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Ed Johnson
Ed Johnson, Tax Preparer
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What are the tax implications of transferring $ to the US

Customer Question

I worked in Switzerland for anumber of years, during which time I paid taxes on my income to the US government. I did not immediately transfer my money back to the US once I moved back to the States, and, as the currency rates have changed, the money is now worth more in USD than when I left Switzerland. What are the tax implications of transferring this money back to the US? If I do have to pay taxes, how is this calculated? Could I avoid paying the taxes by spending the money from that account rather than transferring it back to the US?
Submitted: 6 years ago.
Category: Tax
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

Thank you for your question.

If this money represents earnings for which you already paid taxes, then the principle amount is no longer exposed to tax. However, any interest would be taxed.

So, in terms of taxes, there would be no reporting requirement simply from based on he currency exchange rate of the principle amount.

Only interest would be taxable.

Just note that you may have to report amounts of 100K or more to the IRS for security purposes, but not tax.

BAnks are required to report transactions of 10K or more to the IRS also for security reasons, and not tax.

Any interest earned on a bank account in Switzerland would be subject to swiss tax first, and then U.S. tax, with the U.S. giving you credit for taxes paid to Switzerland.

In the U.S. the interest is taxed at your marginal rate which is determined by your adjusted gross income.

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and other Tax Specialists are ready to help you
Customer: replied 6 years ago.
Hi Ed,

Thanks for your reply. Could you please provide a reference for your statement that the principle amount is not exposed to tax?

Also, could you please let me know how I get the credit for taxes paid to Switzerland on interest?

Thanks! XXXXX get your replies i will be happy to accept your answer.
Expert:  Ed Johnson replied 6 years ago.

Dear taxquestions.

Claiming tax treaty benefits in Switzerland: the swiss only do it one way. You file the return as if it were a regular return, and concurrently file a request for refund.

This document gives the steps. The majority of the document speaks bout dividends and interest on retirement accounts but it is the same for regular interest. The document only has one paragraph devoted to teh general subject of tax treaty benefits.

http://www.irs.gov/pub/irs-utl/us-swiss_pensions.pdf

The documents I use for reference are:

http://www.irs.gov/businesses/international/article/0,,id=169682,00.html

http://www.irs.gov/pub/irs-pdf/p525.pdf

Please note: you will not find in irs code or the publications, the phrase "....principle is not taxed, or income already taxed is not taxed again". You will find that the term principle is not used in the context of taxable income.

Think of it this way. If the IRS could tax incomed twice, then it would be taxing your already taxed earnings no matter where you had it, in a bank account or under your mattress. Lets see how that works:

I take home a pay check, which has been taxed, and I decide to not spend it. Along comes the IRS and says, since you have not spent your money, I am going to tax it.....we both know this does not happen. Once your income has been taxed, and it is put into a savings account, the principle amount represents your earnings which were already taxed., Therefor only the interest or earned income is taxed.

The ONLY exception is that if you put your principle amount or already taxed income into an IRA account and take an early withdrawal, then you pay a 10% penalty for early withdrawal as well as taxes. But then, in a traditional IRA, the principle amount was not taxed in teh first place, so by taking it out, they are allowed to then tax it.

In a Roth IRA, the principle amount is after taxes, and so there for, the principle amount is not taxed again and the Roth IRA grows tax free, unless you take it out early and have to pay a penalty.

NOW the other exception to principle amount is if your principle amount ni your bank account in Switzerland represents some untaxed earned income.

My answers were based on the assumption, from informatlino in your question, that the money you placed in a swiss account to earn interest, was from your salary which wsas already taxed as part of payroll withholdilng or your payment of taxes with your tax returns; that this principle amount was take from payroll and then put in a bank account to bear interest, and that the principle amount had already been reported to the IRS when you filed your taxes.

 

Customer: replied 6 years ago.
Thanks, XXXXX XXXXX was very helpful. I confirmed your answer with the IRS directly :)
Expert:  Ed Johnson replied 6 years ago.

Dear TAxquestion,

Thanks for your cofirmation and comments. Best of luck to you.,

Ed

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Ed Johnson
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