Income from Foreign Sources
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Many U.S. citizens earn money from foreign sources. But not all these taxpayers remember that they have to report all such income on their tax return, unless it is exempt under federal law.
U.S. citizens are taxed on their worldwide income. This applies whether a person lives inside or outside the United States. The foreign income rule also applies regardless of whether the person receives a Form W-2, Wage and Tax Statement, or a Form 1099 (information return).
Foreign source income includes earned and unearned income, such as:
- Wages and tips
- Interest
- Dividends
- Capital gains
- Pensions
- Rents
- Royalties
There is good news. Citizens living outside the United States may be able to exclude up to $91,500 of their 2010 foreign source income if they meet certain requirements.
If you're married and you both work abroad and meet either the bona fide residence test or the physical presence test, each of you can choose the foreign earned income exclusion. Together, you can exclude as much as $183,000 for the 2010 tax year.
Caution: The exclusion does not apply to payments made to U.S. government employees or folks in the military living outside the United States.
If you earn income from outside the country, please be sure to meet with us about it. We need to address all the tax implications of this situation.
