The United States has an extremely complicated tax system, and its nationals working or employed outside the country face these realities on a regular basis. Familiarizing yourself with the relevant laws that apply to you can only benefit you in the long run.

As a U.S. expatriate residing abroad, you still have the obligation to file U.S. tax returns each year on your income, even that earned in a foreign setting. If you have your full-time residence abroad for a full calendar year or live there for 330 days of any consecutive 12-month period, you can exclude up to $80,000 of earned income from taxation. If you are married and both of you earn income and reside abroad, you can also exclude up to $80,000 of your spouse's income from being taxed. These exclusions must be claimed by filing a proper tax return.

The definition of earned income is “that which is paid to you for your work or services and does not apply to rental income, dividend or interest income, or other types of income not paid for your own personal efforts.”

You can also claim an additional exclusion from your taxes in excess of the $80,000 if the rent you pay on your dwelling abroad and other living expenses exceed a standard amount established by the Internal Revenue Service. This applies only if your earnings are in excess of the $80,000 foreign income exclusion.

Tax-advantaged investing is any type of investment program or vehicle that strives to reduce the impact of taxes on investor earnings. There are tax-advantaged investment vehicles in just about every asset category. The term "tax-advantaged" generally refers to two different types of investments: tax-deferred and tax-free. Tax-deferred investments simply defer taxes until investment earnings are withdrawn, at which time the investor is more likely to be in a lower tax bracket. Tax-free investments produce earnings that are actually free from federal taxes, and sometimes free from both federal and state taxes.

Tax-deferred investments include most retirement investing methods including Traditional IRAs, 401(k)s, pension plans, annuities, etc. Municipal bonds, municipal bond funds and Roth IRAs are considered tax-free. 101A plans are somewhere in the middle and are one of the best planning tools the IRS allows for.

If you use a tax-advantaged account such as an IRA or 401(k) to invest, you defer income taxes until you begin to take out the money. As a result, a tax-advantaged account benefits more from compounding than a taxable account. Tax-advantaged accounts are aimed at encouraging savings for retirement or college.