Taxes?

[Danda]

My wife and I interviewed for jobs and are waiting for an offer. We know what the salary scale is, housing benefits, etc... All the benefits are great. But, we are trying to figure out how the money will be tax free in the States (legally tax free). We know it will be tax-free in the country we will be working.

We are US citizens and want to figure out how other AMericans get around paying taxes. According to the IRS, we must either meet the bona-fide residence test or the physical presence test. It doesn't appear that we will qualify for the bona-fide residence exemption as that requires year round residence. And the physical presence test requires that we live abroad for 330 days in a calendar year. So, if we go home for 6 weeks during the summer, that will be short of the required 330 days and technically we must pay income taxes on that foreign income. I can imagine you can just fudge it and say you were abroad for 330 days. If they decide to verify that information, you are screwed.

So, what does everyone do? I have heard that some people just don't file or fudge the filing. I would prefer to keep things legal so that i don't screw myself or my family. Am i over thinking this?

I want to make sure that my money is tax free. If it is not, than it may not be worth accepting the position as i will also lose access to IRA's, social security and medical coverage in old age.

Thanks for any info.

[Danda]

Or will we qualify as bona-fide residence as our belongings will remain in the country we are working, we will be receiving payments in said country and we will only be visiting the US for a short while.

Just though of that.

[scribe]

While some states appear to be pickier than others (we know people who make sure to go to Canada midsummer each year to avoid problems), mostly you need to stick to the spirit of the law. We don't take a homestead exemption on our house in the US. We make sure not to earn any money there. We register as absentee voters. We fill out each and every form accurately - residents of country X, citizens of USA. We pay the extra $30 or so to H&R Block which says that if they make a mistake, they pay for it up to a fairly generous amount - more than which we would never owe as we are, after all, teachers. Our tax person there is an attorney with a specialty in expats - I'm pretty confident we'll be okay, in spite of spending 8 weeks each summer in the US. Good luck.

[interteach]

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[Danda]

Thanks for the great info. I will definitely check with an accountant and find Publication 54.

Regarding the medicare: I was refering to the 40 quarters requirement. I read somewhere that if you fail to work 40 quarters you may not be elgible for medicare.

Also, i read somewhere that federal disability can be a problem. Apparently, to qualify for federal disability you must have been working the 5 years prior to the disabling event. I need to look into that one though. I remember something about that from a while back.

Thanks again.

[Danda]

After reading Pub. 64, it looks like i should easily be able to qualify as a bona fide resident. When i first saw mention of the bf resident requirements i thought it meant you had to be out of the US for a full tax year but it doesn't work that way.

The weird thing will be applying for the huge entension. I will be going abroad in August of 2008. However, i won't be able to apply for the bona fide residence exemption until January 2010 because 2009 will be the first year i will spend abroad for a full tax year. Then, it makes the bf ruling retroactive to the time i left the US (August 200*8) at which point i can file my 2008 taxes. That is just weird.

I guess it is worth it not to have to pay taxes.