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Old 01.05.2012, 17:28
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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.
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  #2  
Old 01.05.2012, 18:44
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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!
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Old 01.05.2012, 19:50
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Re: US Tax Basics 101

Thanks! That was extremely helpful. No I didn't like answer to question 1 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.
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Old 01.05.2012, 20:28
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Re: US Tax Basics 101

Foreign housing exclusion or deduction, it helps a lot.
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Old 01.05.2012, 21:03
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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.

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Thanks! That was extremely helpful. No I didn't like answer to question 1 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.
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Old 01.05.2012, 21:14
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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?
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Old 01.05.2012, 21:21
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Re: US Tax Basics 101

Hate to burst your bubble, but foreign housing exclusion is not applicable to homeowners, only renters.

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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?
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Old 02.05.2012, 09:59
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Re: US Tax Basics 101

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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?

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.
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Old 01.05.2012, 22:49
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Re: US Tax Basics 101

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...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!
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Old 01.05.2012, 23:28
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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.

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Somebody has got to pay for the wars and US economic policy!
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Old 02.05.2012, 11:08
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Re: US Tax Basics 101

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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
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Old 03.05.2012, 18:49
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Re: US Tax Basics 101

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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)
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  #13  
Old 03.05.2012, 19:00
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Re: US Tax Basics 101

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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
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Old 24.05.2012, 12:27
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2nd Pillar Reporting: 8938 OR FBAR?

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Have provided brief answers in bold above
2nd Pillar Balance Reporting: 8938 or FBAR?

One issue that is concerning me is that JBZ mentioned that he has been reporting the year end 2nd Pillar company pension balance on FBAR. My understanding from other posts is it is not necessary to declare this in the FBAR form but would now begin reporting in the new FACTA form 8938 if the balance is over 200kUSD.
Question: Let's say there is a balance of 150kUSD in the 2nd Pillar Pension company pension fund.
If one were to suddenly declare this on the FBAR, wouldn't the IRS impose a 27% or more penalty?
Otherwise is it not better to wait until it reaches 200kUSD and then report only on form 8938?
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Old 24.05.2012, 15:24
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Re: 2nd Pillar Reporting: 8938 OR FBAR?

From everything I've read, you don't report pillar 2 on FBAR but do on 8938 if your total foreign assets (so not just the pension) are over $200,000 (if you're not filing a joint return and are a foreign resident - $400,000 if filing a joint return).

However, I'd be curious to hear about someone who does report the pillar 2 on FBAR and why?

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2nd Pillar Balance Reporting: 8938 or FBAR?

One issue that is concerning me is that JBZ mentioned that he has been reporting the year end 2nd Pillar company pension balance on FBAR. My understanding from other posts is it is not necessary to declare this in the FBAR form but would now begin reporting in the new FACTA form 8938 if the balance is over 200kUSD.
Question: Let's say there is a balance of 150kUSD in the 2nd Pillar Pension company pension fund.
If one were to suddenly declare this on the FBAR, wouldn't the IRS impose a 27% or more penalty?
Otherwise is it not better to wait until it reaches 200kUSD and then report only on form 8938?
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Old 25.05.2012, 12:43
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Re: 2nd Pillar Reporting: 8938 OR FBAR?

I report mine on the FBAR forms. As I see it, better to be overly honest than not report it and paying a fine. Eventually I want to renounce my citizenship, so I want to be in the all clear with IRS.

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However, I'd be curious to hear about someone who does report the pillar 2 on FBAR and why?
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Old 01.09.2012, 12:35
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Re: US Tax Basics 101

I learned today that North Korea and Eritrea also tax based on citizenship. So, the US is in very fine company indeed....
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Old 01.09.2012, 16:49
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Re: 2nd Pillar Reporting: 8938 OR FBAR?

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From everything I've read, you don't report pillar 2 on FBAR but do on 8938 if your total foreign assets (so not just the pension) are over $200,000 (if you're not filing a joint return and are a foreign resident - $400,000 if filing a joint return).

However, I'd be curious to hear about someone who does report the pillar 2 on FBAR and why?
8938 would be the correct form now.

FBAR pre 2011.

Like many things with US tax and addition reporting obligations, the Pillar 2 reporting on FBAR is/was a grey area. Many opinions but in general it was deemed sensible to do so.

I wouldn't amend or worry in basis you have reported the income, as no penalties can be applied in this instance.
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Old 01.09.2012, 16:50
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Re: 2nd Pillar Reporting: 8938 OR FBAR?

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8938 would be the correct form now.

FBAR pre 2011.

Like many things with US tax and addition reporting obligations, the Pillar 2 reporting on FBAR is/was a grey area. Many opinions but in general it was deemed sensible to do so.

I wouldn't amend or worry in basis you have reported the income, as no penalties can be applied in this instance.
Yes, we ended up reporting it on FBAR for 2011 (far under the 8938 amounts). Thanks!
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Old 01.09.2012, 18:02
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Re: 2nd Pillar Reporting: 8938 OR FBAR?

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8938 would be the correct form now.

FBAR pre 2011.

Like many things with US tax and addition reporting obligations, the Pillar 2 reporting on FBAR is/was a grey area. Many opinions but in general it was deemed sensible to do so.

I wouldn't amend or worry in basis you have reported the income, as no penalties can be applied in this instance.
I called the IRS twice regarding 2nd pillar reporting requirements in FBAR and recorded both phone conversations.

1st phone call - I explained the nature of the 2nd pillar, a government-mandated company pension plan in which I have no control or influence over the inflow or outflow of cash as I still live in Switzerland, have always been gainfully employed, am not retired and have no plans to purchase property. The response I got : "If you don't control it, you don't report it in FBAR".

2nd phone call a few months later - She hung up after my question.
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