Job Discussion Forums

[naturegirl321]

Ok, I understand taht in some countries, like the MIddle East and Korea, you are exempt from paying local taxes. So in that case, I would assume that you have to pay US taxes, right?

I mean, you have to pay taxes to some country. And in order to file the 2555, you have to have your tax home in another country.

So, let's say you work in Saudi, extempt from Saudi taxes, so you can't file the 2555, correct? And you pay American taxes?

Anyone know about this?

[fladude]

The basic exemption doesn't change. If you aren't making over the limit then you are fine.

You will, by the way, pay taxes in every country on earth. Some countries do not have an income tax. But all countries have taxes.

[Glenski]

Americans must file practically no matter what. You don't have to pay taxes on foreign earned income under about $87,500 (amount changes every year), but you must still file!
http://www.irs.gov/faqs/content/0,,id=199953,00.html

Get the tax situation straight, too. That is, "local taxes" could mean city/resident taxes to some people, whereas you are actually trying to say income tax for the foreign country. Semantics, but it means a lot here!

[naturegirl321]

Sorry, I meant income tax. IS there any way to get out of paying income tax in the US if you don't pay where you work, ex. Saudi, etc.

[johnslat]

Dear fladude,

No taxes -local or USA - to be paid in Saudi, as long as you're not making over $87,500 a year (and not too many EFL teachers do, I'd imagine.)
You file US tax forms in Saudi (or you should,) but you don't pay.
Regards,
John

[naturegirl321]

[johnslat]

Dear naturegirl321,

Residence or physical presence:

1) A U.S. citizen who is a bona-fifed resident of a foreign country or countries for an uninterrupted period that includes a complete tax year, or

2) A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona-fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or

3) A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

"Foreign Earned Income Exclusion
If you have your full time residence abroad for a full calendar year, or live there for 330 days out of any consecutive 12 month period, you can exclude up to $87,600 of earned income from U.S. Income Taxation for 2008 and lesser amounts in earlier years. If you are married, and both of you earn income and reside and work abroad, you can also exclude up to another $87,600 of your spouses income from taxation. These exclusions can only be claimed on a filed tax return and is not automatic if you fail to file your Form 1040 for the year it applies as well as the appropriate forms claiming this exclusion. This is a fantastic advantage for people who live and work outside of the U.S. Earned income is that paid you for your work or services and does not apply to rental income, dividend or interest income, or other types of income that is not paid for your own personal efforts.
You can also claim an additional exclusion from your U.S. taxes in excess of the $87,600, if the rent, utilities, etc. you pay on your residence abroad and other living expenses exceed a standard amount (which is currently approx $13,000 per year) established by the IRS. This exclusion only comes into play when your earnings are in excess of the $87,600 foreign income exclusion and is limited by new laws enacted in 2006 to a maximum of approximately $13,000. Note that over 100 cities in the world have higher allowable housing deductions. See the instructions to Form 2555 to see that list of cities with the higher allowable cost of housing."

http://www.taxmeless.com/page4.html

I filed every one of my nineteen years in Saudi; I never paid ANY taxes, to the US or to Saudi.

Regards,
John

[naturegirl321]

Thanks johnslat. I get that. BUT, What do you make of the "statement to foreign authorities" on page 14 of Pub 54?

THAT?S what's throwing me off. If you say that you "are not subject to their income tax" then " you are not a bona fida resident"

So I guess then maybe if you are not consider a resident, then you could do the physical presence test?

This is why people dread taxes, nothing is cut and dry.

[rusmeister]

[johnslat]

Dear naturegirl321,

Statement to foreign authorities. You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country, and the authorities:

Hold that you are not subject to their income tax laws as a resident, or

�Have not made a final decision on your status

As you can see, first, you never make such a statement to the authorities in Saudi, and second, they have NO income tax for ANYONE in Saudi.

Believe me, an American working in Saudi doesn't have to pay income tax unless he/she makes more than $87,600.
(But he should file, anyway.)

Regards,
John
[/u]

[kazachka]

just make sure you don't spend over 35 days in the US each yr and you will be fine. You have to file, but you will be exempt on anything up to 87,500 and unless you are working for an American firm, it's not so easy to verify that amount if you get my drift "I'm an EFL teacher and make 200$/month, prove that I don't!" You just put a ballpark figure of your income on the form when you file and that's it.

[johnslat]

Dear kazachka,

You can spend more than 35 days out-of-county once you "establish residence," and the first year, you can establish residence by getting an extension and filing later.

I never used the "Physical Presence" out; I always used the "Resident" route.

Regards,
John

[Glenski]

[rusmeister]

[Stephen Jones]

You'll be given a residence permit, called an iqama. That establishes residence.