United States citizens, who are living and earning outside the country, do not have to pay taxes on all or part of their income to the government.
These citizens are entitled to an exclusion of up to $91,400 per annum, and are further entitled to exclude the amount that they spend for housing under the "Foreign Housing Deduction" along with the amount spent on meals.
To be eligible for these deductions, one must spend at least one whole calendar year abroad.
This holds true even if the citizen returns to the United States for a short time.
He can also go to other places for short visits, and still retain his eligibility to these deductions.
A citizen can claim the normal tax exclusion of all other foreign earners if he is self-employed and working abroad.
However, he is expected to pay self employment tax to the government.
Whether, living in the United States or abroad, the rules pertaining to age and payment received are the same.
If the citizen is paid in a foreign currency, he has to convert it to US dollars when filing returns.
The exchange rate to be used should be the value on the day which he receives the payment.
The IRS encourages expatriates to use the e-filing system.
It is also fine to file in the regular way if you are comfortable with it.
The form to be used is the IRS Form 2555 or the 2555-EZ.
One needs to use the latter form if his salary is less than $85,700.
One can access and download both forms from the IRS website.