When you live out of the US and work out of the US, you still owe taxes to your country of citizenship. This is called an expat taxes. Though you have severed many of your ties to home, you will always remain an American. With all the wonderful things that come with that, there also come taxes.
America still lays claim to you as a citizen in the payment of taxes. Paying taxes when living abroad gets a bit interesting – the international section of the code is said to be the most complicated one (And remember the US tax code is known for being complicated already). If you are not careful about your tax planning strategy, the IRS may flag you and keep a close watch over you; keep in mind that with proper planning and reporting, guided by a qualified professional, you will not have to worry about compliance and an IRS audit would not result in any penalties or taxes. (expat taxes)
If you lived abroad full time last year or at least 330 days out of the 365 days of the year, you probably qualify to take the Foreign Earned Income Exclusion. This allows you to exclude up to $91,500 of your earned income for the year. Earned income counts as everything that you earned from your job during the year. This does not include income acquired in other ways like rentals, dividends, interest earned, etc.
If you are married, and your spouse also works, you may double the amount of the exclusion on your expat taxes. Expats may also claim an exemption for their housing costs. This amount is above the general housing exclusion that the Federal government has set up. In addition, there are foreign tax credits that can be claimed on your expat taxes. When you work abroad you may have to pay foreign taxes as well as US taxes. These foreign tax credits can help to relieve the burden of paying taxes twice. In most cases, you will be able to offset your US taxes enough that you will not have to pay redundant taxes.
The US has established tax treaties with more than 60 foreign countries. This means that they have negotiated tax codes with other countries to make sure that you don’t have to pay taxes twice. It also means that the foreign country will honor the taxes you pay to the US and make those like a credit on their tax forms. There are perks specific to each country so check out the treaty for where you live. It is always a good idea to file expat taxes even when you live abroad; you are not invisible to the IRS even if you don’t live in the US.