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Dual US/Swiss Citizen 01.05.2012 17:28

US Tax Basics 101
 
Hi everyone
This is my first posting and I'm trying to understand the basics of US taxes. Although unfair, the US is the only country in the world to require its citizens to file US taxes in addition to the local taxes I file and pay here at home in Switzerland. I've spent hours online to try to understand everything but I am still confused. I think I might be able to manage using Turbotax online. I have a simple financial situation (most of my wealth in house & pension fund).

Question 1: Does anyone know which salary amount I should report from the Swiss Salary certificate (Lohnausweis) for my US tax forms?
Either:
- Line 1) Brutto Salary (this would include 1st Pillar AHV Social security & 2nd Pillar Pension CONTRIBUTIONS)
- Line 11) Netto Salary (Salary after the 1st & 2nd Pillar contributions deducted)
- Netto Salary plus Pension contributions without AHV
I thought I understood from somewhere that 2.Pillar contributions & any interest growth has to be reported but not sure where and what about AHV contributions?

Question 2: Does the value of my home need to be reported on any US tax form?

Question 3: Can the Mortgage Interest be deducted fully even after deducting the foreign earned income exclusion?

Question 4: I assume that the 2nd pillar accumulated pension balance does NOT need to be reported on FBAR form since it is a financial account that I don't control; only report this on Form 8938 if it is over 200kUSD?

Summary of inputs:
- Form 1040 Basic Form
- Form 2555 Foreign Earned Income Exclusion (FEIE)
- Form 1116 Foreign Tax Credit (only 'pro rata' as must be applied to entire income before FEIE exclusion)
- Schedule A Itemized deductions (in order to deduct the full mortgage interest and a part of the health costs)
- Facta Form 8938 2nd pillar pension amount (only if more than 200k)
- FBAR Form: Only if I have financial bank accounts of more than 10k aggregate
Does the above look like I'm understanding it correctly (only 6 forms!) or am I forgetting something?
I am really struggling so I would be real appreciative if anyone could give me any helpful input. Thanks.

Kepete17 01.05.2012 18:44

Re: US Tax Basics 101
 
1. Brutto salary +employer contributions to pension along with interest earned in that year. AHV cannot be subtracted as we don't pay into the us social security program while here unless your employer has worked something out specifically for this on your behalf. We put this all in line 7.
2. No you don't need to include house value anywhere
3. I believe that you can fully deduct mortgage interest fully if not taking the standard deduction but this doesnt apply to us so someone else may have a more confident answer.
4. You don't need to include pillar 2 on fbar. fatca thresholds are reached in combined accounts overseas, not just the individual pension account being over 200k though.

Hope this helps somewhat although I am betting you might have liked a different answer to question 1!

Dual US/Swiss Citizen 01.05.2012 19:50

Re: US Tax Basics 101
 
Thanks! That was extremely helpful. No I didn't like answer to question 1 :mad: This increases the US tax liability considerably.
After the FEIE deduction, am I forgetting any other deductions in addition to the personal exemption, mortgage interest, health care costs (partial)? I have the impression most deductions that a homelander would use can't be used as they are 'used up' in the income excluded in the FEIE.

Kepete17 01.05.2012 20:28

Re: US Tax Basics 101
 
Foreign housing exclusion or deduction, it helps a lot.

myeung 01.05.2012 21:03

Re: US Tax Basics 101
 
look at schedule A and see what applies. I'm sure it'll add up to more than standard deduction if you are a homeowner.

Donations to US charities (or US registered international charities), your mortgage interest (okay even if it's foreign property), and out of pocket health care (over 7.5% AGI), business expenses, etc.

Quote:

Originally Posted by Dual US/Swiss Citizen (Post 1549685)
Thanks! That was extremely helpful. No I didn't like answer to question 1 :mad: This increases the US tax liability considerably.
After the FEIE deduction, am I forgetting any other deductions in addition to the personal exemption, mortgage interest, health care costs (partial)? I have the impression most deductions that a homelander would use can't be used as they are 'used up' in the income excluded in the FEIE.


Dual US/Swiss Citizen 01.05.2012 21:14

Re: US Tax Basics 101
 
Foreign Housing Exclusion/Deduction:
For homeowners, does anyone know what exactly may be deducted. (i.e., household insurance costs, electricity costs, agency general maintenance costs(includes elevator, water, cleaning entrance, building insurance)? If the previous may be deducted, is it fully deducted or does it have to be pro-rated and therefore 'used up' in the income covered by the FEIE? Did I forget any other potential deductible costs for this category?

myeung 01.05.2012 21:21

Re: US Tax Basics 101
 
Hate to burst your bubble, but foreign housing exclusion is not applicable to homeowners, only renters.

Quote:

Originally Posted by Dual US/Swiss Citizen (Post 1549778)
Foreign Housing Exclusion/Deduction:
For homeowners, does anyone know what exactly may be deducted. (i.e., household insurance costs, electricity costs, agency general maintenance costs(includes elevator, water, cleaning entrance, building insurance)? If the previous may be deducted, is it fully deducted or does it have to be pro-rated and therefore 'used up' in the income covered by the FEIE? Did I forget any other potential deductible costs for this category?


Guest 01.05.2012 22:49

Re: US Tax Basics 101
 
Quote:

Originally Posted by Dual US/Swiss Citizen (Post 1549558)
...the US is the only country in the world to require its citizens to file US taxes in addition to the local taxes I file and pay here at home in Switzerland...

Somebody has got to pay for the wars and US economic policy!

myeung 01.05.2012 23:28

Re: US Tax Basics 101
 
sometimes it makes sense to renouce your US citizenship...speak to an attorney & tax advisor on the subject.

US is indeed the only industrialized nation that tax based on nationality rather than residence.

Quote:

Originally Posted by brusch (Post 1549855)
Somebody has got to pay for the wars and US economic policy!


Kepete17 02.05.2012 07:47

Re: US Tax Basics 101
 
Quote:

Originally Posted by myeung (Post 1549784)
Hate to burst your bubble, but foreign housing exclusion is not applicable to homeowners, only renters.

Really? I didn't see that anywhere on the IRS website. Only that you can't deduct principle payments. One can decide utilities, insurance, ect, can't they?

drmom 02.05.2012 08:20

Re: US Tax Basics 101
 
Quote:

Originally Posted by Kepete17 (Post 1549939)
Really? I didn't see that anywhere on the IRS website. Only that you can't deduct principle payments. One can decide utilities, insurance, ect, can't they?

it is ALL confusing, if you ask me! From the IRS website:

Quote:

Foreign Housing Exclusion Amount and Limits
The foreign housing exclusion applies only to amounts considered paid for with employer-provided amounts. Employer-provided amounts include any amounts paid to you or paid or incurred on your behalf by your employer that are taxable foreign earned income to you for the year, such as wages, salary, reimbursement for housing expenses, payments by your employer as part of a tax equalization plan, and the fair rental value of company-owned housing furnished to you (unless that value is excluded from income under the exclusions of meals and lodging rules).
Since the foreign housing cost amount exclusion is in addition to the foreign earned income exclusion, if you choose to exclude a foreign housing cost amount, you must figure the foreign housing exclusion before you figure the foreign earned income exclusion. The foreign housing exclusion is limited to the lesser of the foreign housing costs paid for with employer-provided amounts or your foreign earned income. Also, if you choose the foreign housing exclusion, you cannot claim less than the full amount of the housing exclusion to which you are entitled.
Foreign Housing Deduction Amount and Limits
The foreign housing deduction applies only to amounts paid for with self-employment earnings. If you do not have self-employment income, you cannot take the foreign housing deduction. If you are both an employee and a self-employed individual during the year, you can deduct part of your housing amount and exclude part of it, subject to the following limitation.
Your foreign housing deduction cannot be more than your foreign earned income less the total of your foreign earned income exclusion plus your housing exclusion.
Although the foreign housing exclusion and/or the deduction will reduce your regular income tax, they will not reduce your self-employment tax

so it seems to me to take the deduction you have to be self-employed? And then for the exclusion, do these only apply to costs that the employers pays for your housing - ie you don't need to include those benefits in your taxable income?

Kepete17 02.05.2012 09:17

Re: US Tax Basics 101
 
Quote:

Originally Posted by drmom (Post 1549952)
it is ALL confusing, if you ask me! From the IRS website:




so it seems to me to take the deduction you have to be self-employed? And then for the exclusion, do these only apply to costs that the employers pays for your housing - ie you don't need to include those benefits in your taxable income?

Agreed, it is all confusing. For the exclusion portion, The wording employer provided amounts is awkward, but it goes on to describe it as pretty much all money paid to you by your employer i believe to differentiate from income you may derive from other sources. Ie if you are paid 50k chf by an employer, and earn 200 chf in investment income, you can not offset taxes on the 200 chf with the housing exclusion.

runningdeer 02.05.2012 09:59

Re: US Tax Basics 101
 
Quote:

Originally Posted by Dual US/Swiss Citizen (Post 1549778)
Foreign Housing Exclusion/Deduction:
For homeowners, does anyone know what exactly may be deducted. (i.e., household insurance costs, electricity costs, agency general maintenance costs(includes elevator, water, cleaning entrance, building insurance)? If the previous may be deducted, is it fully deducted or does it have to be pro-rated and therefore 'used up' in the income covered by the FEIE? Did I forget any other potential deductible costs for this category?

Is this really the first time you file a US tax form?:eek:

See IRS publication 54, it explains what can/cannot be deducted on housing exclusion, page 21. Basically as a homeowner only small things like insurance and utilities may qualify.

JBZ86 02.05.2012 11:08

Re: US Tax Basics 101
 
Quote:

Originally Posted by Dual US/Swiss Citizen (Post 1549558)
Hi everyone
This is my first posting and I'm trying to understand the basics of US taxes. Although unfair, the US is the only country in the world to require its citizens to file US taxes in addition to the local taxes I file and pay here at home in Switzerland. I've spent hours online to try to understand everything but I am still confused. I think I might be able to manage using Turbotax online. I have a simple financial situation (most of my wealth in house & pension fund).

Question 1: Does anyone know which salary amount I should report from the Swiss Salary certificate (Lohnausweis) for my US tax forms?
Either:
- Line 1) Brutto Salary (this would include 1st Pillar AHV Social security & 2nd Pillar Pension CONTRIBUTIONS)
- Line 11) Netto Salary (Salary after the 1st & 2nd Pillar contributions deducted)
- Netto Salary plus Pension contributions without AHV
I thought I understood from somewhere that 2.Pillar contributions & any interest growth has to be reported but not sure where and what about AHV contributions?

Line 8 (Brutto), + Line 13.21.1 (Representation) + any additional items shown on Zusatzblatt that may be exempt in Switzerland, such as settling allowance, family allowances, etc

Likewise, as you say, employer paid Pillar 2 contr.

AHV no, this like social security.

Growth, yes.


Question 2: Does the value of my home need to be reported on any US tax form?

No.

Question 3: Can the Mortgage Interest be deducted fully even after deducting the foreign earned income exclusion?

Yes.

ensure you are reducing your foreign taxes if you are taking exclusion. You can not claim 100% FTC. Run an optimization calc to determine if 2555 is more favourable for you.

Question 4: I assume that the 2nd pillar accumulated pension balance does NOT need to be reported on FBAR form since it is a financial account that I don't control; only report this on Form 8938 if it is over 200kUSD?

Wouldnt hurt. I would report on FBAR and historically in practice have and advised to. Its a question of reporting over defending penalty accussations. Reporting is far less hassle.

You do control, you contribute to it, you have authority over it.

That said, you do not need to report twice.

Summary of inputs:
- Form 1040 Basic Form
- Form 2555 Foreign Earned Income Exclusion (FEIE)
- Form 1116 Foreign Tax Credit (only 'pro rata' as must be applied to entire income before FEIE exclusion)
- Schedule A Itemized deductions (in order to deduct the full mortgage interest and a part of the health costs)
- Facta Form 8938 2nd pillar pension amount (only if more than 200k)
- FBAR Form: Only if I have financial bank accounts of more than 10k aggregate
Does the above look like I'm understanding it correctly (only 6 forms!) or am I forgetting something?
I am really struggling so I would be real appreciative if anyone could give me any helpful input. Thanks.


Have provided brief answers in bold above

Dual US/Swiss Citizen 03.05.2012 18:49

Re: US Tax Basics 101
 
Quote:

Originally Posted by JordanBarrZurich86 (Post 1550078)
Have provided brief answers in bold above

Many thanks for your helpful input.
You refer to reporting line 8 from my Lohnausweis (which on my form is the same amount as line 1)
However you say no to AHV which was a little unclear for me.
My AHV CONTRIBUTION is on line 9. Do you mean that I can deduct my AHV contribution for the amount I report on 1040?
To repeat which is correct?
1) Report Line 8 Brutto Lohn full amount
- or -
2) Report Line 8 Brutto Lohn minus Line 9 (the amount I contributed to my AHV)

JBZ86 03.05.2012 19:00

Re: US Tax Basics 101
 
Quote:

Originally Posted by Dual US/Swiss Citizen (Post 1551326)
Many thanks for your helpful input.
You refer to reporting line 8 from my Lohnausweis (which on my form is the same amount as line 1)
However you say no to AHV which was a little unclear for me.
My AHV CONTRIBUTION is on line 9. Do you mean that I can deduct my AHV contribution for the amount I report on 1040?
To repeat which is correct?
1) Report Line 8 Brutto Lohn full amount
- or -
2) Report Line 8 Brutto Lohn minus Line 9 (the amount I contributed to my AHV)

No, you are not able to deduct your AHV contributions. You must report your gross salary. Sorry :(

Ticru P. 22.05.2012 13:04

Re: US Tax Basics 101
 
Quote:

Originally Posted by Dual US/Swiss Citizen (Post 1549558)
I thought I understood from somewhere that 2.Pillar contributions & any interest growth has to be reported but not sure where

I have this very same question. The 2nd pillar is a real mystery for US taxes! Considering it's mandatory under Swiss law (just like social security) just about every salaried American citizen in CH should have this same concern, yet it's tough to find precise information on how to deal with this.

From what I have gathered: all contributions to 2nd pillar (employEE and employER), plus any interest earned, have to be declared. Fine, but from there the million dollar question is: can any or all of the 2nd pillar contributions be excluded by taking the foreign earned income exclusion, or in some other way? Can anyone give a concrete answer to this?

I sure hope that the 2nd pillar is not taxed by the US, because it will already be taxed by CH when it finally comes time for distribution, and this would be double-taxation! With a tax treaty between the two countries in existence since 1996, which effectively clarifies this for Swiss government employees only (if I understood it correctly), and totalization agreements in place regarding Social Security, how could this have been over-looked? I mean I would love to just tell my employer that I don't want the 2nd pillar and that he should just put the money in a 401k in the US for me, but I apparently don't have that choice!

runningdeer 22.05.2012 13:31

Re: US Tax Basics 101
 
Quote:

Originally Posted by Ticru P. (Post 1564682)
: can any or all of the 2nd pillar contributions be excluded by taking the foreign earned income exclusion, or in some other way? Can anyone give a concrete answer to this?

I sure hope that the 2nd pillar is not taxed by the US, because it will already be taxed by CH when it finally comes time for distribution, and this would be double-taxation!

Welcome to the real world of citizen-based taxation. Indeed double taxation exists and many of us pay twice on a lot of things, not just pensions. And as per tax agreements, they may help in some cases, but are totally useless in other areas, as many will attest to. The UK.-US one is the only one I know that covers retirement pensions with any decent coverage. The US-Swiss one is nearly useless except for first pillar.

Now getting to your questions, if you look around the EF on some other threads, I think you will find a general convergence that 2nd pillar contributions, both employer and employee, are taxable, at least according to most tax experts. As for using the FEIE for second pillar, I think it is a grey area, again search the EF, and you will likely get different opinions.

As a final note, get involed in raising these matters with your congressmen, the US embassy, American Citizens Abroad www.aca.ch, and the Isaac Brock Society http://isaacbrocksociety.com/ so that americans abroad are not continued to be double taxed and treated unfairly.

JBZ86 22.05.2012 13:32

Re: US Tax Basics 101
 
Quote:

Originally Posted by Ticru P. (Post 1564682)
I have this very same question. The 2nd pillar is a real mystery for US taxes! Considering it's mandatory under Swiss law (just like social security) just about every salaried American citizen in CH should have this same concern, yet it's tough to find precise information on how to deal with this.

From what I have gathered: all contributions to 2nd pillar (employEE and employER), plus any interest earned, have to be declared. Fine, but from there the million dollar question is: can any or all of the 2nd pillar contributions be excluded by taking the foreign earned income exclusion, or in some other way? Can anyone give a concrete answer to this?

I sure hope that the 2nd pillar is not taxed by the US, because it will already be taxed by CH when it finally comes time for distribution, and this would be double-taxation! With a tax treaty between the two countries in existence since 1996, which effectively clarifies this for Swiss government employees only (if I understood it correctly), and totalization agreements in place regarding Social Security, how could this have been over-looked? I mean I would love to just tell my employer that I don't want the 2nd pillar and that he should just put the money in a 401k in the US for me, but I apparently don't have that choice!

The employEE contributions are taxed as part of your gross compensation i.e. you report gross compensattion and your own Pillar 2 contribution is part of your gross comp, so you are not reporting anything additional then you normally would do.

The employER contributions need to be reported as additional compensation. The pillar 2 is a non-qualfied deffered compensation plan under US tax law. You can report these on Line 7 or Line 21 as other income. The earned income exclusion can not offset it, it is non-qualifying income.

I am not sure of your last paragraph. Are you citing the tax is fair rule? :D

You should attach a statement, each year, showing your personal contribution, your employer contribution, and any declared growth thats been reported on the return so that you can track the basis. When the plan is distributed, say when you leave Switzerland, then you have non-taxable basis in the plan from which you have reported and already paid tax on in the US.

Kepete17 22.05.2012 16:50

Re: US Tax Basics 101
 
Quote:

Originally Posted by JordanBarrZurich86 (Post 1564719)

The employER contributions need to be reported as additional compensation. The pillar 2 is a non-qualfied deffered compensation plan under US tax law. You can report these on Line 7 or Line 21 as other income. The earned income exclusion can not offset it, it is non-qualifying income.

I don't understand this part. Why do you say it is non-qualifying? We can't defer the taxes paid so why split hairs like this? They don't consider Pillar 2 a retirement account, they consider it ordinary income.


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