Tax problems.....?

Question

Here is my situation: I am both a citizen and resident in the US and Italy. I spend more time in Europe than in the US. I left the US Navy a couple of years ago and started working in offshore engineering as an ROV pilot. My big question is, since I make all my income outside the US from different sources, how much should I expect to be paying if I paid my taxes in the US? I know that some countries such as the UK have a tax law for those workers who are not physically present in the UK. As long as they declare it, they pretty much can claim it all back. In Italy, I believe that I would be required to pay 40 some odd percent tax and too me that is just ridiculous so if I can stay legal and pay less to no tax.....all legitimate suggestions are appreciated.

Answer 1

I know there is a foreign income exclusion and a credit for foreign income tax paid. I don't know how either works. the link below is IRS Publication 54 (2005), Tax Guide for U.S. Citizens and Resident Aliens Abroad. I would recommend consulting a professional.

If you are a citizen of Italy as well as the US (That was not clear from your question), the ultimate way to reduce US taxes would be to renounce your US citizenship. That is of coarse an extreme measure, but you did ask for 'all legitimate suggestions' and it does qualify.

Answer 2

You should consult a CPA or tax planner who will ask you for more details. Among the relevant questions are -- how much time do you spend in the US versus outside the US? How much time do you spend in each foreign country? Do you receive a housing allowance, etc. These will help determine whether you are entitled to an exclusion from US taxable income, and how much you can exclude (if any); also whether you can claim benefits under income tax treaties, such as the treaty between the US and Italy. You do have options and a qualified advisor will be able to explain them to you. Be sure you find one with experience dealing with US citizens residing outside the US.

Answer 3

I have done tax work for 36 years and in your situtation I would urge you to get with a tax preparer specializing in interenational taxation. You can structure your affairs to the least painful mode and you are thinking ahead of tax time which is wise.