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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Relocating to Switzerland for work for 2 years. Will be on

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Relocating to Switzerland for work for 2 years. Will be on Swiss payroll, paying taxes, pension and private medical. I will be renting my house here in the states. What are my tax responsibilities here in the states

Lev :

Hi and welcome to our site!
Assuming - you are an US citizen - you are required to report all your worldwide income.
In additional - you might be able to claim a foreign earned income exclusion.


To to claim foreign earned income exclusion - the taxpayer should file either form 2555 or 2555EZ. Here are forms: Form 2555 Instruction 2555


Please be aware that - the exclusion above will not affect self-employment taxes - only income taxes. Only earned income is excludable - income from wages and self-employment. For instance - dividends, investment income, rental income, pensions, etc - are not excludable. Please also be aware that this credit is not granted automatically - you need to file a tax return and claim the credit. If the person bona fide resident of a foreign country - he/she may qualify for the foreign earned income and foreign housing exclusions.
For the person to qualify for the foreign earned income exclusion - he/she should:
-- Work and reside outside the United States for at least 330 days during the year(Physical Presence test), or
-- Meet either the Bona Fide test.

Lev :

In additional to the foreign earned income exclusion - you may claim a foreign hoising exclusion.
The amount of qualified housing expenses eligible for the housing exclusion and housing deduction is limited. The limit is generally 30% of the maximum foreign earned income exclusion (computed on a daily basis), multiplied by the number of days in your qualifying period that fall within your tax year. For 2012, this is generally $77.95 per day ($28,530 per year). However, the limit will vary depending upon the location of your foreign tax home. The limits for high-cost localities are listed in the Instructions for Form 2555 - see page 6 - http://www.irs.gov/pub/irs-pdf/i2555.pdf

Customer:

Ok, Not sure if you know? will I have to pay foreign Swiss taxes as well to my US responsibilities? Is there a 95k credit towards my income and then I pay taxes on income above 95k

Customer:

Opps, just glanced at the 2555, i see the exclusion for 95k..

Lev :

The issue that claiming a foreign earned income exclusion is your choice - you are not required to do so. Instead - you may clain a foreign tax credit.
If the same income is taxable abroad and in the US - you may claim a credit for taxes paid abroad - so the same income would not be taxed twice. Use the form 1116 -http://www.irs.gov/pub/irs-pdf/f1116.pdf please find instructions here - http://www.irs.gov/pub/irs-pdf/f1116.pdf
The credit is limited by the US tax liability on the same income - the form 1116 is used to calculate the amount of credit. Means - if tax liability abroad is higher - there will not be US taxes on that income, but if tax liability abroad is lower - in the US you will pay the difference after the credit will be applied.

Lev :

You may claim both - a foreign earned income exclusion and a foreign tax credit - but not on the same income. For instance - if your income is above the foreign earned income exclusion limit - you may claim a foreign earned income exclusion up to the limit - and a foreign tax credit for the amount above.

Customer:

Thanks for your help, you were helpful. Excellent service! I joined the trial period if any question come up I'll "Just Ask.."

Lev :

I am glad to be helpful.
In case taxes in Switzerland are higher - it might be better not to claim a foreign earned income exclusion and only claim a foreign tax credit. In any case - there will not be double taxation of the same income.
However - to be precised - I might suggest to prepare your tax return both ways and compare.

Customer:

Thanks again, We'll compare both ways when the time comes.

Lev :

You are very welcome. Let me know if you need any clarification.

Customer:

Is there any other links you can send me for filling foreign taxes, deductions ?

Lev :

Yes - please stay with me while I am looking for references...

Lev :

The starting point would be this publication Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad
www.irs.gov/pub/irs-pdf/p54.pdf‎
You may review online - or may order a hard copy from the IRS.

Lev and 3 other Tax Specialists are ready to help you
Then - if you are looking for more detailed information - I suggest to review forms and corresponding instructions:
www.irs.gov/pub/irs-pdf/f1116.pdf‎
www.irs.gov/pub/irs-pdf/i1116.pdf‎
www.irs.gov/pub/irs-pdf/f2555.pdf‎
www.irs.gov/pub/irs-pdf/i2555.pdf‎
These documents may also be ordered from the IRS.
Be sure you review these forms and publication later when they will be updated for 2013.
And finally - if you will need any help - be sure to cone back.