Your tax return must include all your income, whether or not it was earned on U.S. soil. Income earned in a foreign country is taxable by the IRS and must be claimed on your tax return. It may also be taxed by the country where it is earned, causing a double taxation situation. However, you may be able to deduct the tax that you pay to another country. But this can be tricky. Number one, it must be considered deductible by the IRS, which can depend on the country where you are living. Secondly, you must be able to prove you paid the taxes – this can be difficult due to the difference in tax years, and documentation available in various countries.