Sunday, February 23, 2014

Foreign Bank Account Regulations IV: TD F 90-22.1 Is Now Form FinCen 114!


As a reader of my blog, you probably know by now that if you have a financial interest in or signature authority over foreign financial account/ accounts, individually or the total which are $10,000 or more at any time during the calendar year, the Bank Secrecy Act requires you to report the account to the Internal Revenue Service. (More details on my post HERE)

On September 30th, 2013, the Financial Crimes Enforcement Network (FinCEN) made a very important change to the FBAR form which will effect it's filing for 2014. 

What Are The Changes

  • The FinCEN Form 114 supersedes TD F 90-22.1 as the official FBAR form. 
  • The new FinCEN Form 114 is only available online on BSA E-Filing System website
  • A paper copy of the FinCEN Form 114 will not be accepted. 
  • The system allows the filer to enter the calender reported, including past years on the online form. 
  • The online form offers an option to explain a late filing. 
  • It also lets you indicate if a filing is being made in conjunction with an IRS compliance program. 
  • If you are filing FBAR with your spouse jointly or if you wish to have a third party preparer file your FBARs on your behalf, you can use the new FinCEN Form 114a. This form is not filed with the Form 114 but maintained with the FBAR records by the filer. 
  • The taxpayer has to go on the website and can download an Adobe PDF version of the FBAR, fill out the report, sign & save a copy & then submit the FBAR on the BSA Website.  
  • Or the taxpayer can designate their EA, CPA or attorney to file on the BSA website on their behalf. 

Becoming a BSA Filer:  
  • An Enrolled Agent, CPA or Attorney can become a designated third-party filer.
  • The EA, CPA or attorney must make sure they have documented authority from the tax payers required to file to sign & submit FBARs on their behalf through the BSA E-Filing System. 
  • If such authority has been provided, the EA, CPA or attorney can file the FBARs through the single BSA account established for them.  
  • Many professional tax software programs have now incorporated the FinCEN Form 114 & enabled e-fling with the BSA Website through the software. 
As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. 
More of my contact information is on my website,

Saturday, February 15, 2014

To Roth or Not To Roth (an IRA)? A Classic Shakespearean Conundrum!

Are you wondering what Hamlet, has to do with Individual Retirement Accounts (IRA)? I have an answer for that!! Recently revisiting the Shakespeare play 'Hamlet' and listening to the opening of the soliloquy in the "Nunnery Scene", "To be, or not to be, that is the question--" etc., I wondered how many times we face the same questions albeit in not such dire straits as Hamlet! 

The question I get asked most of the time in my practice, is whether to pick a Traditional IRA or a Roth IRA! Let's quickly touch upon the basics:

Who Can Open A Traditional IRA:  According to the IRS' Pub 590, "You can open and make contributions to a traditional IRA if: 
  • You (or, if you file a joint return, your spouse) received taxable compensation during the year, and; 
  • You were not age 70½ by the end of the year.

You can have a traditional IRA whether or not you are covered by any other retirement plan. However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan. 

If both you and your spouse both have compensation and are under age 70½, each of you can open an IRA. You cannot both participate in the same IRA. If you file a joint return, only one of you needs to have compensation.

Who Can Open A Roth IRA:  A Roth IRA is an IRA is subject to the same rules that apply to a traditional IRA except as explained below:

  • You cannot deduct contributions to a Roth IRA.
  • If you satisfy the requirements, qualified distributions are tax-free.
  • You can make contributions to your Roth IRA after you reach age 70 ½.
  • You can leave amounts in your Roth IRA as long as you live.
  • The account or annuity must be designated as a Roth IRA when it is set up.
Differences Between The Two: So what can be deduced from the above information? 

The tax breaks for the Traditional IRA are immediately seen in the year of deposit. Also, the earnings on the contributions are not taxed until withdrawals are made from the account. 

Say for example, you made $50,000 during the year, and you put the maximum $5,500 of it in an IRA for 2013. You will be taxed on $44,500. And the $5,500 grows tax-free till withdrawal ad only at that point it will be taxed at your tax rate. If the funds are withdrawn before you turn 59 and 1/2, you will pay income-tax AND 10% penalty on the earnings accrued. Penalties may be waived only in certain circumstances. 

The tax breaks for the Roth IRA are not seen immediately in the year of deposit since contributing into it is not tax deductible. However the earnings in the account do grow tax deferred. 

In the above example, for making a Roth IRA contribution, the taxpayer would still pay taxes on the entire $50,000. The big difference to remember between the two, are the words TAX EXEMPT. In other words, a Roth IRA offers tax exempt rather than tax deferred savings. 

Both the types accumulate savings without paying taxes on the earnings, the Traditional ultimately sticks you with tax for those (plus the contributions) when withdrawn. The Roth does not. As long as the Roth rules are followed, you never pay taxes on the gains. Also, the Roth contributions are phased out at higher amounts than for Traditional. 

On the Roth, you can withdraw your initial contributions free of taxes at any time without penalty. You can also pull out both earnings plus contributions penalty free if pulled out under certain circumstances. However, do keep in mind that profits withdrawn before retirement age, and before the money has been in the Roth for at least 5 tax years will be taxed. You'll also incur a 10% penalty when the earnings are withdrawn before age 59 1/2. 

Traditional IRAs can be converted into Roth IRAs. Please contact a tax professional to advise you in this regard. 

Bibliography: Publication 590

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. 
More of my contact information is on my website,

Saturday, February 8, 2014

Chaffing At the Bit? Hold Your Horses..Don't File Too Early!!

"Tax Season is Here", "Tax Season is Here"...slogans everywhere, big box companies advertising for you to come in the door, other software companies selling DIY tax software (by the way I do NOT recommend that-see why here)..oh wait! even the IRS says it's "Free File" has been open since early January!! So what should the poor common man do? 

First, let's all take a deep breath, here procrastination for a month or so may be the key to avoid a mess on your hands later! Besides procrastination, what other reasons could there be to wait to file your taxes? 

Corrected forms and Amendments:  Hello!! Who hasn't received a corrected form in the mail after they have send their return on it's way? Many investment companies do not have information from partnerships till late in the season, so if some of your money is invested in limited partnerships, your brokerage firm or investment company will send you supplemental forms later. If you have filed with incorrect information, you will have to file an "amended tax return". Some other times employers/ universities/ mortgage companies do make mistakes as well. If you have filed early, got a refund and have spent it, will you have the money to send to the IRS with an amended return if you now have to pay?

Software Updates:   Software companies have to wait for a go ahead from the Internal Revenue Service before they can release final updated forms. They may have early release forms in place & updates to the software will change calculations. (Take this from someone who has been there! ) If your tax return involves some of these complex forms, waiting for IRS approvals is a great idea. 

Do You Usually Owe On Your Tax Return? If you do usually owe on your taxes, waiting to file will be a great idea. You can make sure you have all your papers, you know all the possible deductions available to lower what you owe, and have researched it well. 

To make that determination, to file early or late, look at all the pros & cons that relate to your filing situation & consult with a tax professional. 

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. 
More of my contact information is on my website,