Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 07-09-2014, 07:06 AM
Junior Member
 
Join Date: Jul 2014
Posts: 1
Tax-Exempt income in a Foreign country

I currently live in Italy working at a international university. Under Italian law (Italian Law n. 476/1984 to be precise) my income is exempt from all Italian taxes, except for contributions to the national retirement plan. My income is quite reduced in comparison to non tax exempt employees under the assumptions that after taxes we make roughly equal amounts. We are effectively, "pre-taxed", to save the Italian government money.

I have lived in Italy long enough to qualify for the foreign earned income exclusion, which is larger than my entire income, under both tests. But do I need to declare this income at all? I understand that US citizens are taxed on their worldwide income, but wouldn't tax treaties protect my income from US taxation.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 07-10-2014, 09:58 PM
Moderator
 
Join Date: Oct 2010
Posts: 5,258
Quote:
Originally Posted by rjenkins View Post
I currently live in Italy working at a international university. Under Italian law (Italian Law n. 476/1984 to be precise) my income is exempt from all Italian taxes, except for contributions to the national retirement plan. My income is quite reduced in comparison to non tax exempt employees under the assumptions that after taxes we make roughly equal amounts. We are effectively, "pre-taxed", to save the Italian government money.

I have lived in Italy long enough to qualify for the foreign earned income exclusion, which is larger than my entire income, under both tests. But do I need to declare this income at all? I understand that US citizens are taxed on their worldwide income, but wouldn't tax treaties protect my income from US taxation.

I have lived in Italy long enough to qualify for the foreign earned income exclusion, which is larger than my entire income, under both tests. But do I need to declare this income at all?=============Yes; even if the foreign earned income exclusion, which is larger than your entire income and no tax laiiblity to IRS/state, you need to declare your foreign source income on form 2555 in Part IV , All Taxpayers, for your FEIE credit on your US returns.

Also, aslongas you, as a U.S. person, own a foreign bank account, and the aggregate value of all foreign financial accounts exceeds $10K at any time during the calendar year, then you need to file a Form TD F 90-22 ,Report of Foreign Bank and Financial Authority (FBAR), by June 30, nest year. The FBAR is not an income tax return and should not be mailed with any income tax returns. The FBAR must be mailed on or before June 30 of the following year. Additionally, FEIE may not exceed your total tax liability in US for the taxable year.

I understand that US citizens are taxed on their worldwide income, ================>>>>>>>>Correct; as a US resident you need to report both US source and world wide source income that you earn during the year.

but wouldn't tax treaties protect my income from US taxation============>>>>>>>>Not from US taxation but form Italian taxation;Tax treaties offer a reduced rate of, or possibly a complete exemption from Italian income tax for you as a resident of US. After deductions/credits with Italian taxing authority, aslongas you still have taxable income that you earn in Italy, then you must pay tax on the foreign source income to IRS/ state.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Do I have to report loan to relative in a foreign country? dzlove98 For 2013 1 03-19-2014 03:51 AM
Can I claim my retired parents who live in a foreign country? leeleyla Miscellaneous 1 01-15-2014 07:04 PM
What does the IRS mean when it says a foreign country in the context of FBAR reporting purposes? TaxGuru Filing Requirements 0 08-15-2011 11:35 PM
The IRS Reminds Tax-Exempt Organizations of All Sizes to File the Form 990 on Time to Preserve Their Tax Exempt Status Samatg Tax News 0 01-21-2010 02:56 PM
401K - Foreign Country Employees george IRA/Sep 1 01-16-2007 02:20 AM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning
 
 
 

» Recent Tax Q&A
No Threads to Display.