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Contract Work In Iraq

Contract work in Iraq is a way to make a good salary? Great. But there are some things you must know about working outside of the country first.

Along with the salary generally comes a higher tax bracket. Good news for Americans--for those working overseas, there is a tax exemption for the first $84,000 that is made. This income has to be reported but unless you make over $85,000 a year you do not pay any taxes on it.

Also there is no social security withheld. This could be a disadvantage since no money is going into your retirement account. But the smart person will still take part of his/her salary and invest it.

The catch is you have to spend 330 days out of the United States each year to claim this exemption. The exemption period, if I understand correctly, is not based on the calendar year. In other words if you worked from June of 06 to June of 07 overseas then you qualify for the exemption for both 2006 and 2007.

In the picture below, our guys are waiting to return to the PEF camp in Kabul.

Kabul, Afghanistan, Helmand

It is easy to cheat the American government out of taxes due since most American companies set up a sister company in Dubai. This way, they set themselves up as a foreign entity and, therefore, do not have to follow United States laws.

This means they do not report your income to the IRS. They also do not give you a yearly statement on what you have made. No W-2 or any type of statement on what your income was. If you get a pay voucher, this is what you will use to record your taxes.

I worked for a company that did not give pay vouchers and a lot of times we were lucky to get paid. In this case what I did was write a statement and put down my salary and the name and address of the company I worked for. This must be attached to your tax return.

What happens if you do not make the 330 days? If this is the case, all of the income you made doing contract work in Iraq, Afghanistan, or anywhere in the Middle East is taxable. You will be looking at a rate of 15 to 20%. So plan ahead and put some aside for this.

Of course, the IRS depends on you to report your income. And the American people could be cheated out of the taxes owed by it not being reported. However, if this system is abused, the IRS could change the rules, rules that would ultimately hurt this exemption. So be honest and report your correct income to the IRS.

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