Innocents Abroad, Beware of the Tax Man

So let's say your salary is $150,000, and you spent $50,000 above the floor on housing. Since you more money than the amount you spent on housing, you can exclude the full $50,000 from income. Now you have $100,000 left. Assuming you met one of the residence tests above, you can take the full $80,000 foreign-earned income exclusion. That means you excluded $130,000 from income.

Foreign Miscellany

Here are a few more things to note:

As long as you're a U.S. citizen, you will still pay into our Social Security system, no matter where you live.

If you do owe U.S. tax, remember you have to pay in U.S. currency. The IRS doesn't accept checks in foreign currency. So plan ahead and use currency fluctuations to your advantage.

You can't deduct contributions to most overseas charities on your U.S. tax return.

If you keep a bank account overseas that exceeds $10,000, you may be required to report your deposit information to the Department of Treasury. This rule was established after 9/11 to keep tabs on money laundering and terrorist funding, notes Fuerst.

Some of the tax preparation programs can help. For instance, "TurboTax Premier covers all overseas issues. It even supports the special provisions for military personnel overseas," according TurboTax spokesperson Julie Miller.

And finally, be sure to check out Publication 54 -- Tax Guide for U.S. Citizens and Resident Aliens Abroad for more details. But rest assured, if after the above exclusions your tax bill is still higher than it would've been had you stayed in Jersey, most companies will pay the difference.

Bon voyage!

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