Hi,

I am working in the UK currently. The way I understand the international tax treaty between UK and US is that the US IRS will take the x amount tax paid in the UK and will calculate my US tax: Gross income (converted to $ and thus y% US tax bracket) - x amount tax pd = US %/amount tax due?

Part two to my question is:

My biggest tax deductions can be deducted in the UK (via my Ltd Company) OR in the US (my primary country for paying tax). I am trying hard to limit the amount of tax due in England to gain as much of the strong pound (compared to the US dollar). Am I not shooting myself in the foot as wouldn't it indirectly mean that I pay more tax in the US, if I understand the above tax calculation correctly?

Thank you for your advice.

On your U.S. tax return, you must report your world wide income. If you paid taxes in the foreign country, you will claim credit for taxes paid in the foreign country by filing Form 1116 or can file form 2555 Foreign Earned Income Exclusion. Even if you have a filing requirement, the chances are you will not pay any U.S. tax or pay very little U.S. tax.
Another filing requirement is Form TD F 90-22.1. Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income (http://taxipay.blogspot.com/2008/03/us-citizen-or-resident-with-foreign.html)

My problem is that I was in the USA for 2 months of last year and I was told that for this reason would be liable to pay tax in the US as well. With this said, am I understanding the tax treaty wrong?
Thanks

LouisMarelise:

In your posts, you have never identified whether you are a U.S. citizen, a green card holder, a U.K. citizen, or a citizen of another country. This information is needed for us to properly evaluate your situation.