Hello all,

Just trying to get a hold on some expat rules and regs.

I am a US citizen and so is my wife. We are both residents in a country that does not have a reciprocal agreement with the US.

My wife works for a US company and is paid in US dollars into an account within the US and pays some sort of income tax on that income.

I work for a company owned by a citizen of the country we live in. I am paid in local currency into a local account.

Our country of residence does not have income tax.

Couple of questions:
1. Is there anything special I need to do for my wife's income?
2. What form should I be using for filing? I was outside the US for 6months in '07 and will have been outside the US for the entire year of '08.
3. How do I get money back into the US without raising red flags and taxes?
4. Should I open an off shore? If so, can the US tax me on that money?
5. Any other advice?

Thanks for your help.

You BOTH have a legal requirement to file a U.S. income tax return, filing Form 1040 either separately or jointly, declaring all world-wide income.

You and your wife may be able to exclude all or part of your incomes under the Foreign Income Exclsuion (Form 2555) for income tax purposes.

Any attempt to establish off-shore accounts to avoid income taxes is tax fraud, which can result in prison and some really punitive tax penalties.

Because her income is from a U.S. company, your wife's salary is liable for FICA (Social Security and Medicare) taxes.

You may be liable for self-employment taxes on your foreign-sourced income (not sure on this issue).

Thanks,

We do have a tax consultant and we did fill out the 2555 for '07. How does being out for full year in '08 change our filing status?

As for the off shore, it was not for tax evasion. It was for savings, and I was unsure if it was taxed by the US. If so, then is there any benefit to having one?

Can you expound unpon the "self employment" you mentioned.

Being out of the country for the full year in 2008 should NOT change your filing status. You will still file Form 1040 (either jointly or separately) and will still complete Form 2555.

As for the off-shore account, any income generated by that account is still subject to U.S. income taxes, so, tax-wise, there is no benefit if you obey the tax laws as written.

I have not had a chance to do any detailed research, but I believe that self-employment taxes would not apply in your case, because you are in fact an employee and not running your own business. This is especially true if the country in which you are located has an Social Security-equivalent tax and there is a totalization agreement with the United States.

It would help to know the country in which you live.