USA, Canada /
Will Americans flee from the US to Poland? [161]
As Providence would have it, I decided to hop on PF one last time to check my PMs and saw this thread.
Eight of my 20 years working in tax was dedicated exclusively to international tax issues. So, as an attempt to help American taxpayers abroad from having to face IRS headaches I offer the following:
American citizens and permanent residents (aka green card holders) must pay tax on their worldwide income and must file an income tax return if they earn more than the standard deduction. That is the fundamental. It doesn't matter where that income is sourced, if you are a citizen or permanent resident of the USA you are taxed on all income, regardless of where it is earned or where your tax home is. So, PAK is correct.
However, to avoid double taxation there are mechanisms in place to mitigate or completely erase tax owed to the US. The two mechanisms most taxpayers are eligible to use are the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC).
FEIE excludes income
earned outside the US from taxable income, but be warned, there is a limit to the amount of foreign earned income that can be excluded--I think it's somewhere around $115K. The FTC credits the amount of tax you paid to a foreign government, but if you use FEIE, the foreign tax paid is adjusted down to exclude tax paid on the income a taxpayer claimed as FEIE. So, AA is correct that there are exclusions, but is wrong to say you pay no tax cart blanche.
There are also treaty considerations, but those are generally specific to types of income and workers. There is no such thing as a double taxation treaty. Most, if not all, treaties have a double taxation clause, but those really only give FTC legal credence.
Also, and this is very important, if you have foreign accounts as a US citizen or permanent resident, you must report those to the IRS. FBAR is for a foreign held account that reaches 10,000 at any time. Let's say you have a bank account with PKO and on everyday of the year the most you ever have is $100 in it, then on June 1 you deposited an additional $9,900 and withdraw that $9.9k on June 2, you must file the FBAR. The fines are heavy if you don't report.
@AmericanAbroad
I'd advise that you hire a US-based accountant or a tax professional in Europe who has experience with US taxation. If you have a good amount of assets, I recommend Stuart Horwich out of London.
