I had a discussion with both a US accountant and a Swiss acountant and both told me that for US Federal tax return, I would have nearly nothing that needs to be paid, if at all. (note: no calculation has been formally done yet by the accountants, they just gave the information, probably based on their previous experience) Is this more or less true from your own experience, assuming living in the city of Zurich?

The Swiss tax rates do seem lower than the US federal tax rates, so I am not sure how one can walk out with nearly no US tax liabilities. I mean, if you take the $85,700 exclusion, you will have tax liabilities on the amount over that. Does it have to do with the rather high foreign housing allowance on the federal tax return? Is that the main driver that's bringing down the US taxes?

The reason I am asking the question is because the accountant told me snice I would have nearly no or no US tax liabilities, I should try to minimize my Swiss tax liabilities such as making contribution to a pillar 3 account. However, any calculation I tried doing (which are probably over simplified and conservative) produces US tax liabilities, so I am not sure what is true. I don't want to put money in pillar 3 account or do whatever else if whatever taxes I saved on the Swiss side would just go to the US government.

Can someone tell me, from their personal experience, assuming you live in the city of Zurich, need to file Swiss tax and US federal tax return, do you generally have close to nothing US federal tax liabilities?

Thanks!

I live in Kanton Zurich and have filed my 1040-EZ for over 20 years. With the standard deduction, plus deducting all rent (which is allowed) and personal/family deductions , I never owed a penny. Big fat zero at the end of the form. Never had a problem with the IRS (except once I had to pay them 300 bucks for filing late).

P.S. Use form 2555 for deducting your rent.

Karl is right. I do pretty much the same thing. One thing that might
be interesting is that 3rd Pillar deductions are for Swiss Tax only.

They are not deductible for American tax, and when the balance
hits $10,000, you will have to declare this to the US authorities.

The USD 10'000 declaration threshold is for any one account or the sum of all bank accounts in CH?

The sum of all foreign bank accounts - even if the combined balance only hits 10k USD for a moment.

You can deduct the rent paid in Switzerland for the US tax return?

You can deduct them if you're self-employed.

If you're not self-employed, you can exclude them in addition to taking the foreign earned income exclusion. (Naturally the housing exclusion only applies if you make more than 91k). However, there are limitations to this exclusion -- you don't just exclude all of the amounts you paid in rent. There's a floor and a ceiling -- the floor is 16% of the Foreign Income Exclusion ($14,624 for 2009) and the ceiling for Zurich is 38,398 (it's higher in zurich than other places, where the ceiling will be around 25k).

So if you live in Zurich and you paid 50k in Rent last year... this is higher than the ceiling which is the max amount you can take into consideration. So you'll only be able to exclude up to 38,398. Then you subtract the "floor" from this amount. 38398-14624 = 23774. 23774 is your housing exclusion that you can use on top of your foreign earned income exclusion. So your total exclusion is 91400+23774

Disclaimer: i'm not an accountant and my area of expertise is Corporate tax, not individual tax, so I may be incorrect.

IMHO, whether US taxes should be paid or not really depends on the foreign effective tax rate, i.e. whether the US rate is higher, or if the Swiss rate is higher.

I tend to think of it this way - always be prepared to pay the higher effective rate in the end, be it US or Swiss. At least the income is not going to be double taxed!

You can not only deduct rent, you can also deduct any qualified housing expenses, such as parking, house insurance, utilities, etc. See IRS extract below.

Housing expenses. Housing expenses include your reasonable expenses paid or incurred for housing in a foreign country for you and (if they live with you) for your spouse and dependents.

Consider only housing expenses for the part of the year that you qualify for the foreign earned income exclusion.

Housing expenses include:

• Rent,
• The fair rental value of housing provided in kind by your employer,
• Repairs,
• Utilities (other than telephone charges),
• Real and personal property insurance,
• Nondeductible occupancy taxes,
• Nonrefundable fees for securing a leasehold,
• Rental of furniture and accessories, and
• Residential parking.

Housing expenses do not include:

• Expenses that are lavish or extravagant under the circumstances,
• Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation),
• The cost of buying property, including principal payments on a mortgage,
• The cost of domestic labor (maids, gardeners, etc.),
• Pay television subscriptions,
• Improvements and other expenses that increase the value or appreciably prolong the life of property,
• Purchased furniture or accessories, or
• Depreciation or amortization of property or improvements.

Excuse my ignorance, I am not a tax expert.
How about deducting kids education? I pay about 29K CHF per semester for my daughter's uni tuition in CH.

Now I'm confused...

During the time we were renting, we were not able to deduct any housing expenses. We were told (by the Big 4 - or however many they are these days - firm we were forced to use by my husband's company whilst on an expat contract) that the deduction is only allowed if the Swiss residence is a secondary residence. As we no longer owned a US home, we were told that the housing deduction did not apply.

Not correct?

(It wouldn't surprise me... these clowns were less than useless. (Thank doG we are no longer forced to use them.) I got the distinct impression that their mission was to maximize the US taxes paid.)

To the OP - depending on your situation, you could end up owing a boatload to Uncle Sam. Or you may end up owing very little to nothing. You really need a qualified professional to look at your individual situation and help you plan. But preferably not the folks we were shackled with.

Not correct.

If you meet the criteria for the foreign earned income exclusion, ie. physical presence, etc., then you would normally qualify for the housing exclusion.

For the OP,

Here is a good article and reference for Americans and the 3rd pillar tax implications.

http://www.aca.ch/joomla/index.php?o...=336&Itemid=46

More info in general at www.aca.ch, taxation section.

Our big 4 (or 3, whatever it is) has always applied the housing deduction to us. The last time we paid U.S. taxes was our partial year when we first moved here and we've filed every year.

I second the get a professional. Many of the people on English Forum make more than the standard deduction and have property here, etc., so taxes are not that simple.

So the US expat living in Switzerland, paying rent out of their own pocket, employed, can deduct rent and housing expenses?

I'm trying to do my own US taxes using Turbo Tax. Does anyone know if contributions to National Pension, Unemployment Insurance, Personal Retirement (Tier 2), Accident and Sickness, etc. are subtracted to calculate adjusted gross income or can these be taken as a deduction even if not itemizing deductions?

Or, do these contributions not count towards reducing your overall US tax burden? It seems that they should as they are effectively the same as social security contributions, 401k contributions, etc.

I cannot find an obvious way in Turbo Tax for handling these.

If I believe what the accountant did in my case, I don't think you can deduct any of that.

In my case, the only things she deducted are :

* Foreign Earned Income
* Housing Deduction (rents, utilities)

and nothing else....

And she added to my gross income something she called "swiss pension" which I think is some of the contribution to the 2nd pillar, because she said it is taxable by the US...

I am not too sure all this was really optimised

Back to Aki's question, please.
Can I deduct kids private school payments?

No, it is not possible under the current tax code.