Question for the Money Doctors
Question submitted on Oct 17, 2012.
QuestionI'm a US citizen and have not lived in the US for about 7 years. ( I have been filing returns) I lived in Chile for 4 years and earned my permanent residency. I then went to France for 2 years for studies and now am back in Chile (Still with permanent residency) and am working as an independent contractor for a US company that pays me $4,500/month ($54,000/yr). Chile does have a treaty with the US regarding Social Security. I will be paying for health insurance and SS here as well as working out of a home office AND paying Chilean taxes as this is obligatory. Do I need to pay US income taxes as well on this amount? What needs to be filed? And if I need to file can I exclude and what?
Thank you so much for your help.
Your gross income is over the filing threshold ($9,500 in 2011). therefore, you must file an income tax return.
You need to file Form 1040 and form 2555-EZ (Foreign Earned Income Exclusion). You will be able to exclude up to $95,100 of foreign earned income in 2012. Therefore, you should owe no tax.
The IRS has an excellent website. Type "IRS foreign Earned Income Exclusion" in your browser and it will take you to the IRS website where all of things are discussed. If you need further information, Publication 54 deals with these questions in great detail.
Don't overlook your obligation to file a state income tax return as well. Those rules depend on the state in which you are considered a resident. Generally states want to tax individuals on what they earn on their world-wide income.
For additional information visit http://www.360financialliteracy.org/