Filing a US tax return - Page 2

rowayton1999 · #21 09.02.2010, 08:49

	Quote:	swiss_in_training
	Actually, that's not always true. The first year you are abroad, you may have to file form 2350 (application for extension of time to file US income tax return) BEFORE April 15, because you may not meet the criteria for a tax home in Switzerland by the automatic extension time of June 15th (you must be in Switzerland for 330 days during any period of 12 consecutive months). This is true for those of us who move late in the year5. If you must extend until after June 15th, you must ask for a special extension before April 15th (since you wouldn't qualify for the automatic extension on June 15th)

If one is abroad more than a year(filed tax return with foreign address once), it is automatically extended to June 15th, don't need to file any form for that, is that right? Thanks.

bobbychin · #22 09.02.2010, 17:11

	Quote:	scrambled
	Right, if you don't care about the foreign income exclusion (FIE), then there's no need to satisfy the 330 day rule. You are also correct to say that amounts excluded under the FIE don't qualify for the foreign tax credit. If your Swiss taxes are higher than your US taxes, then you won't have to pay the US anything because your credit will be larger than your US tax burden (but from what I understand US taxes are almost always higher than Swiss taxes). You have excess credits in this situation and I believe you can actually carry these credits back or forward to other years in which you may have paid (or will pay) more US taxes than Swiss taxes.

It is not beneficial to take the foreign earned income exclusion (FEIE) if your foreign effective tax rate is higher than the US effective tax rate on the excluded income.

That being said, if you have previously taken the FEIE previously, and now choose not to take the FEIE (because by not taking it you lower your tax liability), this is considered an revocation of the election to take the FEIE.

When you choose to revoke the election, a statement needs to be attached to the return to indicate so.

On top of this, if you choose to revoke, you may not re-elect to take the FEIE for another 5 tax years following the year of the revocation.

http://www.irs.gov/businesses/small/...=97026,00.html

Revoking the FEIE is ideal if you are in a high tax jurisdiation (i.e. foreign effective tax rate on FEIE > US effective tax rate on FEIE), and have no plans to move to a low tax jurisdiction (Middle East, Hong Kong, Singapore, etc) in the forseeable 5 tax years.

At least in Switzerland, since different cantons apply different tax rates, it is generally not easy to determine a generic effective tax on the FEIE. Suffice to say, someone in Canton Geneva or Vaud will certainly pay more tax on the same income as compared to someone in Canton Schwyz or Zug. Just as a hypothetical example, someone in Vaud earning CHF 300,000 may want to revoke the FEIE, against someone in Schwyz who earns CHF 400,000 will not find it beneficial to revoke the FEIE. It is all in the effective tax rates.

Just out of my own curiosity, I did a check of the US effective tax rates on the FEIE which is $91,400 for tax year 2009:

Filing Single -

Tax on $91400 is $19,319, Effective Rate: 21.13%

Filing Married Filing Joint -

Tax on $91400 is $15,231, Effective Rate: 16.66%

Tax Tables: http://www.irs.gov/pub/irs-pdf/i1040tt.pdf

bobbychin · #23 09.02.2010, 17:17

	Quote:	rowayton1999
	If one is abroad more than a year(filed tax return with foreign address once), it is automatically extended to June 15th, don't need to file any form for that, is that right? Thanks.

Just write "Taxpayer Abroad" on the top of your Form 1040. It means you were abroad per the April 15 Filing deadline, and will qualify for the auto 2 month extension.

If you need more time beyond June 15, then file Form 4868 to extend it to October 15.