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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15722
Experience:  15years with H & R Block. Divisional leader, Instructor
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I live in Switzerland and am now filing my US taxes like I

Customer Question

I live in Switzerland and am now filing my US taxes like I do every year. Since I work and pay taxes here, I first pay my Swiss taxes and then later in the year my US taxes (with an extension from the IRS until 15th October). My question is about the exchange
rate (CHF to USD) I am allowed to use. The IRS says you can use any posted rate provided it is consistent. One option is to use the yearly average rate, which is what most people do. This year that comes out to 0.952 CHF per USD. The end of 2014 rate is 0.989
CHF per USD which when applied saves me $4,000 in tax owings versus the yearly average rate. My new CPA just wants to take the conservative approach with the yearly average, but I wouldn't mind using the end of year rate if it saves me money. I highly doubt
the IRS really cares either way, provided they get paid. How much flexibility do I have here in picking a favorable exchange rate? My goal is really to get the best rate allowed by the IRS which has a stronger dollar (like the end of 2014 rate).
Submitted: 2 years ago.
Category: Tax
Expert:  Robin D. replied 2 years ago.


You are correct. The IRS accepts any posted exchange rate that is used consistently.

If you wish to use the end of year rate for payment you would not be allowed to average for the income.

The flexibility is really only if you receive income evenly throughout the tax year, you can translate the foreign currency to U.S. dollars using the yearly average currency exchange rate for the tax year as opposed to converting each transaction.

I agree with your CPA.

One way or the other, consistently.

Customer: replied 2 years ago.
Hello!Thanks for the quick response. In this case, I would be using end of year rate across the board - for income, pension contributions, foreign tax payments and IRS payment. Would this also be OK to do with the IRS? I am paid monthly and I realize the yearly average is there to make things easy, but my goal is to minimize what I pay to the US and I'm not really focused on doing things the ideal way. So using the end of year rate works to my benefit and I'm more than happy to do that provided it meets the IRS definition of "consistent".Also has there been any progress on repealing FATCA or laws to protect US citizens forced to pay taxes abroad?
Expert:  Robin D. replied 2 years ago.

No you cannot use the end of year for payments received throughout the year. You would need to average (all) or you can list all separately as the occurred.

I understand you wanting to minimize on the payment but you have to stay consistent with all things.

The payment is made at this time and if that rate benefits you then use it, but that would mean you cannot average the income.

You average or look to each date for rates as the actions happened.

No, FATCA has not been repealed or lessened in anyway. If anything the reporting rules have been increased as foreign countries, that wish to stay in good standing with the US, come into line with requirements.

The relief for US citizens remains unchanged, Double tax relief by treaty articles. The foreign tax credit offers relief still and that should continue.

Expert:  Robin D. replied 2 years ago.

If my answer addressed your question please rate below or above (let me know if you have difficulty as I believe the system changed), if you need more information reply below.

Customer: replied 2 years ago.
Until 3 years ago I paid almost no US taxes because of the stronger dollar and smaller employer pension contributions.
Now it is costing me $20,000 (where I pay $40,000 in local taxes beforehand) increasing my tax liability by 50% compared to everyone around me. It is frustrating and gets worse each year.I am a dual citizen but am getting tempted to give up my US passport as I get no benefits from it and rarely visit the states. If my wife keeps hers, can I theoretically re-apply for it more easly later as a spouse or does it require naturalizing as a single person?Another approach is to find creative ways to reduce my taxable income from a US perspective. I know we can do a yearly IRA contribution and also setup an educational account for my 4 year old son.
What other options might there be to hide income?
Expert:  Robin D. replied 2 years ago.

Giving up one's US citizenship can still have tax consequences depending on the income and source of that income.

An educational account is not tax deductible and an IRA is allowed and may be deductible as long as there is earned income that is not excluded under US tax law. Foreign Earned Income can be excluded from income for US purposes when the tax payer is abroad but if the same excluded income is used to fund an IRA then there is no deduction allowed for the contribution.

Expert:  Robin D. replied 2 years ago.

Please advise if you need more information or rating in a positive way is acceptable.

Customer: replied 2 years ago.
going forward, I will always have earned income that is excluded (the $90,000 standard deduction plus what the taxes paid to Switzerland) and earned income that is "taxable us income" (what I pay us taxes on).
This means I can do an IRA contribution and effectively deduct its entirety from my "taxable us income" correct?
I have not done an IRA contribution in 10 years, is it possible to contribute for years other than 2015 right now or its too late?
Expert:  Robin D. replied 2 years ago.

Contributions are limited.

For 2014 and 2015, your total contributions to all of your IRAs cannot be more than:

  • $5,500 ($6,500 if you’re age 50 or older), or
  • your taxable compensation for the year, if your compensation (the amount taxable to the US after exclusions) is less than this dollar limit.

You would not be allowed to contribute more than the above amount.

It is not too late for 2015. You would have til April 15th 2016 to contribute for 2015. Prior years are too late.

Expert:  Robin D. replied 2 years ago.

When you actively click on a rating and click submit, that lets Just Answer know you were assisted and credits me for the time.

Expert:  Robin D. replied 2 years ago.

Please advise if you need more information but rating in a positive way is acceptable.