Giustino's advice is to consult with an accountant.
My own advice is to also consult the IRS homepage.
And don't forget to consider all of the other comments at Giustino's blog post where the tax topic came up; my favourite was by liimneliivlane, who suggested you register with your embassy and and ask around, if and when they hold an annual 'town hall' meeting.
Argh I wrote a long comment and there was some error on Blogger when I tried to post it. Here's a quick summary:
I do my taxes every year with Turbotax and it can handle things well. Just keep all your documentation on file in case of an inquiry from the IRS.
- File a 1040, not a 1040NR or W-8BEN.
- Declare your income in Estonia, but also take a credit for income tax already paid (it's on page 2 of the 1040, callled Foreign Tax Credit).
- No double taxation due to the tax treaty in place. Also because incomes tend to be lower in Estonia than in the US, you may not owe anything to the US since that will put you in a lower tax bracket.
- Declare all your foreign bank accounts on form TD-F 90-22.1. Don't forget this, as they are really cracking down this year. Remember to mail this to a separate address from your normal tax filing.
- Read Publication 54 from the IRS as it's specifically for expats.
- Expats usually get an automatic 3-month extension of time to file (Pub 54 will explain this).
- Be sure to file a tax return. If you don't this can come back to bite you later like if you need to apply for a green card for a relative -- they check tax filing status at that time.
- If you own an Estonian business, file a Form 5471. This is the only form not built into Turbotax so just fill in the PDF on the IRS website and print it.
- Don't forget to declare any substantial interest (I think it's more than $10/year) you earned on your Estonian bank accounts on Schedule B.