[Harpua]

I am considering taking a long-term position in Hong Kong. I am a U.S. citizen. I'm trying to figure out how the U.S. taxes its overseas citizens.

I found this FAQ on the IRS website. http://www.irs.gov/faqs/faq13-7.html. But it's still not clear to me.

Say one makes $400,000 HKD a year, or about $50,000 USD.

- Hong Kong taxes about 15%, or $60,000 HKD $7,700 USD.
- U.S. taxes about 28%. Is the first $7,700 in takes paid to Hong Kong deductible.

Are you in effect still paying 28% in taxes regardless of if you live in Hong Kong or the U.S. (it gets paid to Hong Kong, and what's left over to US)?

Sorry, I'm obviously not in accounting...

[tex]

yes. if in the US you have to pay 28% then you'll be losing the same amount of your salary here, divided as you described btw HK gov't and Uncle Sam.

[KnowItAll]

Don't forget the links in that FAQ.

http://www.irs.gov/taxtopics/tc853.html

If you are a United States citizen with a tax home in a foreign country and you meet the bona fide residence test or physical presence test, you may exclude up to $80,000 for the year 2004 and thereafter.

Would VERY strongly recommend you speak to your accountant or tax consultant if you have one. The US tax system is criminally complex.

[cosmokat]

Harpua, I'm in the same position..a U.S. citizen and will be relocating to work in HK. As you know, as a US citizen you are taxed on worldwide income (salary, interest income, dividend income..everything). The IRS does recognize double taxation in that they won't tax you twice on income that you've already paid taxes on..just that you still need to file regardless (which is a pain!) Currently, the IRS has a US$80,000 exclusion on foreign earned income, PROVIDED that you meet one of two physical presence tests (which proves you spent a full year outside of the US). Note that this exclusion applies to earned income only, not interest/dividend income, capital gains, etc... But, know that you still have your standard deduction and personal exemptions that kick in before a potential federal tax payable may be due. Again, this really depends on your personal taxing situation. As KnowItAll suggests, you really should speak to a personal accountant to figure out if and when you might have a tax liability.

Hope this helps a little.

[cosmokat]

That being said...say for 2005 your taxing scenario is very simple and all you've earned and needed to report is your US$50,000 salary and you've met one of the two tests, then you should not have a federal tax liability in 2005. So yes, all you would be paying in this case is HK tax and not in effect 28% regardless.

That's my understanding..and if that isn't true then my accountant is going to be in BIG trouble!

[tex]

i stand corrected, cosmokat is right. first 80K is tax free. not sure if exact amount is 80 or 79500 or what though.