US tax in Switzerland I'm a US expat - what do I need to know?

US taxes, Foreign Income Exclusions, Foreign Tax Credits, the IRS… I‘m in Switzerland, why do I care about my US tax filing anymore?

Job accepted? Check. Apartment found? Check. Relocation finished? Check. Public transport pass purchased? Check. Settled into the expat routine? Checked and maintained. US taxes finished? Ummm... Help?

Often the "big" things of the move to Switzerland are covered and handled. We settle into the routine of expat life. At first surviving, then working our way into the new culture and rhythm of expat life.

Then that tricky US tax deadline suddenly appears: April 15th, the bane of green card holders and US citizens. However, as a US expatriate you have that magical extension to June 15th. A full two months to figure out what was never entirely clear while living in country: how to prepare and file your US taxes.

Let the experts handle it for you

Gordana Muggler is Head of Global Mobility and HR Services at BDO Switzerland.

Gordana and her team of tax specialists are here to support you and your family members on your personal tax situation.

 

Now how to file your US taxes from abroad. Turbotax? Maybe not this time. That small town family friend? Probably not the best choice anymore, unless he specializes in expatriate taxation.

As an expatriate, your life is already complicated. Add a US tax filing requirement to that and it can quickly become a stressful headache that you may be tempted to skip, but don't do that. As a US person, you should at least file the tax return and your FBAR, which has a whole extra set of requirements. So let's quickly break the tax terms down.

Citizenship Taxation

The United States is one of two countries in the world that taxes based on citizenship. This means that if you are a US citizen (or green card holder) you are subject to US taxes no matter where you live in the world. The penalties for not filing can be severe, many times much higher than the taxes themselves.

FEIE: Foreign Earned Income Exclusion

FEIE: Foreign Earned Income Exclusion (Form 2555). This is a beautifully legal way of removing income from your US tax return. If you are living outside the US for the full year, then you can exclude up to 102,100 USD plus some housing expenses. There are even ways to take a partial exclusion if you live outside the US for part of a year.

FTC: Foreign Tax Credits

FTC: Foreign Tax Credits (Form 1116). Sometimes it is not possible to take the FEIE for your situation. Maybe you are not outside the US long enough, maybe your move was too late in the year, or maybe you landed in a higher tax location than expected.

It is possible to reduce your US taxes by using a special calculation from your Swiss tax liability and reduce dollar for dollar the taxes due on your US tax return.

FBAR: Report of Foreign Bank and Financial Accounts

FBAR: Report of Foreign Bank and Financial Accounts (FinCEN 114). If you have a bank account, investments, pensions, insurances, or any other financial assets located outside the US, then you could have to file a FinCEN 114.

If you combine the highest balances of all of your accounts/assets located outside of the US, and the combined total is greater than 10,000 USD, then you must file this form. Luckily, there is no tax associated with this form. Unluckily, there are severe penalties for willful failure to file.

Now that you know, what do you do? Get professional advice. Not all tax advisors are created equal. You need to find a tax advisor that understands (or specializes in) US expatriate taxation for individuals. A good tax advisor will give you a consultation call and keep you compliant with both your US and Swiss tax filings.

The best tax advisors will do both of these, get you the lowest tax due in both countries, and make this headache like the yearly tax check-up go away. Not something to look forward to, because you are still filing taxes, but certainly not something to be dreaded. If you are lucky, your tax situation will be simple enough to continue the filing without help.

Author: Gordana Muggler

Gordana Muggler is Head Global Mobility and HR Services at BDO Switzerland. BDO's experienced specialists are here to advise and support you and your family members on all aspects of international assignments, be it concerning the arrival to Switzerland or the deployment abroad, from the beginning of the preparations through to the return home.

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