Rumor has it (I can't find the source again) that US embassies now report every passport application to the IRS.
> Pick a different number if your accountant tells you different.
My accountant? This is an example of the glaring "incompatibilities" between the US tax system and that of other countries. In my country nobody has an accountant unless they're a millionaire or owns a business. It's insanely expensive to have one. Using an accountant every year is not a solution. But I appreciate your input :-)
> 3) Here's what you're going to do for each year you filed: take a copy of your $NATION taxes. Find the gross earned income number. Convert to USD using the yearly average exchange rate, which you can find published on
Yes, but there's still the vast minefield that is non-earned-income money. This is a substantial amount in many European social democracies.
> (unless you're making over $85k a year, which I think is unlikely in Europe as a researcher unless I miss my guess)
Not at all. It's true in my case, but in the private sector $85k for a researcher would be considered low in my country. Again, it's an absolutely impossible situation to work from a fixed dollar amount that has no connection to the cost of living in a given country. Some European (an other) countries have an insanely higher cost of living than the US.
Your reading of the situation is pretty close to my first impression - "rather reasonable - just a lot of paperwork". But it's a vast minefield as soon as you start reading the fine print. I do really appreciate your input, though :-)
This is 2013, so you can consult US-based accountants over the phone. The initial discussion will likely take an hour or so and cost at most a couple hundred dollars. Ask about the fee in advance. There is a chance that a friendly accountant will explain the steps for you for cheap, as part of the sales process for future business.
Who said anything about "every year"? Consult an accountant once, to learn the score. Then decide whether or not you want to consult one again.
That you are apparently culturally conditioned to believe that accountants are ultra-rare tools of the super-elite explains a lot about why you sound so nervous. Accountants are a routine in the USA. Mine costs a few hundred bucks a year, easily pays for his own services in taxes-saved, and much more importantly provides a lot of peace of mind. I often have to guess what laws and forms and fine print might apply to me, but accountants know, as part of their job.
If you tell me what particular public benefit you're talking about and what country it is from, I can find you an authoritative citation for this, but I am almost certain that the type of benefit you are thinking of is not income for the purposes of US tax law.
Publication 525, "Do not include in your income payments made from a public welfare fund on the basis of need [except] if they are compensation for services or obtained fraudulently."
You are not allowed to exclude passive income on form(s) 2555. It is foreign earned-income, not foreign-earned income.
Although foreign retirement benefits are also taxable to the US for many countries.
2) You're going to want to file back taxes with the IRS. Include a letter explaining your situation briefly (didn't know I was an American until quite recently, received passport as of $MONTH_AGO, and am making a good-faith effort to bring my tax situation into compliance with the law) and file for the last six years. Pick a different number if your accountant tells you different.
Despite the IRS' reputation, they do have actual human beings working there, and they do make compassionate decisions. And guess what? Squeezing you for your US tax liabilities, which are quite likely to be zero, won't make anyone's quota.
3) Here's what you're going to do for each year you filed: take a copy of your $NATION taxes. Find the gross earned income number. Convert to USD using the yearly average exchange rate, which you can find published on http://www.irs.gov/Individuals/International-Taxpayers/Yearl...
You put that number in the income line of your Form 1040. You will then file a Form 2555, Foreign Earned Income Exclusion. You can probably get away with the 2555-EZ, which is the quick-entry version. Check the box for Physical Presence Test, since you spent 330+ days out of the year physically outside of the US and can trivially prove this. (You're also a slam dunk for Bona Fide Residence but FPT is easier on both the IRS and you.)
You will copy the number from your 1040 which you reported for income, deduct it using Form 2555, and report (unless you're making over $85k a year, which I think is unlikely in Europe as a researcher unless I miss my guess) 0 taxable income and, as a consequence, 0 taxes.
You then mail this off to the IRS.
If you hear back from the IRS, it will likely be to request additional documentation. If it isn't screamingly obvious what documentation they want, talk to your accountant. But, again, this will occupy a low-level staffer's time for about twenty minutes as they punch your information into the computer and then promptly forget about you.