# Claiming deductions in two countries (US, Germany)



## enc2345 (Dec 11, 2016)

Hi forum!

I'm a relatively new expat who moved from the US to Germany in June 2016 to begin studying at a German university. Of course, it's now tax time, and I'm feeling like I'm a bit in over my head--not only is this my first time filing taxes overseas, it's the first time I haven't just handed everything over to my parents' CPA and let him sort it out. 

My biggest question right now relates to claiming deductions and credits. I've got the typical education credits (tuition, etc.) as well as some possible deductions (such as health insurance premiums and school expenses). This may seem like an obvious question, but I haven't been able to find a definitive answer so far: Can I claim the same item on both my US and German taxes? For example, can I write off my health insurance premiums on both my US and German returns if they were only for German health insurance? 

I ask because I'm trying to reduce my overall tax burden and/or maximize my return however possible, and right now I'm trying to decide if (or where) I claim certain items makes a big difference in how much I'll get back. I don't mind paying a little more tax in one country if it means making a huge difference in my overall liability (or, hopefully, refund!)

Is this something I could realistically crunch on my own (I've been using TurboTax so far), or should I really just bite the bullet and let a pro do it?


Thanks!


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## Bevdeforges (Nov 16, 2007)

If you've never done your own taxes before the task may seem pretty daunting at first, but once you get through it the first time, it gets easier every year.

First of all, your US income taxes and your German income taxes are completely separate and distinct exercises. You do your US taxes, exactly as you would do them in the States - except that you may wind up using either the Foreign Earned Income Exclusion or the Foreign Tax Credit or both to avoid being double taxed on any specific item of income.

Take a look at IRS Publication 54 for an explanation of the FEIE and FTC. https://www.irs.gov/uac/about-publication-54 You can download it or simply read it online, whichever suits you better.

Whether or not you can take the FEIE depends on where your income is coming from. The deductions and credits may or may not come into play, depending on a few factors, including things like whether or not you take the standard deduction or if you itemize your deductions. (But that is the same if you're filing from the States, too.) What might help is if you got hold of your last-year's tax forms - either from your parents or from your parents' tax adviser. That will give you a general idea of how and where the individual items go on your forms.
Cheers,
Bev


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## enc2345 (Dec 11, 2016)

Hi Bev,

Thanks so much! This is a really helpful response.

It's great to know that the two returns are completely separate--that actually helps me a lot. And thanks for the link to Publication 54. I had just been muddling along and following TurboTax's prompts about how to handle an overseas move at both the federal and state level, but I will definitely take a look at the publication too.

I actually don't have a job over here (yet), but I did have a job back in the States that I left when I moved here. I've been told that I have to report all my worldwide income to Germany because I spent more than 183 days here in 2016, and I'm hoping that with a combo of part-year taxes plus the deductions/credits, I might be able to get a good chunk of change on my return 


Thanks again!


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## Bevdeforges (Nov 16, 2007)

OK, you probably do have to declare your taxes in Germany - but if you only moved to Germany mid-2016, there should be a way to either file only a part-year return (i.e. from your move date to the end of the year), or to formally exclude your US earnings from the time before you became resident in Germany. (I paid a Steuerberater to prepare my first German returns, then winged it for the second year, based on the instructions and a few questions answered by the German co-workers.)

On the US side, if you aren't working in Germany, then you'll have nothing to declare from Germany, so the US returns should be pretty straightforward.
Cheers,
Bev


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## Nononymous (Jul 12, 2011)

I can't see why you'd have to file a German tax return, to be honest. You haven't worked in Germany and the income from prior to your move is excluded. I'm not sure the advice you were given was correct. Certainly in your shoes I wouldn't be filing.

If you work in Germany next year you might need to file if you earned enough and had the possibility of getting something back. But as a student, any stipendium or part-time job on campus or other support might be tax-excluded anyway, so with luck you won't need to bother. (Certainly the academics I know who spent time in Germany studying and researching, sometimes for years at a stretch, have never laid eyes on a German tax return.) I would not go into this assuming you'll need to do any German tax paperwork. 

As for the US, file this year's return and hope that you get some money back because you only had half a year's income. Going forward, for 2017 you may not even need to file, if you don't earn enough to meet the minimum income requirement. I have no idea how US returns work for educational expenses but I assume that a foreign institution would qualify (and on that note I thought there was no tuition to be paid, just the small Studiengebuhr).


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## Bevdeforges (Nov 16, 2007)

Good point, Nononymous. I'm not sure what the exact filing requirement is for German taxes, so probably best to check (maybe through your school). I know here in France, you file even if you have no income or very little income, if only to get the "avis d'imposition" which is requested in many cases to prove that you're on the books and/or fully resident in France.

On the US side, most forms of student stipends are exempt from taxes or even reporting. So it's possible you won't have to file until and unless you get a job that brings your income for the year above the filing threshold.
Cheers,
Bev


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## Nononymous (Jul 12, 2011)

I've always found that it's best to err on the side of not filing!

In the German case, the sort of jobs the OP would be allowed to work on a student permit likely wouldn't earn enough to be considered taxable (if it's on-campus and considered research assistance or something). Not sure what other work he or should could do. There's no particular need to file tax returns just because you live there.

Anything earned as employment income in Germany could simply be written off US taxes through the FEIE. The one thing that's a bit trickier is a German scholarship, which might not be considered "earned income" by the US, which means you can't use the FEIE, thus making it taxable even though it's tax-free in Germany. That's the stupid edge case - German public funds being siphoned off by the US - for which it's advisable (and morally defensible) to not report it to the US at all.


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## Moulard (Feb 3, 2017)

If I was to report it, I would report it as foreign earned income and exclude it as such. 

Unless they are giving the money away with no strings attached, you are being paid for some level of personal services performed. Remember the FEIE includes amounts paid to you as allowances or reimbursements for things like the cost of living. So it might be 99% cost of living allowance and 1% contributing to the intellectual discourse in the faculty...

The other thing to consider is the source of the scholarship...If it is like many University Scholarships, the primary string is related to ownership of any intellectual property that is developed. They often get first dibs to commercialise things that a recipient of a scholarship develops with the equipment and resources provided by the University. So in essence they are giving you the stipend in exchange for the possible economic benefit of what you develop -- easy to argue it is therefore earned.


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## Bevdeforges (Nov 16, 2007)

Don't forget that there is also an "out" in that "public assistance" payments are specifically exempted from US taxation. (See the IRS publication 525 under the heading of Miscellaneous Income.) As I read it, just about any foreign sourced "Public Assistance" falls into that category of NOT being considered income for tax purposes.
Cheers,
Bev


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## Moulard (Feb 3, 2017)

I think public assistance normally only refers to what we might refer to as welfare and other government "relief" type payments. Think unemployment, disability, disaster relief grants, public pensions etc...

I suspect it would be a bit of a stretch to call a scholarship or stipend that. But I suspect it would really depend on the nature of the scholarship and why it was awarded.


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## Bevdeforges (Nov 16, 2007)

Still, if you take that position, what is the likelihood the IRS will follow up on it? Throughout the IRS literature they talk about how state and Federal unemployment are taxable income. But foreign unemployment benefits are often (usually?) flat out public welfare benefits, at least they are here in France and Germany. (In the US, only the employer pays into the state and Federal unemployment system. In France and Germany, the contributions are split between employer and employee like most other benefits/social insurances.) Public pensions are very often excluded from taxation in tax treaties.

I suspect the "real" reason is that most governments are forbidden to disclose information on public benefits like these to "outsiders" - but the fact remains that the IRS doesn't actually have access to this information.

Cheers,
Bev


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## Bevdeforges (Nov 16, 2007)

Still, if you take that position, what is the likelihood the IRS will follow up on it? Throughout the IRS literature they talk about how state and Federal unemployment are taxable income. But foreign unemployment benefits are often (usually?) flat out public welfare benefits, at least they are here in France and Germany. (In the US, only the employer pays into the state and Federal unemployment system. In France and Germany, the contributions are split between employer and employee like most other benefits/social insurances.) Public pensions are very often excluded from taxation in tax treaties.

I suspect the "real" reason is that most governments are forbidden to disclose information on public benefits like these to "outsiders" - but the fact remains that the IRS doesn't actually have access to this information.

Cheers,
Bev


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## iota2014 (Jul 30, 2015)

Section 301.6114-1(c) is very helpful as a clue to what types of foreign income can be excluded from reporting on 1040 * and not reported on Form 8833*. In the OP's case (if the OP is actually going to be receiving a German scholarship):



> (c)Reporting requirement waived.
> 
> (1) Pursuant to the authority contained in section 6114 (b), reporting is waived under this section with respect to any of the following return positions taken by the taxpayer:
> 
> ...


https://www.law.cornell.edu/cfr/text/26/301.6114-1

I relied on treaty exemption and section 301.6114-1(c) to exclude my pension income without filing 8833. It appears to me the OP would be in a similar position with regard to German scholarship income, if any. The upshot is that the IRS does not know, *and does not want to know*, about the OP's German scholarship income - if any.


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## Nononymous (Jul 12, 2011)

Just a reminder, I only mentioned scholarships as a theoretical possibility, a situation where one could owe US tax on tax-free unearned income from another country. There's no suggestion that the OP has a scholarship to deal with. But I'm glad to hear there are ways one can take a treaty position to not declare it (and one would be a fool to declare it).

My advice to the OP: If you're on a student permit with limited working privileges, I would assume that you have no obligation to file a German tax return for what limited sums you'd earn working at the university. That may change if you have a more lucrative job off campus, but for that you'd need permission to work. The money you earned before leaving the US is not a factor, you wouldn't file a German return because of that. File your 2016 US return based on the partial-year income and, going forward, if you earn over the minimum required to file then write it off with the FEIE so zero owing, of if you obtain any type of scholarship or research support, consider it non-reportable.


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## Nononymous (Jul 12, 2011)

And don't forget FBAR if you want to be bigly compliant. If at any point in the year your German bank account contains more than US$10k, you'll need to report that on a FinCEN form. Not hugely complicated but something to be aware of if you're filing US returns anyway.


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