Sunday, February 15, 2015

Reporting Changes For 2014 Individual Tax Returns - IRS Fact Sheet

So Valentine's Day was here and left- that could only mean one thing - we are into the 3rd serious week of tax season! The Internal Revenue Service got out it's fact sheet about the changes in reporting requirements for individuals. I thought for all those self-preparers, this would be a good tool to look at and see if this is the year you want to make the leap & have your taxes examined by a tax professional, especially an Enrolled Agent! 

The ACA Act says that a taxpayer and each member of his family when filing his federal income tax return, must either 
  • Have qualifying health coverage for each month of the year; 
  • Qualify for an exemption;
  • Make an individual shared responsibility payment 
Some moderate-income taxpayers may also qualify for financial assistance to help cover the cost of health insurance purchased through the Health Insurance Marketplace. 

You would be categorized as one of the following:

A. Check the box- Simply check the box on the tax return that each member of your family had qualifying health coverage throughout the year. You can use a chart on to find out if your coverage counts as "qualifying coverage".

B. Exemption -  You may be eligible to claim an exemption from the requirement to have coverage. Eligible taxpayers need to complete the new IRS Form 8965, Health Coverage Exemptions, and attach it to their tax return. 

C. Individual shared responsibility payment: If you do not have qualifying coverage or an exemption for each month of the year, you will need to make an individual shared responsibility payment with your return for choosing not to purchase coverage.

D. Premium tax credit (PTC): If you bought coverage through the Health Insurance Marketplace, you should have received Form 1095-A, Health Insurance Marketplace Statement, from the Marketplace by early February. If you haven't received this yet- contact the Marketplace and not the IRS for that information. 

You will also need to reconcile your advance payments to the amount of your PTC on Form 8962 with the amount of your actual income.

  •  RENEWAL OF TAX BENEFITS: Benefits that had expired for 2013 and were renewed for 2014 are: 
                  # Deduction for state and local sales taxes claimed by taxpayers who itemize their deductions on schedule A. 

                 # Educator Expense Deduction claimed as an adjustment to your income on Form 1040 Line 23 by eligible teachers. 

                 #  Qualified Charitable Distributions by IRA owners age 70 1/2 or older.  

                 # Non-business Energy Credits claimed on Form 5695 

                 # Tuition & Fees Deduction claimed on Form 8917

Under the new rule, an IRA owner can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs he or she owns. 

The limit will apply by aggregating all of an individual's IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.

While this rule only begins to apply in 2015, it could affect taxpayers' actions with respect to their IRAs and their 2014 returns. There is a 2015 transition rule that ignores some 2014 distributions.

If you have either one of the 2 popular Canadian Retirement plan, the Registered Retirement Savings Plans (RRSPs) or Registered Retirement Income Funds (RRIFs), you know that you had a special annual reporting requirement on the Form 8891. This requirement has now been eliminated. 

Please note that this does not change your reporting requirements under FATCA or on the Form 8938, if those thresholds applied to these Canadian retirement accounts.   

IRS Direct Pay, which debuted during last year's tax-filing season, allows individuals to pay their tax bills or make quarterly estimated tax payments, directly from checking or savings accounts without any fees or pre-registration. 

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,

Sunday, February 8, 2015

So Whats The New Buzz On Foreign Bank Accounts?

Pictures Courtesy: Google Images

When looking for a picture for this post, I came across the one above & remembered my college English Professor. She really loved the term, "Freudian Slip" for some reason! All I knew then was that Sigmund Freud was the father of psychoanalysis but I never quite understood how that related to a Business English class, unless that was the Professor's way of telling us we were driving her nuts! Now I know that the term, "Freudian Slip" is a "mistake in speech that shows what the speaker is truly thinking" or "to do what one is truly thinking about". 

No, this post is not about defining psychoanalytic terms, dare I say more interesting than tax stuff? Not quite, but this post is about the latest buzz from the Internal Revenue Service, about some situations US taxpayers having foreign accounts might be in & their compliance options. So here it goes!

I. You are a US taxpayer who has properly reported and paid tax on ALL worldwide taxable income. Oops! You did not know that with your account thresholds, you should have been filing FBARs in all those years as well. These accounts were not only your own foreign bank accounts but were also some that you had signatory authority over through an employer. {About thresholds in my post here}

Your Compliance Options: Voila! 
  • You can now file those delinquent FBAR reports per instructions. 
  • Attach a statement explaining why the statements are late. 
  • Mail the delinquent FBARs to- Department of Treasury, P O Box 32621, Detroit, MI 48232.

II. You only have certain delinquent returns but no tax due. So you are the "lucky" one, you did not have any tax due but you failed to file certain tax information returns such as, Form 5471 or Form 3520. Or you had reported all taxable income arising from taxable income with respect to transactions relating to these forms. 

Your Compliance Options: 
  • You should go ahead and file these delinquent forms with the proper authorities (as per form instructions) 
  • With a statement attached (of course) explaining why they are late. 
  • The IRS will not impose a penalty for the failure to file Forms 5471 or 3520 if there are no under-reported tax liabilities. 
  • You should also not have been already contacted by the IRS regarding these delinquent forms.  

III. You are a non-resident US Taxpayer, you have delinquent returns- however your tax owed is less than $1,500 per year. So you have been abroad and have not filed your tax returns and your FBARs. You only owe less than $1,500 per year.
Updated: The $1500 tax threshold has been eliminated in changes made to the Streamlined Procedures. 

Your Compliance Options: 
  • File your delinquent tax returns for the last 3 years. 
  • Include any delinquent tax information returns with the bullet point above. 
  • File any delinquent FBARs for the past 6 years. 
  • Give all the required additional information compliance risk. 

  • Pay any outstanding federal tax and interest due with the outstanding returns. 
IV. You are a taxpayer with undisclosed foreign accounts and unreported income or you are a taxpayer seeking protection from criminal prosecution. 

Your Compliance Option: The Offshore Voluntary Disclosure Program aka OVDP. 

Please note that to decide if any of the above four situations apply to you and for further guidance regarding your compliance options, I cannot stress enough how important it is to consult with an informed and experienced Enrolled Agent, CPA or Tax Attorney. 
Bibliography: FS-2011-13; Report of Foreign Bank and Financial Accounts (FBAR); Form 5471 ; Form 3520. 

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,



Sunday, February 1, 2015

Green Card Holders:Residency in Foreign Country & Treaty Benefits!

Tracking Storm Linus on the weather websites, watching the storm blow around the white stuff all day long, snow piling up 16 inches and more on it's way, sneaking peeks at the Super Bowl while trying to write up this post- I realized how far we have come--long, long ways from being Green Card holders. 

But I do remember that the transition to Green Card holder from a visa holder can be a somewhat exhilarating, somewhat frustrating journey. This process can take a long time and comes with a lot of trials and tribulations. 

The tax rules for a green card holder remain fairly the same as a US citizen or a long time US resident for most purposes. The complications come into play when the Green Card holder's living circumstances change. 

So, let's say you had to leave the US of A, to live in a foreign country and you can be considered a resident of that country for it's tax purposes. That would make you a dual-resident tax payer- a resident of both the U.S. and another country under each country's tax laws. In such a case, you need to examine if a tax treaty exists between the country you are living in and the U.S. 

The definition of residency under U.S. tax laws does not override tax treaty definitions of residency. This means that, if you are a dual-resident taxpayer, you can claim the benefits under an existing income tax treaty. In order for you to do that, the Income Tax Treaty between the 2 countries must contain a tie-breaker rule. 

What is a tie-breaker rule? A tie-breaker rule is a provision in the tax treaty that provides for a resolution if you have conflicting claims of residency. Now here is the catch (good or bad-depends on how you look at it), if you claim treaty benefits as a resident of that country, you are treated as a nonresident alien in figuring your U.S. income tax. 

Does this effect your residency time periods? No. For purposes other than figuring your income tax, you will still be treated as a U.S. resident. 

Now that you are a dual-resident taxpayer, and you claim treaty benefits as a resident of the country where you live, you must file Form 1040NR or Form 1040NR-EZ and compute your tax as a non-resident alien in the US. The form has to be filed by the due date (including extensions). You may also need to attach a fully completed Form 8833, if you receive payments or income items totaling more than $100,000. 

Form 8938 and other FATCA obligations may continue to apply to you. Do you need to file the FBAR forms? Read and find out here

You may also be subject to expatriation tax in some cases. More on that in my blog post here

This is a complicated scenario to be in and you need to make sure all your "t"s are crossed and "i"s dotted. Please be sure to consult with an Enrolled Agent or other tax professional before you file your taxes. 

Bibliography: Publication 519; Tax Treaties; Form 8938; Form 8833Regulations §301.7701(b)-7;

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,