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American Citizens AbroadTown Hall Meeting
May 6, 2015Stuart Hearn
Enrolled Agent
Agenda
• Some helpful tips (hopefully) and common mistakes made in preparing U.S. individual taxes.
• A few 2015 updates.
Some helpful tips (hopefully) …
• Form 8938 Statement of Specified Foreign Financial Accounts (the IRS’s FBAR copycat…with a few additions!)– Required if living outside U.S. and value of Specified
Foreign Assets:> $200k Y/E balance or > $300k max – S, HoH, & MFS> $400k Y/E balance or > $600k max –MFJ
– Required if living in U.S. and value of Specified Foreign Assets:> $50k Y/E balance or > $75k max – S, HoH, & MFS> $100k Y/E balance or > $150k max –MFJ
Some helpful tips (hopefully) …
• Form 8938…what are Specified Foreign Assets?– Everything you report on your FBARs:
• Maximum balances of all non-U.S. bank accounts• 2nd Pillar Year-end balance (if indeed best est. of max)• 3rd Pillar Year-end balance (if indeed best est. of max) • Cash surrender value of non-U.S. life insurance policies
– All that precious metal you have in a safe deposit box or hidden under your bed (does not include personal jewellery);
– Any investments in loans, securities, or other non-U.S. assets not held in bank or brokerage accounts & not reported on Forms 3520, 3520-A, 5471, 8621, 8865, or 8891 (yes, it is a numbers game!)
Some helpful tips (hopefully) …
• Reporting Retirement Distributions:– Social Security (Swiss and U.S.);
• Taxable amount depends on filing status and other income• Foreign tax credit available against Swiss social security on U.S. tax return• 2/3 of 85% of U.S. social security taxable on Swiss tax return (per treaty)
– 2nd and 3rd Pillar;• Lump sum distributions not reported on Swiss taxes – amounts taxed separately at
beneficial rates• Lump sum distributions reportable on U.S. taxes and taxable as ordinary income• Tracking of contributions necessary to determine U.S. non-taxable basis• Monthly payments partially taxable (based on non-taxable basis) on U.S. tax return• Monthly payments taxable on Swiss tax return (some deductions are available)
– IRA & 401(k)• Reported on form 1099-R and reportable on U.S. taxes. Foreign tax credits may be
available based on treaty• Traditional IRAs can be considered tax deferred for your Swiss taxes. This is not the
case for Roth or Educational IRAs.
Some helpful tips (hopefully) …
• Filing Deadlines, Penalties, & Interest:– US taxes
• Due date is 3 months and 15 days after the close of fiscal year. Interest is due if any tax due past this date
• Automatic 2-month for U.S. persons living abroad. Also an extension of time to pay
• Other extensions requested using forms 4868/2350. Late payment penalties (0.5% per month of any unpaid tax, up to maximum of 25%) will apply
• Late filing penalty 5% per month up to maximum of 25% • Other accuracy-related penalties can apply
– FBAR (FinCEN 114)• Due date is June 30 following the end of the year being reported – no
extensions• $10,000 penalty for non-filing may be imposed. • Willful failure to report an account can result in $100,000 penalty or 50% of
the value of the account at the time of the violation.
Common mistakes made in preparing U.S individual taxes
• Gross income from employment:– Gross income before the deduction of
pension (LPP) and social tax (AVS) must be declared as wages on your U.S. taxes.
– In addition, the amount your employer contributes to your pension fund should also be included in income!
Common mistakes made in preparing U.S individual taxes
• Foreign Tax Credits– Credit can only be taken on taxes paid on
income to a foreign jurisdiction. Wealth taxes cannot be credited (but may be deducted on schedule A).
– Credit can be claimed on either the paid or accrued basis (even as a cash-basis taxpayer).
– A foreign tax credit cannot be taken for any income excluded under the foreign earned income exclusion.
Common mistakes made in preparing U.S individual taxes• Filing Status
– If you are married you can no longer file U.S. taxes using the filing status ‘Single’. This is the case even if your spouse is not a U.S. person and as of tax year 2013 for same-sex spouses.
– If married you can file ‘Married Filing Separately’ (MFS), ‘Married Filing Jointly’ (MFJ) or ‘Head of Household‘ (HoH) if your spouse is not a U.S. person and you have a U.S. dependent allowing you to qualify as HoH.
– Tax savings possible if you choose to file jointly, which is possible (by making an election under IRC Sec. 6013) even if your spouse is not a U.S. person.
Common mistakes made in preparing U.S individual taxes• Tax calculation
– Tax tables are always used, but in some cases must be used in conjunction with other worksheets.
– ‘Foreign Earned Income Tax Worksheet’ must be used if you are claiming the Foreign Earned Income Exclusion.
– If you have qualifying dividends or long term capital gains to report, the ‘Qualified Dividends and Capital Gain Tax Worksheet’ will need to be completed.
– If both situations apply, both worksheets need to be completed - see form 1040 instructions for worksheets.
A few 2015 updates
• 2015 Foreign Earned Income Exclusion– $100,800 (first time to hit six figures!!!!)
• 2015 Foreign Housing Exclusion– Geneva: $95,200 - $16,128 = $79,072 (maximum deduction)– Bern: $66,200 - $16,128 = $50,072 (maximum deduction)– Zurich: $39,219 - $16,128 = $23,091 (maximum deduction)– All other Swiss cities: $32,900 - $16,128 = $16,772 (maximum
deduction)
• Annual Exclusion for Gifts– Remains $14,000/person– $147,000 to non-U.S. spouse
A few 2015 updates
• Net Investment Income Tax (NIIT) of 3.8% – no change from 2014– Kicks in MAGI > $250,000 MJF– Kicks in MAGI > $200,000 S & HoH– Kicks in MAGI > $125,000 MFS
