Sunday, April 19, 2020

Covid-19 Tax Deadlines, Updates, Stimulus Checks: All You Need To Know.

Washington DC Cherry Blossom
The past one month has seemed like an eternity. The deluge of information from the Internal Revenue Service and the Government has been relentless and I hope that this blog post helps you, my dear reader, to navigate the flood. So brace yourselves, this is going to be a long read and there is no TL; DR version unfortunately!

The Internal Revenue Service on March 20th announced a "Coronavirus Tax Relief" and extended your tax deadline from April 15th to July 15th 2020. This news was updated to include all deadlines that fell between April 15th, 2020 and July 15th, 2020 to be now July 15th, 2020. This relief was extended to Estates, Gift Tax and Non-Profits as well.

 Let's take a quick look at all the deadlines: 

Estimates: Both your 1st and 2nd Quarter estimates are now due on July 15th. These can be combined and paid on the same day without fear of interest and penalties. Some states however do not follow the same timeline for estimates--make sure you know what that is in your state of residence. 

Taxpayer Living Abroad: If you were a taxpayer living abroad for 2019, your original US tax deadline would have been June 15th. Your return is also now due July 15th, 2020. 

Foreign Information Returns/ Forms: The Internal Revenue Service provided clarification that all foreign income information forms such as Forms 3520, 3520-A, 5471, 5472, 8938, 8858, 8825 etc are all now due with your tax return on July 15th, 2020. 

Foreign Bank Account Regulation Forms {aka FBAR}: The deadlines were NOT changed from April 15th, 2020. However there is an automatic extension to file these until October 15th. My firm's practice is to file an extension anyway for those who file FBAR's and are unable to file their return by April 15th. 

Extension Due Date: Extensions can be filed for those who cannot file their returns by July 15th, 2020. This extended due date still remains October 15th, 2020. 

S Corporations and Partnerships which were due on March 16th, 2020 did not get any reprieve from filing. Those who could not file by March 16th, 2020 should have filed an extension to extend their filing to September 15th, 2020 which is the same as every year. 

The Congress' Stimulus Check was put into in to action quite quickly by the Internal Revenue Service I must say and bank deposits started to go out April 15th. 

Here is what we know so far regarding the stimulus check payments {Or if we do not know we in the tax community have deduced from trends so far}: 

Non-Filers: If you did not need to file a tax return in 2018 or 2019 because your income was below the filing threshold, you can go to this link {Non-Filer Link} and fill out your bank information, so the IRS can deposit your Stimulus Check. Be sure to read the FAQ's on this website and see if you qualify to enter your information here. 

Those Who Have Filed their 2018/ 2019 Tax Return: This is where the major chunk of the taxpayers fall and where I have had the most questions. 

It is not known what "cut-off" date the IRS picked to select your 2018 tax return over your 2019 tax return (or vice-versa) if you have filed both years, in order to calculate your stimulus payment. 

If you have not received your stimulus payment as yet, you can check on the status of your payment, at this link. {Get My Payment}.

This link can also be used to update your bank information with the IRS in the instances as detailed next when the IRS may not have your bank information. 

Here is a nifty chart a dear friend and CPA colleague prepared and I am posting it here for you to determine what your payment will be approximately.  

AGI (Adjusted Gross Income)--> Refer To Line 8b, Page 1 on your 2019 Form 1040 / Line 7, Page 2  on your 2018 Form 1040. 


Chart created by my friend Amie K, CPA at Eide Bailley
  • If you got a refund in 2018 and 2019 and you had the refund directly deposited into your bank account, the IRS has your bank information and if you are eligible, you should see a deposit in your account anytime soon.
  •  If you owed money in 2018/ 2019 and you had the IRS directly debit the tax due via your over-the-counter software/ your tax professional's software OR you sent the IRS a check OR you paid the IRS online via a credit card or a debit to your bank account, the IRS does not have your bank account information. Your stimulus check, if you are eligible to receive one, will be mailed to you at the address on file.

  • If you neither owed tax nor had a refund on your 2018/ 2019 tax return, the IRS does not have your bank information and you will be mailed a check to the address provided via your tax return. 
  • If you used an over-the-counter software or went to a big box chain tax preparation store and if you either applied for a refund loan or had the chain take your tax preparation fees out of your refund, the IRS does not have your bank information. Your stimulus check, if you are eligible to receive one, will be mailed to you at the address on file. 
  • If you had your 2018 refund applied to your 2019 tax return, the IRS will not have your bank account information. Your stimulus check in this case will be mailed to your address on file. 
Taxpayers Living Abroad: 

If you are taxpayer living abroad, and if your AGI is within the threshold as in the chart above, you are eligible to receive the stimulus payment. Most taxpayers who live abroad may not have filed their 2019 taxes yet. 
  1. If living abroad and you filed a return for tax year 2018 and had a refund for 2018 and had it deposited in your US bank account, the IRS has your bank information and will deposit your check. If not chances are this check will be mailed to your foreign address or the US care of address they have on file. 
  2. If living abroad and you have not filed returns for 2018, you will not receive a stimulus check. The IRS will only make a deposit into your US bank account if they have a return on file for tax year 2018/ 2019. 
**For those claiming the Foreign Earned Income Exclusion**: As per IRS guidance to date, you are eligible for the stimulus check if your AGI is within the thresholds as stated in the chart above. 

If you have not filed your US tax returns, this would be a good time to catch up on your previous years' filings. There are several programs you can be eligible for to bring your delinquent returns into compliance. Do explore your options with a tax professional experienced with this. 

Taxpayers on Immigrant Visas, SSN's and ITIN's:  

The stimulus payment in theory is based on your residency status and your social security number. If you are on an immigrant visa like H1-B/ L1 etc., have a SSN and have fulfilled substantial presence requirements in the US for 2018/ 2019 and are therefore considered a "resident alien", you should be eligible for the stimulus check. If you have a spouse in the US with whom you file jointly and who has a social security number, you are both eligible for the stimulus check. Same goes for dependents who have SSN's and you claim on your return. 

Any dependents or your spouse with an ITIN { Individual Taxpayer Identification Number} are not eligible to be counted for the stimulus check. However, there has been anecdotal evidence that payments have gone out to those with ITIN's as well. At this time, we do not know if the amount is to be re-paid to the IRS. 

Dependents/ Children Over 17 Years Old or Parents Claimed As Dependents: 

If they did not have any income in 2018/ 2019 and you provided more than half their support, they are ineligible for the stimulus check at the time this post is being published.

Advance Credit: 

If for some reason, you do not receive the stimulus check, know that this is an advance credit for your 2020 taxes and will be eligible to be claimed while filing your 2020 tax return. I understand that your need for cash may be right now unfortunately.

Get My Payment Messages Regarding Ineligibility: 

Tax professionals who have been observing trends over the past few days conclude that most instances of the IRS website ineligibility messages is due to the fact that you have not yet filed your 2019 tax return. They encourage you to file your 2019 tax return ASAP. 

The Internal Revenue Service will start mailing out checks to those who qualify but whose bank account information is not known. We have been informed that this date is April 24th, 2020. If your check is already in the pipeline to be mailed, you may not be able to update your bank information on the IRS' website. 

The IRS has an updated FAQ page for these messages. 

If you have any questions regarding the above, please reach out to a tax professional or please contact our office. 

 --
I am an Enrolled Agent and owner of MN Tax and Business Services PLLC (www.mntaxbiz.com), based in the Metro Detroit area in Michigan, USA. The firm provides Tax Preparation, Planning services to Individuals, Small Businesses, Trusts and Non-Profit Organizations. Get my latest posts by subscribing to my blog.

You can also find me tweeting @ManasaSogNadig where I have been @Forbes Top 100 Tax Tweeters for 2018, 2019 and 2020.

Saturday, February 29, 2020

Interesting Court Cases: Failure to File an FBAR and Interpretation of "Reasonable Cause".

Sussex, UK

It is a beautiful sunny, cold February 29th in Michigan. Us tax professionals are hurtling through tax season at break-neck speed. The days are getting longer and Spring is teasing us with a game of peek-a-boo. I am hooked on a certain streaming show about gardens in the UK and the presenter's encouraging words that could make any gardener's wildest dreams come true. I am already thinking of all the flowers and herbs I am going to plant post-tax season when the weather is warmer. 
 
However, wild dreams should not come into the picture when we are talking about foreign bank account reporting, penalties and reasonable causes. Let us go over what happened to Mr. Agrawal, a naturalized U.S. Citizen and immigrant from India in (DC WI 12/9/2019) 124 AFTR 2d ¶2019-5522. 
 
Facts About the Case: Mr. Agrawal self-prepared his 2006 and 2007 tax returns. He hired an accountant to prepare his 2008 and 2009 tax returns. In all years, he indicated, in the Foreign Accounts and Trusts part of Schedule B to Form 1040, that he did not have a foreign bank account. In all years he failed to file FBARs. But Mr. Agrawal did have a foreign bank account during those years with more than $10,000 in it.
 
The defendant testified that he told his accountant that he did not have a foreign bank account. He said he did this because a tax professional at the foreign bank told him that the income in the account was not subject to US income tax.

Mr. Agrawal was in immigrant from India, completed graduate school education in the US, and taught geophysics and math at a US technical college.

The IRS sought to impose a penalty for non-willful failure to file FBARs. While he conceded that he should have filed FBARs, Agrawal argued the reasonable cause exception should apply and that his conduct was excused because he relied on the advice of tax professionals, and because he was elderly, unsophisticated about tax law, and spoke English as a second language.
 
Quick background about reporting your foreign bank accounts: Under 31 USC § 5314(a), every person who has a financial interest in, or signature or other authority over, a financial account, or accounts, in a foreign country must report the accounts to IRS annually on a FinCEN Report 114, Report of Foreign Bank and Financial Accounts (also known as the FBAR) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. 
 
31 USC § 5321(a)(5) provides the methodology how the Secretary of the Treasury may impose penalties on failure to file and also states how much the penalties depending on whether the violation of these rules were non willful {maximum $10,000} or willful {greater of $100,000 or 50% of the balance in the account at time of violation}. Under USC § 5321(a)(5)(B)(ii), the IRS may not impose a penalty if the violation was due to reasonable cause. 
 
Reasonable Cause & What It Is?: Interestingly, 31 USC § 5321 nor it's corresponding regs define the term "reasonable cause" and there has been very little development in case law either. Code Sec 6651(a) and code Sec 6664(c)(1) give some context in terms of tax compliance. The courts have found these useful in constructing a standard applicable to reasonable cause in the FBAR context. { Jarnagin, (Ct Fed Cl 2017) 120 AFTR 2d 2017-6683 } 
 
Regs under Code Sec 6651 equate the reasonable cause standard to "ordinary business care and prudence". The regs under Code Sec 6664 state the determination for reasonable cause needs to be made on a case by case basis, taking into account all pertinent facts and circumstances. It also alludes to the fact that the taxpayer is responsible to assess the taxpayer's proper liability. 
 
Decision By The Court: The district court found that the reasonable cause exception did NOT apply to Agrawal and that he was liable for the penalty.

The court held that no reasonable juror could find that Agrawal acted with ordinary business care and prudence, or that he made a reasonable effort to understand his FBAR reporting responsibilities, when he failed to file his FBARs for the years 2006-2009. By his own admission, the defendant self-prepared his 2006 and 2007 tax returns; he did not disclose the existence of a foreign financial account on Schedule B despite a direct question on the issue. 
 
According to his deposition testimony, in 2008 and 2009, Agrawal did not tell the CPA preparing his tax return of the existence of the foreign account or question the CPA's decision to leave blank the Schedule B question about foreign bank accounts.

The court said that a taxpayer acting with ordinary business care, or one making a reasonable effort to understand his responsibilities, would have sought informed advice about the reporting requirements alluded to in Schedule B; seeking such advice would necessarily involve the taxpayer notifying the advisor of the existence of the foreign account.

The court said that Agrawal's arguments that he was elderly, spoke English as a second language, and had an inexpert understanding of tax reporting requirements did not alter its reasonable cause analysis. By his own admission, Agrawal had sufficient mental acuity and technical facility with the English language to work as a math teacher and as a geophysicist, and, for that matter, to represent himself in this litigation.
 
Conclusion: Suffice it to say that it is getting to be really difficult for a taxpayer to claim that they were not aware of their responsibility to declare their foreign bank accounts since the IRS has been so vocal about this requirement since their push with FATCA in 2010. As in Mr. Agrawal's case, if you have been filing your own taxes, any over-the-counter tax software worth it's salt would ask you a question regarding the presence of foreign bank accounts and if you feign ignorance, it is not going to be a plausible excuse. 

In our practice, we have helped countless non-reporters. If you or someone you know has been delinquent with their foreign bank reporting and needs help being compliant, we can go over various options available and determine the best possible solution for you. 
 
Bibliography: (DC WI 12/9/2019) 124 AFTR 2d ¶2019-5522; FTC 2d/FIN ¶V-1813.4; United States Tax Reporter ¶60,114.06; Reg. § 310.6651-1(c)(1); Jarnagin, (Ct Fed Cl 2017) 120 AFTR 2d 2017-6683; 31 USC § 5314(a) and 5321(a)(5)
 
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I am an Enrolled Agent and owner of MN Tax and Business Services PLLC (www.mntaxbiz.com), based in the Metro Detroit area in Michigan, USA. The firm provides Tax Preparation, Planning services to Individuals, Small Businesses, Trusts and Non-Profit Organizations. Get my latest posts by subscribing to my blog.

You can also find me tweeting @ManasaSogNadig where I have been @Forbes Top 100 Tax Tweeters for 2018, 2019 and 2020.


 
 
 
 


Thursday, January 30, 2020

Expat: Individual Retirement Accounts {IRA} and Foreign Income

Picture Courtesy pixabay.com Nepal Himalayas

Happy New Year dear reader and welcome to a new decade! Looking forward to a lot of reading and sharing this year.

If you are a U.S citizen living abroad, you could continue to contribute to a retirement account. An expatriate's tax life is complicated as we know-different tax issues, elections and levels of income have to be considered before one can determine if an expat can make an IRA contribution based on their foreign income. 

There are complex technical rules that we have to sift through in order to seek eligibility for a taxpayer with foreign income to be able to contribute into an IRA. I found a lot of information out there on the World Wide Web about this matter, this article is my attempt to bring it all together. 

Income Limits for IRA Contributions:

In order to contribute to a traditional or a Roth IRA:
  • You must have taxable compensation for the year. 
  • You must have foreign income in excess of your foreign housing and foreign earned income exclusion ($105,900/ taxpayer for 2019 indexed for inflation).  
  • Your Modified Adjusted Gross Income (In the charts attached below) will add back the foreign earned income exclusion. 

2019 Roth IRA Income Limits for a $6,000 ($7,000 for those 50 years or older) Contribution are as follows: 


2019 traditional IRA Income Limits for a $6,000 ($7,000 for those 50 years or older) Contribution for those covered by a retirement plan at work are as follows:



2019 traditional IRA Income Limits for a $6,000 ($7,000 for those 50 years or older) Contribution for those not covered by a retirement plan at work are as follows:


Taking the above aspects into consideration, how can one contribute into an Individual Retirement Account if one has foreign income?  
Since the Roth IRA has overall income limits in order to make a contribution, and the Traditional IRA further limits amounts based on whether one is already contributing to an employer provided retirement account, the range of income that is available for a contribution is narrow at best. This could only be wages or net self-employed income that is in excess of the foreign earned income exclusion. 

Can taking the Foreign Tax Credit be more advantageous so one can make an IRA Contribution?
In some situations, claiming a foreign tax credit on taxable wages or net self-employed income can yield a more opportune scenario to fund an IRA in the United States. This would not only provide a reduction in US taxes but will also provide the tax-payer a higher "taxable" income to work with. 

How do IRA Roll-overs work for those who have moved out of the U.S?
There is a possibility that you have worked in the US before moving abroad and have accumulated retirement savings, possibly accounts in 401K's, 403B's or other employer retirement plans or traditional IRA's.You may have long term plans of staying abroad or do not have plans of drawing your retirement accounts at the age of 72. 

You could take advantage of the lower tax brackets in case you are making use of the Foreign Earned Income Exclusion and roll over these retirement accounts into a Roth IRA. If the numbers line up favorably, this Roth IRA conversion may even be tax-free. You could then leave the Roth IRA to grow tax-free and not have to take Required Minimum Distributions from it. 

Consultation WIth An Enrolled Agent or Experienced Tax Professional: 
It is very important, you seek the help of an experienced tax professional in order to execute any of the above. If the IRA's are rolled over incorrectly, there will be penalties on early withdrawals or excise taxes to be paid on incorrect set-up. Please contact our office for consultations, we have experience in guiding you with the correct set up and rollover. 

Bibliography: Section 911; Individual Retirement Accounts § 408
-- 
I am an Enrolled Agent and owner of MN Tax and Business Services PLLC (www.mntaxbiz.com), based in the Metro Detroit area in Michigan. The firm provides Tax Preparation, Planning services to Individuals, Small Businesses, Trusts and Non-Profit Organizations. Get my latest posts by subscribing to my blog. 

You can also find me tweeting @ManasaSogNadig where I have been @Forbes Top 100 Tax Tweeters for 2018, 2019 and 2020. 

Read my disclaimer here





 

Wednesday, December 25, 2019

SECURE Act BIG Retirement Plan Changes: Major Take-Aways Read More Here!

Pangong Lake, Ladakh, India. Picture Courtesy: pixabay.com


I started blogging about taxes in 2013 because I wanted to share what I knew about taxes. In the process of getting word out about my writing, I have learnt a thing or two about social media and marketing my blog. The engagement with fellow Enrolled Agents and other professionals in the Tax field has been an amazing experience and in the process of educating others about taxes, I have learnt a lot myself both about Social Media marketing, about blogging and my online tax colleagues as well. 

As twenty-nineteen comes to a close, every tax professional agrees that the time since the Tax Cuts and Jobs Act {TCJA} was passed in December 2017 has been a very stressful. There has been a lot of new rules and regulations, both proposed and final to process and understand applications. Just as we thought we had it all ready for the 2020 Tax Season, the Government pushed through a bunch of last minute laws. The most important of those and the one to have many far-reaching consequences was the SECURE Act, an acronym for Setting Every Community Up for Retirement Enhancement Act of 2019. 

The SECURE Act is a major act of retirement legislation to be passed in a decade. There is a LOT in this legislation that will not only effect some taxpayers getting close to the earlier retirement age of 70.5 years immediately but there are also other important provisions in the new Act that will effect taxpayers who plan on leaving their retirement plans to their heirs or those taxpayers who will inherit retirement plans. 

Here is a synopsis of some of the most important provisions from the Act:
  • Required Minimum Distribution {RMD} Now At 72: If you have not reached an "RMD Age" of 70.5 by December 31st, 2019 your new required minimum distributions are now due on April 1st of the year after you turn 72. The RMD for any year is the balance in your retirement plan as of December 31st of the previous year divided by the distribution period in the IRS' Uniform Lifetime Table. 
  • No Age Limit On Traditional IRA Contributions: Since a lot of Americans continue to live longer and work into their seventies, this Act repeals an earlier provision prohibiting an individual from making contributions into a Traditional IRA after the age of 70.5 years. 
  • 529 Education Savings Plan Can Be Used To Pay Off Student Loans: One can use up to $10,000 of their 529 Plan to pay off their student loans. This legislation also expanded the 529 Plans to cover costs associated with registered apprenticeship programs, homeschooling and private elementary, secondary or religious schools.  
  • Taxable Non-Tuition Fellowship and Stipend Eligible as Compensation for IRA Contributions: Before the legislation, those who had stipends and non-tuition fellowship payments were not allowed to use those earnings as a basis for contributing to Individual Retirement Accounts. After this legislation, graduate and post-doctoral students can begin using these earnings to put money away in retirement plans.
  • Long-time Part-time workers eligible for 401K Plans: Except in the case of collectively bargained plans, the bill will require employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service.
  • Penalty-Free Distribution Allowed for Birth/ Adoption: Any "qualified birth/ adoption" expenses can be paid for with retirement plan distributions penalty free.
  • 401K Safe Harbor Rules Simplified: The legislation simplifies the employer non elective contribution safe harbor rules so that there is more "flexibility, improve employee protection and facilitate plan adoption."
  • Increase in Penalty For Failure to File: Penalty for failure to file a return has been increased to the lesser of $400 or 100% of the tax due.
  • Stretch IRA Is No LOnger Applicable for Most Taxpayers: The goal of a "Stretch IRA" is really a strategy used by those who have inherited IRA's and do not need the money and want to be able to take as little as possible by way of annual distributions. These "Stretch IRA's" can be used by a beneficiary to fund his/ her own retirement eventually. The premise of this type of strategy is that the Return on Investment on the remaining balance in the plan are greater than the annual distributions. 
        Under the SECURE Act, for beneficiaries who inherit after 2019, an inherited IRA has to be completely drawn out by the 10th year after year of death of the original account holder. {This is called a 10-year Distribution Cap} There are no required minimum distributions for beneficiaries in the 1st 9 years of inheritance. This rule is not applicable to the spouse of the deceased account holder, to a beneficiary who is disabled, is chronically ill, not more than 10 years younger than the account holder or is a minor child. 

The change in the "Stretch IRA" rules will definitely require a rehaul of Estate Plans that are using this strategy. And there is not much time left in order to put this in place! 
  •  Increase in Penalty in Failure to File Retirement Plan Returns {Forms 5500}: Per Section 403 of the SECURE Act, 
  1. Form 5500 penalty would be modified to $105 per day, not to exceed $50,000.  
  2. Failure to file a registration statement would incur a penalty of $2 per participant per day, not to exceed $10,000.  
  3. Failure to file a required notification of change would result in a penalty of $2 per day, not to exceed $5,000 for any failure.
  4. Failure to provide a required withholding notice results in a penalty of $100 for each failure, not to exceed $50,000 for all failures during any calendar year.
If any of the above applies to you and you find all this very last minute and overwhelming, I would not blame you at all. This would be a great time for you to contact both your Enrolled Agent and your Financial Planner and if you do not work with one or the other, it would be the perfect time to get one or both these professionals into your lives. 

If you need an Enrolled Agent with extensive experience in retirement matters, please contact us at www.mntaxbiz.com. 

Bibligraphy: The SECURE Act; Jeff Levine @CPAPlanner In-Depth Article 

-- 
I am an Enrolled Agent and owner of MN Tax and Business Services PLLC (www.mntaxbiz.com), based in the Metro Detroit area in Michigan. The firm provides Tax Preparation, Planning services to Individuals, Small Businesses, Trusts and Non-Profit Organizations. Get my latest posts by subscribing to my blog. 

You can also find me tweeting @ManasaSogNadig where I have been @Forbes Top 100 Tax Tweeters for 2018 and 2019. 

Read my disclaimer here

Monday, December 2, 2019

Are You Ready For 2020? Tax Filing Season Is Coming!

 
Picture Courtesy: pixabay.com Angkor Wat

How was 2019? Did it go well for you? I have been talking to my colleagues in the tax sphere, opinions are all over the place. The Tax Reform roll-out kept most of us either waiting on the proposed regulations or trying to wrap our heads around the final regulations that kept coming through in bits and starts from the Internal Revenue Service. Kudos to the people who work there I must say, in spite of all the staffing issues, they were doing their best to keep the regs rolling out. 

Well, the proverbial Father Time does not wait for anyone,and here we are, final regs and proposed regs tucked under our elbows, getting ready for 2020! So, here are some steps my dear readers I thought would help you get your stuff together and be as ready as possible for Tax Season 2020. 

A. Adjust Your Withholding: If you are a wage earner and have been working with the same employer for the past few years, I would highly recommend doing a "payroll check-up" so you can make sure you are having enough taken out in taxes. A lot of taxpayers were in for a sticker shock after payroll withholdings changed for 2018 considering a lot of deductions were either removed or changed and exemptions were completely phased-out. Ask your tax preparer to help you with this or you could do this on your own on the IRS Website Tax Withholding Estimator

B. Adjust Your Employer Retirement Plan Contribution: If you have an Employer Provided Retirement Plan like a 401K or a 403b, you can stash away up to $19,000 (for 2019) and $ 6,000 in catch-up contributions for those over 50 years of age. If you have cash to spare, make sure you are maximizing these contributions before the end of the year. 

C. Check Your Eligibility For Individual Retirement Account {IRA} Contributions: In addition to your employer provided retirement accounts, you may be eligible to contribute in to an IRA. These contributions can be made up to the tax filing deadline or April 15th. You can make a maximum contribution of $ 6,000 (for 2019) and $ 1,000 in catch-up contributions for those over 50 years of age. Talk to your tax preparer to check your eligibility. 

D. Estimating Annual Income For Small and Medium Business Owners: If you are a business owner, it is important to calculate and pay your taxes every quarter: April 15th, June 15th, September 15th and December 31st. The most ideal and safe way to set this up is to open an Electronic Federal Tax Payment System Account on eftps.gov. Payments can also be made through direct bank debit or with a credit card via irs.gov/payments. Depending on your entity structure, size and nature of your business, you may be able to schedule these payments ahead of time. Many States also have a similar system. Do not forget your state taxes.

E. Making Retirement Plan Contributions For Business Owners: You can contribute into a Solo 401K/ SEP/ SIMPLE IRA. You can make both "Employer" and "Employee" contributions. Funding options on each of these retirement plans are different, and so are set up requirements. I would highly recommend you work with an Enrolled Agent to determine eligibility and contribution limits. 

F. Review Changes To Rental Income and Safe Harbor Requirements: The Internal Revenue Service issued clarifications in September 2019 regarding treating your rentals as a "trade or business" and a safe harbor to claim a deduction under §199A. Owners of rental properties need to comply with certain requirements to be able to claim their rentals as a "trade or business" and avail of a deduction under §199A. These requirements can be found here.

G. Renew Your Individual Tax Identification Number {ITIN}: If you or someone in your family has been issued an ITIN, be aware that the ITINs now expire. If your ITIN or someone in your family has an ITIN that is going to expire in 2019, you need to renew it unless you are now eligible to obtain a Social Security Number.Here are some FAQ's issued by the IRS. 

The key to a successful tax season, complete and proper filing of your taxes is to have all your records ready. We undertake end-of-year tax planning for our clients so we can avoid surprises at tax time! Please contact us or your trusted tax professional and get ready for 2020. 

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Do not forget to read my disclaimer here. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website, www.mntaxbiz.com.

Monday, September 9, 2019

"Accidental Americans" Get Relief! New Announcement from the IRS!!

Image from Pixabay
Stop the presses, hold the phones, drop everything you are doing! The Internal Revenue Service announced "Relief Procedures for Certain Former Citizens" on September 6th, 2019. If you are an "Accidental American" and planning on renouncing your U.S. Citizenship, you should be reading this. 

Let's dig back a bit and refresh our memories: The United States Constitution provides through the 14th Amendment that "all persons born or naturalized in the United States" are citizens of the USA. A person born abroad to a U.S. citizen parent or parents acquires U.S. citizenship at birth if the parent or parents meet conditions as specified in § 301 and following sections of the U.S. Immigration and Nationality Act. 

Those who have acquired U.S. citizenship in such a manner may not be aware of the obligations and consequences of this status. As you my dear readers already know from my blog, that by law, U.S. citizens regardless of where they live have to report and possibly pay tax on their world-wide income to the Internal Revenue Service. 

With the passage of the FATCA {Foreign Account Tax Compliance Act} in 2010, now foreign financial institutions are required to know if any of their customers are U.S citizens and if that is true, the customer's information is to be reported to the United States. The customer also needs to provide their Social Security Number to the foreign bank where they have their accounts. 

A U.S. Citizen may relinquish his or her citizenship by paying a fee and taking an oath of renunciation before a US diplomatic or consular officer. They also need to certify that they have fulfilled their federal tax obligations for the year of expatriation and five tax years prior to this event. The relinquishment is detailed under IRC 877A. Those who are deemed to be "Covered Expatriates" may continue to have US tax obligations even after they renounce their citizenship. 


What Are the Relief Procedures: The Internal Revenue Service is providing relief to citizens who meet certain criteria by providing an alternative means to satisfy tax compliance certification process. If the citizens qualify, then they will not be "Covered Expatriates" under IRC 877A and they will not be liable to unpaid taxes and penalties for these years and any previous years.

Who Are These Procedures Available To?: These relief procedures come with the following caveats, which the IRS plans on implementing strictly-
  1. Citizens who expatriate after March 18th, 2010 can use these relief procedures. 
  2. One should have no filing history as a US Citizen or resident. 
  3. The citizens should have a net worth of less than $2 million at the time of expatriation and submitting. 
  4. Their aggregate tax liability for the year of expatriation and five prior years should be $25,000 or less. 
  5. You have to agree to complete and submit with your submission for renunciation all required federal tax returns for 6 years at issue including all schedules and information returns. The IRS recommends filing your FBAR's as well.
  6. Their failure to file required tax returns/ gift tax returns/ and other information returns (including Form 8938) and FBAR's or FinCEN Form 114 and pay taxes and penalties for the years under question was due to non-wilful conduct. 
  7. This action of renouncing a US citizenship is irrevocable. 
The IRS does not have a specific termination date at this time for these relief procedures. The IRS also plans on letting the applicant know that the submission was received and was complete. The IRS may take upto 2 months to turn this around. 

Renouncing your U.S. citizenship is a BIG step. If you are planning on renouncing your U.S. citizenship, we highly recommend that you meet with a knowledgeable Enrolled Agent or an attorney who specializes in this area. 

Bibliography: Expatriation Tax; IRS Announcement. 

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Do not forget to read my disclaimer here. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website, www.mntaxbiz.com.
 


 

 

Wednesday, September 4, 2019

A Reprieve From Revocation of Passport When You Owe Taxes!

 
Image from Pixabay: Munich, Germany
I have been fortunate the past couple of years to have been able to travel. I find that as I check off places on my bucket list, I keep adding on to it! I have been bitten by the travel bug! We recently went to Munich, Germany and climbed 14 stories to the top of The Kirche of St. Peter. The climb through the narrow stairway was somewhat crowded and tight at times but it was absolutely worth it! The views at the top were breath-taking. 

Of course when you travel, you need your passport. What happens when you owe taxes to the Government, can they revoke your passport? If you remember, back in 2015, there was a Law passed called the FAST Act. The Act was mostly about transportation but they got in a clause that if you owed more than $50,000 in taxes, the Government could revoke your existing passport or deny you a new passport. 

Under Section 32101 of the FAST Act, if the IRS certifies a taxpayer as having a 'seriously delinquent tax debt", which is: (1) Owing $52,000 or more in taxes and (2) Meeting certain other requirements under IRC §7345(b), the State Department must deny the taxpayer's original or renewal passport application and may revoke or limit an existing passport.

 Taxpayer Advocate Services {TAS} had been advocating on behalf of those who had been working with them before being thus certified by the IRS. TAS wanted the IRS to exclude from their lists those taxpayers who were working to determine their tax liability; or were seeking penalty abatements based on reasonable cause; or were seeking audit reconsideration. TAS felt that the taxpayers would be pressured into agreements with the IRS to avoid certification. 

The IRS recently agreed to temporarily exclude taxpayers with open TAS cases from certification and to reverse certifications for TAS who were certified before coming to the TAS. The acting National Taxpayer Advocate, Bridget T. Roberts recently said in her blog that she thinks "this is a change in the right direction that protects taxpayers who are working with TAS to resolve their liabilities from the severe consequences of passport denials and consequences". 

Obviously, the TAS wants taxpayers to work with them in good faith or they cannot recommend this exclusion.  

The Internal Revenue Service is going to be hard pressed to put the certification process into action. According to Ms. Roberts' blog post on the IRS' website, the IRS recently implemented a program to recommend revocation of passports in certain cases, however the standards in the Internal Revenue Manual for making these determinations are vague and the IRS may come across as making arbitrary decisions. Also, the technology at the disposal of the IRS is apparently preventing them from sending out certification and decertification notices. 

What does this mean for you if you have tax debts that are $52,000 or more? If you would like to arrange for a payment plan with the Internal Revenue Service or request penalty abatement for reasonable cause, work with the Taxpayer Advocate Service. How does one get in touch with the Taxpayer Advocate Service? Well, get in touch with a Tax Professional/ Enrolled Agent who knows how, find out if you qualify and take advantage of the reprieve offered by the IRS thanks to the Taxpayer Advocate Service!

Bibliography: Internal Revenue Code IRS §7345 (b); FAST Act; IRS News.

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Do not forget to read my disclaimer here. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website, www.mntaxbiz.com.