 which you must file with the IRS. It is a wonderful mechanism that will ensure that you don’t pay tax twice for your income, although it requires you to state your intentions pretty clearly which is why it is a good idea to have clear evidence of your past records.
3. There is also the Foreign Tax Credit that allows you to reduce the taxes that you pay to the country that you are living in and this is created because U.S. has entered into many financial treaties with countries around the world where you may get a reduction of varying percentages to pay to that country’s income tax department. For example, the treaty between India and US shows a reduction of tax from 30% to 15% on the income earned.
4. Allowance for housing is also given and this allows you to save more money while you are abroad – this is in the form of Foreign Housing Allowance. This exclusion works by understanding that your cost of living, including living expenses may be considerably higher in places around the world and an allowance is made based on the location you are in for protecting you against the change in rates.
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I'm Louida from Atlanta, Georgia and I'm a mother of two daughters, blogger, and full time working mom at a Business Consulting Firm.
I love helping others learn how to start working from home on the internet free to supplement their current income.
I also blog at Productreviewmom.com
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