Legal Question in Tax Law in Florida

Generally speaking, a U.S. citizen is subject to the world wide income rule. This means any income earned anywhere in the world is subject to income tax. By making timely and appropriate elections and meeting foreign residency requirements, certain income can be excluded from inclusion in your U.S. income. While the rules are bot terribly complicated, their application can be tricky because of definitions, the residency abroad time period requirements. etc. There is also a cap on the amount that can be excluded. Any further details would require a detailed factual discussion and, perhaps, legal research.

First, IRS Circular 230 limits use of attorney advice on federal tax matters unless certain formalities (including detailed factual disclosures) are followed. Therefore, you cannot use this information to to avoid taxes or penalities on underpaid taxes on the matter you described.

The US taxes the world-wide income of all its citizens and resident aliens. To prevent double taxation the US does give credit to taxes in posed by foriegn governments.

However, the US also provides a Foreign Earned Income Exclusion. This essentially excludes foriegn income from US taxes if certain factors are met: 1) US person having a "tax home" (place of business or employment) in a foreign country; 2) a bona fide residence (reside in foreign country uninterrupted for entire tax year) or be physically present in a foreign country for at least 330 full days during the 12 month period (generally may not return to the US at any time within the 330 day period - can be on vacation in another foreign country though); 3) exclusion amount is $91,500 per qualifying person (worker) for 2010. There so also an exclusion for housing allowance.

Please refer to IRS publication 54 and Form 2555 on www.irs.gov for more information.

Thomas Shigo