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ACA Geneva Town Hall

To view this presentation in PDF format, click here.

Common Financial Planning Opportunities for Americans in Switzerland

ACA Town Hall Evening Geneva

Jonathan Lachowitz

Financial Planner – Investment Advisor

May 2, 2016

This presentation is not meant as legal, tax or financial advice to any individual. You are strongly recommended to seek the advice of a professional who understands your specific circumstances before relying on any of the information in this presentation. There may be mistakes and regulations may change or not apply in some circumstances. The presentation may be circulated but should be appropriately cited if used in a professional setting.

IRS Circular 230 Disclosure: Any tax advice in this communication is not intended or written by the author to be used, and cannot be used, by a client or any other person or entity for the purpose of avoiding penalties that may be imposed on any taxpayer.

Introduction

Jonathan Lachowitz

  • Board Member ACA

  • Financial Planner & Investment Advisor

  • Certified Financial Planner™ - US & CH

  • Founder of White Lighthouse Investment Management in Lausanne & Lexington, MA

  • On the web at https://www.white-lighthouse.com/

  • Writing on personal finance for Wall Street Journal - Expat

Financial Advice

Traditional advice for an employee in Switzerland may not meet expectations for Americans in Switzerland.

2nd Pillar – Contributions

  • Mandatory Employee and Employer – Proper US Reporting: 8938, FBAR

  • Voluntary: Can lower Swiss taxes

  • Does lowering Swiss taxes increase your US taxes?

  • Avoiding double taxation: Are you tracking your US tax basis?

  • Investment choices?

  • Currency Risk, Inflation Risk

  • Can’t use FEIE for Employer Contribution – 911(b)(B)(iii)

  • 2nd Pillar – Libre Passage – Distributions from a Foreign Pension Plan

2nd Pillar – Contributions

Lump sum or annuity: Or both?

  • Permanently leaving the country

  • Statutory retirement age

  • Leaving employment – Invest in business

  • Buying a home

  • Death

Taxable in the US & CH

3rd Pillars

  • 2nd Pillars but worse

  • US tax treatment

  • PFICs

  • Investment choices

  • Are US compliant options available?

  • How about 2nd Pillar Libre Passage?

US IRA Accounts

  • Can lower / defer US taxes – not Swiss taxes

  • No income limitation if you don’t contribute to US Qualified Plan

  • Report properly in the. US& Switzerland

  • Investment choices

Investments

US or Swiss Institutions

  • Cost

  • SEC Registration – What does that mean?

  • Advisor Qualifications

  • Product Choice

Common Mistakes

  • Use of PFICs

  • Tax inefficiency: What types of investments in which accounts

  • Muni-Bonds?

  • Long-term commitment: High fees, low liquidity

  • “Offshore” plans

Where to save for retirement?

  • Retirement Account

    • US, Switzerland, elsewhere

  • Investment Account

  • Savings Account

  • You will have the biggest impact – saving, investing, and avoiding large mistakes

US and Swiss Social Security

  • Totalization Agreement

  • US – Medicare

  • Treatment of Spouses – Benefits

  • Contributing to both systems?

  • Windfall Elimination Provision

Self Employment Income

  • Requirements

  • Reporting in the US

  • Tax efficiency in the US – solo 401K or SEP IRA

  • FICA in the US?

Summary for Foreign Information on “common” US Tax Forms

  1. Form 2555 – Foreign Earned Income, generally due with the tax return for US citizens and resident aliens living abroad to exclude a certain amount of foreign earnings from taxes when relevant to claim the housing exclusion

  2. Form 1116 – Foreign Tax Credit

  3. Form 8938 – To be included with tax return for individuals with foreign assets over $50,000 [higher limits for overseas residents]

  4. FBAR Form FinCEN 114 – Report of Foreign Bank and Financial Accounts, filed by June 30 of in 2016 and with the tax return in future years if at any time during the previous year the aggregate value of the taxpayer’s foreign accounts exceeded $10,000 “IRS Releases Revised Foreign Bank Account Reporting Form”)

  5. Form 5471 – Information return of US Persons with Respect to Certain Foreign Corporations, attached to and filed with the taxpayer’s income tax return

  6. Form 8621 – Return by a shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, applies to most foreign mutual funds, one form per fund is required and filled with the taxpayer’s income tax return

  7. Form 8858 – Information return of US persons with respect to foreign disregarded entities, filed with the taxpayer’s income tax return

  8. Form 8962 – To report exemption from Affordable Care Act Health Insurance

  9. Form 3520 – Annual return to report transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, due on the date that the taxpayer’s individual income tax return due (generally April 15), including extensions

  10. Form 3520 – A – Annual Information Return of Foreign Trust with a US Owner, generally due March 15

  11. Form 8865 – Return of US Persons with respect to certain foreign partnerships, attached to and filled with the taxpayer’s income tax return

  12. Form 926 – Return by a US transferor of property to a foreign corporation, filed with the taxpayer’s income return

  13. Form 8833 – Disclosure of treat based position

  14. Form 8832 - Entity Classification Election, often filed for a foreign company to elect disregarded entity status; thus the tax responsibility flows through to the owner so that there is no tax at the company level

Foreign Earned Income Exclusion

  • $101,300 in 2016

  • Earned income only

  • Does not apply to employer contributions to 2nd Pillar

  • Housing exclusion

New for 2016 – FAST ACT Passport Provision

  • Seriously delinquent taxpayers can have US passport revoked

  • Tax debt of over $50,000

  • Passports can be denied or revoked if the wrong social security number is provided: willfully, intentionally, recklessly, or negligently

  • WSJ article on FAST Act: https://blogs.wsj.com/expat/2015/12/13/tips-for-u-s-expats-coping-with-new-fast-law-affecting-passports/

Gifting

  • $14,000 Annual Gift Exclusion – 2016

  • $5,450,000 Estate and Gift Tax Exemption 2016

  • $148,000 Annual Gift Tax Exclusion to Non-Citizen Spouse

  • Full Step Up in Basis – Community Property – Why not to give a life interest in highly appreciated Swiss property…perhaps…

Life Insurance

  • US tax reporting

  • Should you buy anything but term?

  • Priced differently in US and CH

  • Other than term may not qualify for US Life Insurance Treatment, may need 8938 and FBAR reporting, income, etc.

  • There is an excise tax of 1% due quarterly on foreign life insurance premiums & you cannot generally defer income accrued in a foreign life insurance policy

Mixed American – Non American Couples

  • Tax reporting – Filing status

  • Gifting

  • Estate Planning in Switzerland

Home Ownership

  • Mortgage – US Tax Risks

  • Investment Risk

  • Interest Rate Risk

  • Tax Considerations

    • Capital Improvements

    • Imputed Income

  • Does home ownership really make sense? Time horizon

  • Beware selling of unnecessary products

Ownership in Foreign Corporations

  • SA or Sarl

  • Check the box

  • 5471

  • Do you really need a company?

Estate Planning

  • Are your US documents valid?

  • Titling of accounts in US?

  • Beneficiary elections in US

  • Estate tax treaty

  • US and non-US persons treated differently in the US

Misc Topics

  • 529 – Education Accounts

  • Roth IRAs

  • Dual Citizenship

  • Currency Risk

  • Swiss Savings Accounts – Withdrawal Restrictions

... ...