You should also be aware that you need to report any bank accounts held abroad where you have signing authority and the amount in the account exceeds $10,000. This might not result in you being liable for tax but is essentially there because US banks have the obligation to report to the IRS transfers in and out of accounts for more than $10K.
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All very good advice. My new husband and I are going to open a joint bank account. He is British and wants no part in declaring his income to the US govt. as he lives in Switzerland. Will having a joint account put him on the IRS radar?
Work-around is to open the Swiss account only in your husband's name. He can authorize the Bank to give you unrestricted access to the account.
However, in Switzerland, husband+wife file a joint tax return. So if the IRS demand to see your Swiss tax-return, they would have insights into your husband's financial affairs.
The IRS rules about taxation of married couples where one spouse is a non-US citizen are complex. In a nutshell the IRS makes you and your spouse liable for any tax liability (the term is joint and several liability). It is very difficult to avoid this and you would need specialized advisors to help even if it is possible.
If a scheme is employed that is designed to avoid the payment of tax by moving income from one spouse to another, then you are likely evading tax with all the ramifications that has in the USA.
The good news is that for people with modest incomes, the dual tax treaties usually mean that there is no tax owed to the US.
I am a U.S. tax preparer and would like to clarify some of the misunderstandings I've seen posted here.
1. All U.S. citizens and green card holders are required to file a U.S. tax return annually if their income is above the filing limits, regardless of where they are residing or whether they are also citizens of another country.
2. Worlwide income must be declared on a U.S. tax return although double taxation is usually eliminated by tax treaties with most major countries. Foreign tax credits are given to taxpayers that pay taxes to other countries.
3. The first $87,600 of foreign income is excluded from a U.S. taxpayers taxable income. Therefore, we do get some benefit from the lower tax rates in Switzerland. Those taxpayers that earn less income the exclusion amount get the full benefit of the lower Swiss tax rate
4. The U.S. does not require that you continue to file tax returns after giving up your citizenship (expatriation) unless one of the following situation applies:
a. The taxpayer's net wealth is over $2 million
b. The taxpayer's U.S. tax liability (not income) was more than $115,000 for the 5 years prior to expatriation
c. The taxpayer failed to file a U.S. tax return and pay any taxes due for the 5 years prior to expatriation
I hope that clears things up for all of you. So U.S. citizens and green card holders have the following options:
a) file your U.S. tax returns annually (Turbotax is great for taxpayers who earn under the exclusion amount but if your income is above $87,600, you have to know what you are doing to allocate your income properly to the various categories on the foreign tax credit forms and to make the adjustments necessary for the forms to calculate accurately) OR
b) expatriate OR
c) don't file your tax returns but then don't try moving back to the U.S.
I can only support what has been told to you before.
I also have dual citizenship and my tax consultant told me that the US does not care what other citizenships you have. Dual citizenship means you are not 50-50 one country and another, but that you are 100% American and 100% whatever other country.
Trust me (and everyone else): don't fool around with the IRS, regardless of your income.
And a bit of advice to you and all those who get refunds: do not forget to declare any refund you would have received! Have just had a nice little "experience" with them
Can I as the US citizen choose to file "Married Filing Separately" and just leave my non-US citizen spouse out of the equation? He hasn't ever lived or spent time there other than to visit my family.
Many forms of assets and income are reportable, and there may be draconian penalties for non-reporting (think: form 5471 (foreign corporations), 3520 (foreign trusts and Stiftungen), TD F 90-22.1 (bank accounts where total deposits amount to $10,000 or more)).
But there may be no tax due on income in one country or the other, depending on citizenship. Thus civil service and military pensions are taxable only by the state paying them (this is true of the Swiss-US and the UK-US treaties) so long as the retiree doesn't reside in and have the nationality of the other state.
Social security and other pensions are taxable in the state of residence.
Community property yields various anomalies and can take part of some types of income out of the scope of US taxation. But this does not now apply to foreign earned income exclusion.
Swiss wealth tax is not creditable as a foreign income tax.
Unfortunately TurboTax won't tell you any of this.
As for enforcement: there are millions of "accidental Americans" abroad with few assets and little income. Most cannot afford the expertise to deal with those foreign asset reporting forms, much less tax returns. Then there is a subset of persons who were expatriated and who were effectively restored their US nationality by Supreme Court decisions The IRS does not attempt to tax such people unless, since January 1, 1976, they have availed themselves of an attribute of US nationality. Rev. Rul. 75-357, PLR 8138071. (It's an international law principle that a state cannot any longer attach its nationality to a person involuntarily except at birth or adoption during minority, and occasionally on change of sovereignty over land.)
Unlike Switzerland which will expatriate a child born abroad who also possesses a foreign nationality and does not register with a Swiss consular office before age 22, the US does not necessarily know who its citizens are. And sometimes the US contests claims of nationality: forget the "Birthers", there are thousands of ethnic Mexicans who claim to have been born in the USA outside a hospital and whose birth records, signed by midwives deemed corrupt, have not been accepted by the State Department or INS as proof of citizenship. Sometimes such persons win cases in the courts, sometimes not. (There are also Native Americans such as the Kickapoos and the Tohono O'odham of doubtful place of birth who, unlike First Canadians do not benefit from Jay Treaty-type rights to live and work in the USA. But I digress.)