Filing taxes in Italy


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Filing taxes in Italy

Postby twilightsummers » Wed Oct 05, 2005 2:12 pm

Does anyone know if you have to file taxes in Italy if you reside in the US? I know that US citizens have to file their US taxes regardless of where in the world they're living, but does it work the same for Italy? Some of my relatives who would acquire citizenship if us youngsters apply are a bit worried about that. Any help would be appreciated! :)

Postby Anonymous » Tue Nov 08, 2005 11:36 pm

You would only be made to pay Italian taxes if you were living and working in Italy. The United States is one of the few countries in the world that taxes its citizens no matter where they live. However, you can qualify for a tax exclusion for all income earned in Italy or elsewhere in the European Union up to $70,000 USD per year. This is called the "70,000 exclusion," and in order to qualify for it you must establish a tax home outside of the US and pass either the "physical-presence test" or the "foreign-residence test." The "physical-presence test" is the more objective and straightforward of the two. To pass, you must be outside the US for at least 330 days over a consecutive twelve month period. The "foreign-residence test" is more subjective and probably easier for most Americans to pass. You must convince the IRS that you have been a bona fide resident of Italy or other EU country for an entire taxable year and that you plan to live there indefinitely. The IRS considers a number of factors to determine whether or not you pass this test. Being an Italian citizen and living in Europe will certainly work in your favor. Remember that you need to pass only one of these two tests to qualify for the "$70,000 exclusion." You must file IRS forms 1040 and 2555 or 2555-EZ to claim your exclusion!
If you are an American who doesn't qualify for the "$70,000 exclusion" or who earns more than $70,000 USD per year, don't worry! Italy and the United States have tax treaties to protect their citizens from dual taxation. The general rule is that you don't pay US tax on foreign-earned income if the foreign tax rate is higher than the US rate. If the foreign rate is lower, you will have to pay US taxes on the difference between these rates. In any case, be sure to file your tax returns every year even if all your income is earned outside of the US!

A book that might be helpful to you with regards to your dual citizenship would be How To Legally Obtain a Second Citizenship and Passport: And Why You Want To by Adam Starchild.(© 1999, Breakout Productions, Inc.) It is very informative. This book touches on many issues with regards to dual citizenship, taxes being one of them.

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Re: Filing taxes in Italy

Postby enzo46 » Tue Aug 25, 2009 8:28 pm

This has been very helpful. I have just started the process and I was asked the question by of all people my US accountant. Thank you anonymous. If there are any updates please let me know
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