Question

Foreign Source Income. If you are a citizen of the United States, and you receive income from outside the U.S.—foreign source income—how must you report this income? Using the Internal Revenue Service website determine current reporting practices for tax purposes. Then select a foreign country and see if you can find out how they will tax your income earned in that country and any income you earned in the U.S. What are your thoughts about going to work in that country?

Be as detail as possible

Answer 1

Ans) Foreign earned income means wages, salaries, professional fees and other amounts paid for professional sevices rendered or self employment outside the country of residence. As per US laws, if a person is resident citizen of US his worldwide income is subject to taxation as per US income tax. And also it does not matter if you reside inside or outside US when you earn this income. As foreign source income is also taxable in the source country hence to compensate for this Foreign Tax Credit is available to the person. Although it depends on what country you earned the income in, it is likely that your foreign source income will be taxed in two countries both the U.S. and the respective country it was earned in. This tax credit is a non-refundable tax credit for income taxes paid to a foreign government as a result of foreign income tax withholdings. The foreign tax credit is available to anyone who either works in a foreign country or has investment income from a foreign source.

As per Internal Revenue following are the current reporting practices followed for foreign income taxation purposes. The Foreign Account Tax Compliance Act is an important development in U.S. efforts to combat tax evasion by U.S. persons holding accounts and other financial assets offshore. The IRS continue to develop guidance concerning.

If you set up a new account with a foreign financial institution, it may ask you for information about your citizenship. FATCA provides special reporting requirements about the U.S. account holders of certain financial institutions that do not solicit business outside their country of organization and that mainly service account holders resident within it. In order to qualify for this favorable treatment, however, the local foreign financial institution cannot discriminate by declining to open or maintain accounts for U.S. citizens who reside in the country where it is organized.

They have also designed threshold criterias for reporting purposes. Reporting thresholds vary based on whether you file a joint income tax return or live abroad. If you are single or file separately from your spouse, you must submit a Form 8938 if you have more than $200,000 of specified foreign financial assets at the end of the year and you live abroad; or more than $50,000, if you live in the United States. If you file jointly with your spouse, these thresholds double.