Tax guide for u.s citizens and resident aliens abroad
This document is a tax guide for U.S. citizens and resident aliens abroad. It explains the U.S. income tax rules that apply to you based on your residency and other circumstances.
If you are a citizen or resident alien of the United States, you must report all of your income from worldwide sources on your U.S. tax return (Form 1040NR). This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or a Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding Tax, from an employer or payer in another country.
 Your worldwide income includes all income from wherever it is earned or received.
 For example, if you work in Germany and save money by living frugally while there, then upon returning to the United States you report all the income earned by working in Germany as well as any interest earnings on the savings account.
 In addition to reporting all income earned abroad, citizens who live abroad must also report certain foreign financial assets on their tax returns each year.
 These include bank accounts, stocks and bonds that are held outside of the United States. If you fail to report foreign financial assets, you could face severe penalties.
 It is important to note that even if your income is not subject to U.S. taxation by virtue of being earned abroad, it may still be taxed by the country where it was earned. You must also report this information on your U.S tax return each year.
 Foreign Tax Credit:
If you have paid foreign taxes on your income, you can claim a credit for the amount of tax paid to a foreign country or U.S. possession. This is known as the Foreign Tax Credit (FTC). The FTC can reduce your U.S. tax bill by an amount equal to any taxes you paid to a foreign country or U.S possession.
 It does not matter whether the taxes are imposed on income, property or transactions within the country where they were paid.[9 You can claim a FTC for taxes paid on income earned abroad if you meet all of the following requirements:
 1) You are a U.S. citizen or resident, 2) The foreign country or possession levies a tax on the income, 3) You pay or accrue this tax while you are a nonresident there, 4) The foreign tax is not imposed by a U.S. possession and 5) The foreign country allows for credit against its own taxes for any foreign taxes paid to the United States.
 The credit can only be used for the year in which the foreign tax is paid.
 You cannot claim a FTC to recover taxes paid in years before you became a U.S. citizen or resident, or if you are a nonresident of any possession of the United States.
 You can also not claim a FTC if you were required to pay taxes to the possession and not just by choice.
 The credit is limited to the amount of U.S. tax (as determined by IRS) that would be imposed if you were a U.S. citizen or resident.
 If your foreign income is taxed at a higher rate than what would be charged in the United States, this means your FTC will not be as large as it otherwise could have been.
 You cannot claim a FTC for any country where the United States has an income tax treaty that provides relief from double taxation.