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as your assignment is more than a year - it is not considered a temporary assignment and your travel expenses (such as lodging, per diem, etc) may not be deducted.
All compensation you will receive - salary, household expenses - would be included into taxable income.
As you are moving to a permanent work place - you may be able to deduct moving expenses.
To qualify for the moving expense deduction, you must satisfy two tests. Under the first test, the "distance test", your new job must be at least 50 miles farther from your old home than your old job location was from your old home. If you had no previous workplace, your new job must be at least 50 miles from your old home.
The second test is the "time test". If you are an employee, you must work full-time for at least 39 weeks during the first 12 months right after you arrive in the general area of your new job. If you are self-employed, you must work full time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after you arrive in the general area of your new work location.
Moving expenses are figured on Form 3903 and deducted as an adjustment to income on Form 1040 You cannot deduct any moving expenses that were reimbursed by your employer.
You can deduct expenses for a move to the area of a new main job location within the United States or its possessions. Your move may be from one U.S. location to another or from a foreign country to the United States. You can deduct the cost of packing, crating, and transporting your household goods and personal effects and those of the members of your household from your former home to your new home. For purposes of moving expenses, the term "personal effects" includes, but is not limited to, movable personal property that the taxpayer owns and frequently uses. You can deduct any costs of connecting or disconnecting utilities required because you are moving your household goods, appliances, or personal effects. You can deduct the cost of shipping your car and your household pets to your new home. You can deduct the cost of moving your household goods and personal effects from a place other than your former home. Your deduction is limited to the amount it would have cost to move them from your former home. For more information on deductible moving expenses, please refer to Publication 521, Moving Expenses.
As an US citizen or US resident - you are required to report all your income worldwide.
If you are living abroad - you may claim a foreign earned income exclusion.
The person may qualify for the foreign earned income exclusion - he/she should: -- Work and reside outside the United States for at least 330 days during the year, or -- Meet either the Bona Fide or Physical Presence tests.If the person qualifies, he/she may exclude up to $91,400 (2009 in foreign wages -- plus housing allowances (limited to 30% of the earned income exclusion).
To receive that exclusion - the taxpayer should file either form 2555 or 2555EZ.
Here are forms you likely need:
Please be aware that - the exclusion above will not affect self-employment taxes - only income taxes. Only earned income is excludable - income from wages and self-employment. For instance - dividends, investment income, rental income, etc - are not excludable.
Please also be aware that this credit is not granted automatically - you need to file a tax return and claim the credit.
If the same income is taxable in the US and in a foreign country - you may claim a credit for taxes paid in a foreign country on your US tax return.
To determine the amount of credit -the person should use the form 1116 and attach it to the tax return. - http://www.irs.gov/pub/irs-pdf/f1116.pdf
Here are instructions - http://www.irs.gov/pub/irs-pdf/i1116.pdf
Let me know if you need any clarification or help with reporting.