Tax Center

The long arm of the Tax Code does not stop at the U.S. border

From the Nolo.com Taxes & Audits Center

If you live abroad and have income, you will still have to file a tax return. You must also have taxes withheld or pay quarterly estimated taxes if you are working abroad. But the tax bite may be substantially reduced if you qualify for the foreign earned income exclusion of $78,000 per year, or the foreign housing exclusion and the foreign housing deductions. (See IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. You can download this form from the IRS Web site at http://www.irs.gov.)

You may also owe taxes to the government of the country where you reside. Some countries give you credit for taxes you pay to Uncle Sam; others won't. It depends on whether or not that country had an ax treaty with the U.S. Also, estate and inheritance tax laws vary widely across the globe.

Renouncing your U.S. citizenship to beat the IRS won't work, either. You remain subject to U.S. tax laws for 10 years after renunciation! Norman Dacey, author of "How to Avoid Probate," found this out when he became an Irish citizen. He challenged this law in the U.S. federal courts -- and lost.

There is one bit of good news. While you are subject to U.S. tax laws, it is very difficult for the IRS to grab your wages or assets located outside of the U.S. Some countries, mostly in Europe, have treaties with the U.S. in which their tax agencies can cooperate with the IRS and collect from Americans, but most governments place a very low priority on working these kinds of cases.

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