I used Turbotax premier. However, I cannot e-file since I am in a foreign country. But saved the PDF of the report and will fill in myself and mail it along with the check from my US bank

Hi...am in the middle of my US tax return now...I use Turbo Tax to file in the US and it works out most of the issues. On the 2555 and 1116, you have to prorate your tax...91,400/your income (times) the swiss tax paid yeilds your US tax credit....you don't get to deduct your entire Swiss tax liability if you take the 91,400 exclusion(on which you paid taxes...this is reasonable). I have often wondered if the taking the exclusion makes any difference at all since your total income determines the tax bracket in the States. Has anyone used both Turbo Tax and Taxact.com? Is there anything better for US citizens residing in Switzerland?

There are a number of variables that determine whether it's better to take the foreign earned income exclusion or not. Here is a table to help determine whether it's worthwhile to taking the exclusion or not.

In my case, it was never worth taking the exclusion when I lived in the UK. My income was above the threshold, and my tax rate was higher than the US. Taking the FEIE meant that I ended up owing US taxes, but simply taking the foreign tax credit meant I ended up with no US liability (and a nice carry-over).

Now that I live in Switzerland, with a lower tax rate than the US, it looks like it may make sense for me to take the FEIE (and use up some of my accumulated foreign tax credits from previous years).

You can read a lot more about the trade-offs in this article. In a nutshell, it all comes down to two things:

1. Is the foreign tax rate higher or lower than the US tax rate? and
2. Is your income above or below the $87k FEIE threshold?

I've used both of these. I started using Taxact because it was cheaper, but in the end purchased Turbo Tax as well. In my case, I did it because I need to calculate Alternative Minimum Tax, and need to track separate carryover figures for my Foreign Tax Credits - to prepare a F1116 and F1116AMT.

Taxact supports the F1116, but you have to basically create a dummy 1040 to correctly calculate the F1116AMT. Turbotax does it all automatically, which meant that it was worth spending the extra $35 for the better software.

I'm pretty happy with Turbotax, and I'd use it again over Taxact, if only just because I understand better how it works.

Hi

Thanks for the article reference. I can almost keep track of the logic...although with a higher US tax rate, whether you take the exclusion (and your swiss income is higher than the exclusion) or not, you will always owe taxes in the US, right? Haven't read the article yet, but will when I get the energy!

Correct. It then becomes a question of how much tax you pay. If you earn over the $87k threshold and pay lower foreign taxes than your US taxes, you should always work out your taxes two ways:

1. Foreign Earned Income Exclusion + Foreign Tax Credit
2. Foreign Tax Credit only

You then pay the lower of the two.

The only catch is that you can't change back-and-forth whenever you want. Once you've revoked the FEIE, you can't reinstate it for 5 years without permission from the IRS.