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Old 04.01.2012, 22:51
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US tax question - credit and exclusion?

A quick question for anyone who might know: if I, as a US expat, had two jobs in two different countries a tax year, is it possible to exclude the income from one (form 2555) and take a tax credit for the other (form 1116)? I've seen a guide state that taking a credit implies a revocation of the exclusion, but the actual IRS instructions talk about "you can't take a credit for any income you have excluded" which implies that you can in fact file both forms.
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Old 05.01.2012, 00:05
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Re: US tax question - credit and exclusion?

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A quick question for anyone who might know: if I, as a US expat, had two jobs in two different countries a tax year, is it possible to exclude the income from one (form 2555) and take a tax credit for the other (form 1116)? I've seen a guide state that taking a credit implies a revocation of the exclusion, but the actual IRS instructions talk about "you can't take a credit for any income you have excluded" which implies that you can in fact file both forms.
It is an either/or proposition.

You can either take tax credits or you can take the exclusion.
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Old 05.01.2012, 00:29
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Re: US tax question - credit and exclusion?

The above post is incorrect.

First, which countries did you work?

When did you leave the US?
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Old 05.01.2012, 00:45
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Re: US tax question - credit and exclusion?

Further, you can file both forms.

The FEIE (foreign earned income exclusion) allows you to exclude up to $92,900, more if you include FHE (foreign housing exclusion), though there is a limitation on housing. On average knowing Swiss prices you could exclude 100-110k of your income. I assume your referring to 2011 tax year by the way.

But your tax home and bona fide residence / physical presence test, determined by your leave dates and length of stay in the "two countries" essentially determines your ability to claim this exclusion.

The confusion regarding the ability to file both forms and what FTC's you can claim is depending on how you want to optimize.
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Old 05.01.2012, 00:50
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Re: US tax question - credit and exclusion?

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the actual IRS instructions talk about "you can't take a credit for any income you have excluded" which implies that you can in fact file both forms.
Correct, the demon lies in the details. The credit would only apply to the amount which was not excluded. So in effect, yes, you can take a credit and apply for the FEIE when doing your returns. If I recall correctly my tax adviser does exactly this when doing my returns.

I would STRONGLY advise you to seek a professional U.S. CPA with experience dealing with expat taxes, there are plenty around in Switzerland.
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Old 05.01.2012, 09:50
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Re: US tax question - credit and exclusion?

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Correct, the demon lies in the details. The credit would only apply to the amount which was not excluded. So in effect, yes, you can take a credit and apply for the FEIE when doing your returns. If I recall correctly my tax adviser does exactly this when doing my returns.

I would STRONGLY advise you to seek a professional U.S. CPA with experience dealing with expat taxes, there are plenty around in Switzerland.

Of course a credit can only be claimed against non excluded amount, you can't take a credit against nothing can you?!

Simply put, essentially, when / if you claim 2555 exclusion, a reduction ratio is applied. This seeks to ensure that despite your excludable income, you are taxed on the remainder at the rate should no exclusion be taken I.e

You earn 200k
You excluded 100k
Your taxed on 100k at the % applicable to 200k earnings

No exclusion taken, no reduction in FTCs claimed. Hence why it's not always best to take the exclusion, it all depends on the optimization.

Others factors to how to best optimize are whether you are on the paid or accrued basis.

Oh, and please note, you can't pick choose from year to year whether to take the exclusion or not. There are revoking rules you should consider.
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Old 05.01.2012, 22:05
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Re: US tax question - credit and exclusion?

I should have clarified that I meant two different foreign countries; I haven't lived in the US for several years now. That said, I found the bit of the instructions I was missing; it seems that if i am taking *any* of the exclusion, I must exclude *all* excludable income.

(If only my income were high enough to afford an accountant...)
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Old 06.01.2012, 21:20
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Re: US tax question - credit and exclusion?

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I should have clarified that I meant two different foreign countries; I haven't lived in the US for several years now. That said, I found the bit of the instructions I was missing; it seems that if i am taking *any* of the exclusion, I must exclude *all* excludable income.

(If only my income were high enough to afford an accountant...)
I will be happy to help you out.

Ok, so the good news is you have been out the US long enough to establish bonafide residency, met by being in another country for a complete tax year.

So u can take the exclusion. That is not to say it is more beneficial as your FTCs will be restricted. Hence the need to optimize.

If you want to chat more on PM, providing your happy to provide sone specifics I can help you out.
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