Income tax obligation of US citizen working in India ?

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  1. Nikil Mohan

    Nikil Mohan Member

    Sir, I have a client who is an U.S.Citizen working in India for more than a year.
    In order to file his IRS tax returns, I wanted to know his US Income tax obligation,
    and specifically he wants to know
    1. what is Foreign earned income exclusion
    2. Foreign tax credits.
    3. How the US tax treaties can help him in filing his tax returns.

    I will be grateful, if I could get an answer at the earliest.
    Thanks in advance
     
  2. Chandrashekar M

    Chandrashekar M Active Member

    As a U.S. citizen or green card holder residing abroad, you have to file a U.S. tax return on your worldwide income. The U.S. has tax treaties with many countries, which allows the federal government to exchange data on its citizens for tax purposes. Most importantly, if you do not file a tax return for a given tax year, the statute of limitations on that year never runs out.

    Most expats don't end up paying any taxes to the IRS. First of all - the taxes you already pay in the foreign country count against your US tax obligations. Secondly, you also probably qualify for the foreign income exclusion,which lets you subtract roughly $100,000 from your earned income for U.S. tax purposes.

    There are also a number of other deductions available to expats. As a result most of the tax payers never actually pay anything to the IRS - they simply file the tax return and collect foreign tax credits. These tax credits can be used at a later date to offset future tax obligations, but they can only be accrued by preparing a tax return.

    There is one more important reason why you should file your tax return each year while living abroad. The statute of limitations for IRS audits expires three years after you file. This means the IRS can not go back (absent fraud) and try to audit or change the return later. Therefore, you should file your return even if you have no income or do not owe taxes in order to place a 3-year limit on audits and eliminate potential future problems when you decide to return to the U.S.

    -- Regards
     
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