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Old 05.01.2011, 17:17
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US Foreign Income Exclusion for Married Filing Jointly

Hi Folks,

Forum Vigilantes please don't jump me. I have researched the forum, but could not get an exact answer to my question.

The exemption for a US Citizen or US permanent resident is $91,500. Plus if you are living outside the US you can take off Housing expenses.

My question is if you are filing your US taxes (Married Filing Jointly) does the exclusion for Foreign Income Exclusion become $91,500 X 2 = $183,000. Is this correct. What if your spouse has no income. He/She is a house-maker. I saw a post in 2009 which alluded to this information. However it did not state if the spouse had to be working.

Link Provided: (Tax on EU/US resident)

I understand that housing exclusion for filing separately can only be taken by one of the spouse.

Please share. Appreciate all the responses.

Best,
Bapa
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Old 05.01.2011, 17:55
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Re: US Foreign Income Exclusion for Married Filing Jointly

I called up the IRS today. It seems if the spouse is not working, then she does not qualify for the Foreign Income Exclusion. Thus is if you are married filing jointly with single income, you qualify for exclusion of $91,500 plus housing allowance and other misc housing expense.
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Old 05.01.2011, 18:55
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Re: US Foreign Income Exclusion for Married Filing Jointly

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I called up the IRS today. It seems if the spouse is not working, then she does not qualify for the Foreign Income Exclusion. Thus is if you are married filing jointly with single income, you qualify for exclusion of $91,500 plus housing allowance and other misc housing expense.
That's the way I recall it.

Tom
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Old 05.01.2011, 20:44
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Re: US Foreign Income Exclusion for Married Filing Jointly

Tom, I have few tax questions. I understand it comes with the caveat that you might not be Tax consultant. But anywho, I still value your opinion.

If we are filing jointly, We can deduct $91,500 plus housing deductions say another $28,000. If someone is making $150,000, they have to pay tax on
$30,500. ($150,000-$91,500-$28000).

Do we also take out the Swiss Taxes from above number. For e.g $150,000 the Swiss taxes would be 22% of $150,000 = $33,000. Do we get to right off the whole $33,000.

Or we get to right off taxes we paid on income - exclusions. That is .22% of $30,500 = $6710. Thus paying taxes on $30,500-$6710= $23,790.

Please let me know. Thanks, Bapa
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Old 05.01.2011, 20:54
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Re: US Foreign Income Exclusion for Married Filing Jointly

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Tom, I have few tax questions. I understand it comes with the caveat that you might not be Tax consultant. But anywho, I still value your opinion.

If we are filing jointly, We can deduct $91,500 plus housing deductions say another $28,000. If someone is making $150,000, they have to pay tax on
$30,500. ($150,000-$91,500-$28000).

Do we also take out the Swiss Taxes from above number. For e.g $150,000 the Swiss taxes would be 22% of $150,000 = $33,000. Do we get to right off the whole $33,000.

Or we get to right off taxes we paid on income - exclusions. That is .22% of $30,500 = $6710. Thus paying taxes on $30,500-$6710= $23,790.

Please let me know. Thanks, Bapa
I was always able to work it out by being head of household (NRA wife), a couple kids, etc., so never had to get into the complicated stuff.

Tom
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Old 05.01.2011, 21:14
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Re: US Foreign Income Exclusion for Married Filing Jointly

Do you get the itemized deduction for your kids and spouse and for any property tax you pay in the US. What is NRA stand for. Thanks once again.
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Old 06.01.2011, 01:09
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Re: US Foreign Income Exclusion for Married Filing Jointly

I've been looking into this, too, but haven't had to actually fill in a tax form yet, so take this with a grain of salt. As I understand it, your Swiss taxes are "taken out" as well, so you pay on whatever is left over. In countries that have an agreement with the U.S. (i.e. most countries), you will not be taxed twice on the same money.

What I've learned purely from reading is that all of the Swiss ways to reduce their tax burden don't really help us much. However, someone on this forum moved to a low-tax canton (Schwyz) and it also improved her U.S. tax situation. Go figure. I think you need a CPA to figure out the whys and wherefores on that one. You can still itemize deductions to (U.S.) charities, for a business, etc., on your U.S. form, so keep that in mind.

There are a lot of U.S. websites explaining the basics (google "expat taxes"). I did talk to a CPA in the U.S. who knew the rules. PM me if you'd like his name. He uses Skype and charges $50/hour, which seems very reasonable for professional advice.He did say that in his experience with Switzerland, it comes out in the wash and most people don't end up paying Uncle Sam.
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Old 06.01.2011, 01:49
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Re: US Foreign Income Exclusion for Married Filing Jointly

Joy, one reason that we are a still a bit better off in SZ even though I am shackled with the blue passport is the (US) AMT. When we lived in ZH our Swiss taxes were twice what we pay in SZ - resulting a larger foreign tax credit. But that larger deduction meant a larger hit via the AMT on the US side.

Low SZ taxes also mean that we don't have to worry overmuch about things that are handled differently in CH and the USA - we are able to focus our tax planning on the US half.

Living in Steuerparadis SZ certainly does not enable this American to stock the cellars with Dom Perignon, but it does let me buy a bottle of supermarket Fechy once in a blue moon.

As always - YMMV. Tax planning must be tailored to one's individual circumstances; what makes sense for one person may not be the right approach for someone else. Best bet is to work with a professional. But in very broad terms, an American usually ends up paying roughly in total - to one country or the other - at least as much as he/she would have paid as a US resident.

FYI re: the exclusion - do be aware that you lose a portion of that 91,000 for every day spent working back in the US. This can hurt if your job takes you back and forth a lot...

And one can't always take credit for the full amount that one pays to Switzerland that year - don't ask me the exact reason why, by the time the accountant reaches this bit my eyes are usually already well and truly glazed over - but you can carry unused credits forward for I think 5 years.

And Bapa, just to confirm - the exlusion is indeed per working individual. Here in Switzerland I toil not, neither do I spin; my husband earns our daily bread. So it would be the one exclusion only for this family.

.

Last edited by meloncollie; 06.01.2011 at 12:04.
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Old 06.01.2011, 08:33
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Re: US Foreign Income Exclusion for Married Filing Jointly

Just a clarification question: Bapa -- is your spouse also American?

If not, why do you have to file Jointly?

I am American married only since July 2010 to a Brit, who makes a lot more than me so I wonder now what I will have to do / declare. Any suggestions, anyone?
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Old 06.01.2011, 08:42
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Re: US Foreign Income Exclusion for Married Filing Jointly

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Tom, I have few tax questions. I understand it comes with the caveat that you might not be Tax consultant. But anywho, I still value your opinion.

If we are filing jointly, We can deduct $91,500 plus housing deductions say another $28,000. If someone is making $150,000, they have to pay tax on
$30,500. ($150,000-$91,500-$28000).

Do we also take out the Swiss Taxes from above number. For e.g $150,000 the Swiss taxes would be 22% of $150,000 = $33,000. Do we get to right off the whole $33,000.

Or we get to right off taxes we paid on income - exclusions. That is .22% of $30,500 = $6710. Thus paying taxes on $30,500-$6710= $23,790.

Please let me know. Thanks, Bapa

If you take the foreign income exclusion, this precludes you from deducting your Swiss taxes in any way. I.e. You cannot write
off any of your Swiss taxes.
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Old 06.01.2011, 08:44
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Re: US Foreign Income Exclusion for Married Filing Jointly

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Just a clarification question: Bapa -- is your spouse also American?

If not, why do you have to file Jointly?

I am American married only since July 2010 to a Brit, who makes a lot more than me so I wonder now what I will have to do / declare. Any suggestions, anyone?
Hi BruceFan,
The thing to do in this case is to file Married Filing Separate. This way,
your wife's income will not be subject to taxation in the US.

My CPA suggested that we do this( My wife is German ). I have done
this for the past 5 years.

Good luck!
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Old 06.01.2011, 12:59
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Re: US Foreign Income Exclusion for Married Filing Jointly

We are both US citizens. She has to file her taxes.
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Old 06.01.2011, 14:46
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Re: US Foreign Income Exclusion for Married Filing Jointly

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If you take the foreign income exclusion, this precludes you from deducting your Swiss taxes in any way. I.e. You cannot write
off any of your Swiss taxes.
When I tried to figure out the forms a while back, my reading was that you can only deduct taxes paid on the amount which exceeds whatever exclusion you take.

e.g. If you earn 150, exclude 120 (90+housing) then you must pay US taxes on the 30 overage but you can deduct Swiss taxes paid on that overage. However, when computing the US taxes on the overage it is roughly (US taxes on 150 - US taxes on 120), so essentially the marginal tax rate. On the other hand, when computing Swiss taxes paid on the 30, you must use your average Swiss tax rate on the 150.

But I just tried to make sense of some forms once, I've no professional knowledge and haven't (yet) actually filled them out. So take it with a grain of salt, and I'd love to see specific references to instructions which point towards a different interpretation.
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Old 06.01.2011, 14:53
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Re: US Foreign Income Exclusion for Married Filing Jointly

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Joy, one reason that we are a still a bit better off in SZ even though I am shackled with the blue passport is the (US) AMT. When we lived in ZH our Swiss taxes were twice what we pay in SZ - resulting a larger foreign tax credit. But that larger deduction meant a larger hit via the AMT on the US side.
EF is great, because I read about things I have never heard of, and have to use Wikipedia to follow the conversation. Learn something new everyday.

For others, I think AMT = Alternative Minimum Tax.
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Old 06.01.2011, 15:00
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Re: US Foreign Income Exclusion for Married Filing Jointly

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What is NRA stand for?
Non-Resident-Alien, i.e. someone who is not a US citizen, and does not reside in the US.

Tom
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Old 06.01.2011, 15:35
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Re: US Foreign Income Exclusion for Married Filing Jointly

Thomas is pretty much correct on the Foreign tax credit application.

Don't forget that the US does not recognize Swiss pension contributions as being tax-free, so technically you have to claim this as income as well as the company contribution. And if you want to really do it correctly, you need to accumulate the $'s based on the fx on the date you are paid each month. That said, your basis upon retirement is near 100% and then would be tax free to the US.

Last edited by jsherk; 06.01.2011 at 16:28. Reason: added "contributions"
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Old 08.01.2011, 05:00
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Re: US Foreign Income Exclusion for Married Filing Jointly

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Thomas is pretty much correct on the Foreign tax credit application.

Don't forget that the US does not recognize Swiss pension contributions as being tax-free, so technically you have to claim this as income as well as the company contribution. And if you want to really do it correctly, you need to accumulate the $'s based on the fx on the date you are paid each month. That said, your basis upon retirement is near 100% and then would be tax free to the US.
So ... like a Roth IRA instead of a 401(k)? Tax free income when you get it out?
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Old 08.01.2011, 09:12
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Re: US Foreign Income Exclusion for Married Filing Jointly

Actually, the IRS publishes a number that you can use for the entire year which I would generally use for foreign exchange transactions unless there has been huge variability in the fx rate and it would actually impact taxes.

On the plus side for needing to file US taxes wherever I live, I got a surprise stimulus check in the mail last month!
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