As Americans living overseas know, U.S. citizens and green-card holders must pay U.S. tax on their worldwide income, no matter where they live or are considered tax residents. In recent years, the introduction of the Foreign Account Tax Compliance Act has dramatically increased the requirements for tax reporting. While the new reporting requirements are burdensome to say the least, the good news is that by making full use of foreign tax credits, you can lower your U.S. taxes due while avoiding paying double tax on foreign investment income.
Most U.S. expat taxpayers are already using U.S. tax breaks on their income from foreign salaries to help lower their overall tax bill. These include the foreign-earned income exclusion and foreign housing deduction or allowance. However, U.S. expats are not always taking advantage of foreign tax credits that may be available for non-salary income such as on investments.
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