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I am an American. I am currently living in the UK. The UK will tax me on my income here. The US will also tax me on my income if I make more than a certain amount.

Can anyone tell me what that amount is and link to any official documents regarding this and just generally explain the situation?

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2 Answers 2

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I lived in the UK for a few years. Luckily the UK tax system is super easy, all PAYE (Pay As You Earn), so if you only have a job and no major investments, you don't have to file taxes at all. They've already been collected in the proper amounts throughout the year from your paycheck.

The US taxes all worldwide income, so you'll always have to file a US tax return. However, the US has agreements with many countries (UK included) that exempt you from being "double-taxed" if you are under a certain amount.

The limits for individuals is $91,500 and for married couples $183,000. This amount includes deductions that you can make for housing, utilities and relocation costs. For London, the maximum housing deduction is over $80,000.

You automatically get a 2 month extension to file and pay your taxes if you are living abroad.

You should also go back through all of 2010 and determine when you were in the US and when you were in other countries. You'll need to document your travel in order to meet the physical presence and bonafide resident tests.

Check out Publication 54 from the IRS - http://www.irs.gov/publications/p54/index.html

Also this site has a pretty good breakdown of how it all works - http://www.taxmeless.com/IRS593Publication.htm

You'll also need to file TD F 90-22.1 if you have any foreign accounts worth over $10,000 at any point in 2010.

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In addition to the Foreign Earned Income Exclusion you also get a tax credit for foreign taxes you pay so even if you earn more than the Foreign Earned Income Exclusion amount ($95,100 individual) you are unlikely to have to pay any additional taxes to the US on earned income since income taxes in the US are lower than most countries.

Non-earned income, e.g. from investments, is another story. Switzerland for example does not have capital gains taxes (though they do have a wealth tax) so you might have to pay taxes on capital gains to the US (if your total tax in Switzerland is less).

The UK has has the stamp duty for investments. I don't know how it compares to the capital gains taxes in the US but if your tax on your investment in the UK is less then you will have to pay the US the difference.

I don't think you really ever get doubly taxed. I think it's mostly rich Americans in places like Switzerland that call in double taxation because they still have to pay a tax they would not have to if they were not US citizens - but they never got doubly taxed.

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