An Ocean Away : Are you an exchange student or US citizen living abroad? Watch out. This does not make you exempt from paying your taxes. Learn the disadvantages you face for being overseas, and how to deal with them.
Taxable Earnings : A lot of US citizens living in a foreign country want to know if their foreign currencies are taxable. And yes, generally your total worldwide income is taxable. But if you live and work abroad, you may qualify to exclude all or part of your foreign earned income.
Working for the US. What if you're a US citizen working for a US firm in a foreign country? Are your wages or expenses tax deductible? Maybe. If you are physically present in the foreign country for at least 330 full days during the year, you may qualify to deduct from home expenses (travel, food, etc.). But not against excluded income.
Living and working Overseas. If you live and work overseas, you may qualify to have tax credit on your U. S Taxes for the taxes you pay to the foreign country. This is know as a "Foreign Tax Credit." This is intended to relieve you of the double tax burden. Usually, only income taxes paid or accrued to a foreign country or a US possession qualify. You can choose to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. Complete Form 1116 "Foreign Tax Credit", and attach it to your 1040.
Final Tip: There's a dangerous rumor floating around. It states that any income earned overseas does not count as income. But now you know that's not the case. Do your homework before you take the leap and decide you do not have to report your income to the IRS.
Now You Have The Smoking Gun … Use it!