Cost to Prepare an Italian Tax Return

Q: I want assistance in preparing my Italian tax return but the quote I’m getting seems high relative to what I pay for assistance in my home country. Why is it so much?

A: When you file a domestic tax return in your home country, for example in the US for, the documents issued by entities like banks, payroll companies, the government (e.g., for social security contributions, income from a W-2 or 1099) are designed to be input directly into the tax return itself. Inputting that information into your domestic tax return is therefore rather straightforward.

Those who opt to pay for assistance might pay just a few hundred dollars or they may even pay to use an online software platform (like TurboTax) to prepare and submit the taxes on their own.

But in Italy, when reporting US income for an Italian tax return, the accountant (commercialista) has to interpret not only what those US documents are, but also how the Italian tax system qualifies them for tax purposes and view the entire tax return through the lens of the international treaty against double taxation.

Imagine if a person living in the US had to report Italian income and assets on his/her US tax return. A US accountant would need to interpret and input Italian income and assets into the US tax return after having converted the euro amounts into USD. A US accountant would not charge anywhere near the amount they would charge you for a purely domestic tax return.

Similarly, Italian reporting requirements that refer to income and assets outside of Italy always have additional layers of complexity compared to a domestic tax return.

To make a more specific example, consider a scenario where you have some short term and some long term financial investments, such as dividends and capital gains, deriving from some stocks and ETFs. In Italy, all income deriving from stocks would be subject to the same taxation, regardless whether it is long term or short term, whereas the income from EFTs would be taxed in a different way.

Therefore, the Italian accountant might have to investigate the nature of the stock or share and, in some situations, he/she might also need to consider details like when those assets were purchased and when they were sold, the exact date, and the equivalent euro amount (at purchase and sale dates, or at dividend distribution date) that would need to be calculated using the official Bank of Italy exchange rates for those dates.

Additionally, an Italian accountant will need to check if any taxes were paid in the US for the same income which might qualify as a tax credit.

There is also the requirement to analyze Italian tax law as well as the tax treaty between the US and Italy, so a referral to 2 (two) sources of tax law. Then that information must be taken and applied it to a client’s specific circumstances in order to file their taxes so creating a tax return is far more complex, even for those international clients who have fairly simple income and assets. Then all that information has to be reported to the Italian Tax Authority (Agenzia delle Entrate) via yet another complex set of requirements.

As said above, in the US, your brokerage portfolio would release a statement that your US accountant could use to fairly easily put your tax return together but that account cannot release one that would satisfy an Italian accountant’s needs. So we’re talking about a professional assisting you going through each statement, to match each sales and acquisition cost and capital gain and then checking the exchange rate for that specific date.

To be clear, this is for those who live in Italy and have to report income and assets from outside of Italy. The process includes the same as a US accountant plus the extra effort to translate, interpret, categorize, convert, and populate the data.

Additionally, even if your Italian tax return only had income/documents from Italy, you might still seek assistance as many Italians do because the system is dramatically more complex. In Italy, the percentage of people doing their own domestic tax return is much lower than people who would do their domestic tax return in the US. As an example, in the US, you might get a property tax bill and pay it online. But in Italy, many people hire an accountant to calculate and pay annual Italian property taxes. The entire system is less user friendly in general.

In our practice, many times we’ve seen people come to us with Italian tax returns including foreign income and/or foreign assets that were prepared for a few hundred euros that had NOT taken into consideration the correct currency exchange, the correct tax classification, the proper tax deduction, tax credit or the proper application of the tax treaty in general.  Sometimes these oversights resulted in not paying enough taxes, sometimes it made the user miss out on eligible tax savings.

Only an experienced cross border tax consultant will know the amount of work to be done and can ensure an accurate tax return with all possible tax planning advantages. The quotation that you will receive from an Italian accountant with solid experience of international tax return preparation will reflect their understanding of the processes and compliance requirements involved in it.

Fill out this form for a quotation to prepare an Italian tax return. Our team of tax experts includes Italian certified accountants (commercialista), tax lawyers, and a network of trusted accountants certified in other jurisdictions (e.g., US and UK).

You can also schedule a consultation to plan in advance tax efficient strategies for when you will live in Italy or to make tax effective adjustments to your estate or business structure.

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