Reporting Foreign Income
Posted on April 18th, 2019
If you are living or working outside the United States, you generally must file and pay your tax in the same way as people living in the U.S. This includes people with dual citizenship.
In addition, U.S. taxpayers with foreign accounts exceeding certain thresholds may be required to file Form FinCen114, known as the “FBAR” as well as Form 8938, also referred to as “FATCA.”
FBAR is not a tax form, but is due to the Treasury Department by April 15, 2019, but may be extended to October 15. Form 114 must be filed electronically through the BSA E-Filing System website. The BSA E-Filing System supports electronic filing of Bank Secrecy Act (BSA) forms (either individually or in batches) through a FinCEN secure network.
FATCA (Form 8938) is submitted on the tax due date (including extensions, if any,) of your income tax return.
Here’s what else you need to know about reporting foreign income:
1. Report Worldwide Income. By law, Americans living abroad, as well as many non-U.S. citizens, must file a U.S. income tax return and report any worldwide income. Some key tax benefits, such as the foreign earned income exclusion, are only available to those who file U.S. returns. Any income received, or deductible expenses paid in foreign currency must be reported on a U.S. tax return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars. Both FinCen Form 114 and IRS Form 8938, require the use of a December 31 exchange rate for all transactions, regardless of the actual exchange rate on the date of the transaction. Generally, the IRS accepts any posted exchange rate that is used consistently.
2. Report Foreign Accounts and Assets. Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.
3. File Required Tax Forms. In most cases, affected taxpayers need to file Schedule B, Interest and Ordinary Dividends, with their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.
Some taxpayers may need to file additional forms with the Treasury Department such as Form 8938, Statement of Specified Foreign Financial Assets or FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).
FBAR. Taxpayers do not file the FBAR with individual, business, trust or estate tax returns. Instead, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2018 (or in 2019 for next year’s filing returns) must file a Treasury Department FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).
The deadline for filing the FBAR is the same as for a federal income tax return and must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 15, 2019. FinCEN grants filers missing the April 15 deadline an automatic extension until October 15, 2019, to file the FBAR.
Taxpayers who want to paper-file their FBAR must call the Financial Crimes Enforcement Network’s Regulatory Helpline to request an exemption from e-filing.
Form 8938. Generally, U.S. citizens, resident aliens, and certain nonresident aliens must report specified foreign financial assets on Form 8938, Statement of Specified Foreign Financial Assets if the aggregate value of those assets exceeds certain thresholds:
If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year
Taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets.
The threshold is higher for individuals who live outside the United States and thresholds are different for married and single taxpayers. In addition, penalties apply for failure to file accurately.
Please contact the office if you need additional information about thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted and what information must be provided.
An individual may have to file both forms, and separate penalties may apply for failure to file each form.
4. Review the Foreign Earned Income Exclusion. Many Americans who live and work abroad qualify for the foreign earned income exclusion when they file their tax return. This means taxpayers who qualify will not pay taxes on up to $103,900 of their wages and other foreign earned income they received in 2018 ($105,900 in 2019). Please contact the office if you have any questions about foreign earned income exclusion.
5. Don’t Overlook Credits and Deductions. Taxpayers may be able to take either a credit or a deduction for income taxes paid to a foreign country. This benefit reduces the taxes these taxpayers pay in situations where both the U.S. and another country tax the same income. However, you cannot claim the additional child tax credit if you file Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion.
6. Automatic Extension. U.S. citizens and resident aliens living abroad on April 15, 2019, qualified for an automatic two-month extension (until June 15) to file their 2018 federal income tax returns. The extension of time to file also applies to those serving in the military outside the U.S. Taxpayers must attach a statement to their returns explaining why they qualify for the extension.
7. Additional Extension of Time to File. U.S. citizens and resident aliens living abroad may be granted a filing extension of up to six months (October 15, 2019) by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return prior to the due date of the tax return (April 15, 2019). However, a taxpayer filing an extension must pay any tax due by the original date or be subject to late payment penalties and interest.
EXTENDERS THAT HAVEN’T BEEN EXTENDED FOR 2018 TAX YEAR
Posted on February 19th, 2019The IRC code contains dozens of temporary tax provisions—i.e., provisions with a fixed termination date. Often, these expiring provisions are temporarily extended for a short period of time
List of extenders that haven’t been extended to 2018. On January 19, the JCT released its annual report on the temporary individual, business, and energy tax extender provisions. This report contains a section that serves as a reminder of the extender provisions that expired at the end of 2017.
The provisions fit into three categories—those primarily affecting individuals, those primarily affecting businesses, and being energy-related provisions.
The expired individual provisions are:
- The above-the-line deduction for certain higher-education expenses, including qualified tuition and related expenses, under Code Sec. 222;
- The treatment of mortgage insurance premiums as qualified residence interest under Code Sec. 163(h)(3)(E); and
- The exclusion from income of qualified canceled mortgage debt income associated with a primary residence under Code Sec. 108(a)(1)(E).
The expired business provisions are:
- The Indian employment tax credit under Code Sec. 45A(f);
- Accelerated depreciation for business property on Indian reservations under Code Sec. 168(j)(9);
- The American Samoa economic development credit (P.L. 109-432, Sec. 119);
- The railroad track maintenance credit under Code Sec. 45G(f);
- 7-year recovery for motorsport racing facilities under Code Sec. 168(i)(15);
- The mine rescue team training credit under Code Sec. 45N(e);
- The election to expense advanced mine safety equipment under Code Sec. 179E(g);
- Special expensing rules for film, television, and live theatrical production under Code Sec. 181;
- Empowerment zone tax incentives under Code Sec. 1391(d)(1)(A);
- 3-year depreciation for race horses two years or younger under Code Sec. 168(e)(3)(A)(i); and
The expired energy provisions are:
- The beginning-of-construction date for nonwind facilities to claim the production tax credit (PTC) or the investment tax credit (ITC) in lieu of the PTC under Code Sec. 45(d) and Code Sec. 48(a)(5);
- The special rule to implement electric transmission restructuring under Code Sec. 451(k);
- The credit for construction of energy efficient new homes under Code Sec. 45L;
- The energy efficient commercial building deduction under Code Sec. 179D;
- The nonbusiness energy property credit under Code Sec. 25C;
- The alternative fuel vehicle refueling property credit under Code Sec. 30C(g);
- Incentives for alternative fuel and alternative fuel mixtures under Code Sec. 6426(d)(5) and Code Sec. 6427(e)(6)(C);
- Incentives for biodiesel and renewable diesel under Code Sec. 40A(a), Code Sec. 6426(c)(6), Code Sec. 6426(e)(3) and Code Sec. 6427(e)(6)(B);
- Second generation (cellulosic) biofuel producer credit under Code Sec. 40(b)(6)(J);
- Credit for production of Indian coal under Code Sec. 45(e)(10)(A);
- Special depreciation allowance for second generation (cellulosic) biofuel plant property under Code Sec. 168(l);
- The credit for qualified fuel cell vehicles under Code Sec. 30B; and
- The credit for 2-wheeled plug-in electric vehicles under Code Sec. 30D(g)(3)(E)(ii).
US Tax Law Changes Effective for Tax Individuals 2018 Year
Posted on January 4th, 2019LIKE-KIND EXCHANGES ARE LIMITED TO REAL PROPERTY
The Tax Cuts and Jobs Act, passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead. One tax provision that taxpayers should be aware of is that like-kind exchanges are now generally limited to exchanges of real property. Here’s what you need to know:
Tax Law Changes Effective in 2018
Effective January 1, 2018, exchanges of personal or intangible property such as machinery, equipment, vehicles, artwork, collectibles, patents, and other intellectual property generally do not qualify for nonrecognition of gain or loss as like-kind exchanges. However, certain exchanges of mutual ditch, reservoir or irrigation stock are still eligible.
Like-kind exchange treatment now applies only to exchanges of real property that is held for use in a trade or business or investment. Real property, also called real estate, includes land and generally anything built on or attached to it. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange.
A transition rule in the new law allows like-kind treatment for some exchanges of personal or intangible property. If the taxpayer disposed of the personal or intangible property on or before December 31, 2017, or received replacement property on or before that date, the exchange may qualify for like-kind exchange treatment.
Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Improved real property is generally of like-kind to unimproved real property. For example, an apartment building would generally be of like-kind to unimproved land. However, real property in the United States is not of like-kind to real property outside the U.S.
A like-kind exchange is reported on Form 8824, Like-Kind Exchanges, which taxpayers must file with their tax return for the year the taxpayer transfers property as part of a like-kind exchange. This form helps a taxpayer figure the amount of gain deferred as a result of the like-kind exchange, as well as the basis of the like-kind property received if cash or property that isn’t of like kind is involved in the exchange. Form 8824 helps taxpayers compute the amount of gain you must report.
Please be advised that exchange of crypto currencies are not eligible for “like-kind” exchange treatment.
Vancouver US Tax Professionals
For more information about this and other tax reform changes, please contact us.
UNDERSTANDING THE GIFT TAX
Posted on December 6th, 2018If you gave money or property to someone as a gift, you might owe federal gift tax. Many gifts are not subject to the gift tax, but there are exceptions. Here are eight tips you can use to figure out whether your gift is taxable.
- Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. For 2018 the annual exclusion is $15,000 (up from $14,000 in 2017).
- Gift tax returns do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.
- Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.
- Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
- The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. The following gifts that are do not exceed the annual exclusion for the calendar year,
- Tuition or medical expenses you pay directly to a medical or educational institution for someone,
- Gifts to your spouse,
- Gifts to a political organization for its use, and
- Gifts to charities.
- You and your spouse can make a gift up to $30,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, even if half of the split gift is less than the annual exclusion.
- You must file a gift tax return on Form 709 if any of the following apply:
- You gave gifts to at least one person (other than your spouse) that are more than the annual exclusion for the year.
- You and your spouse are splitting a gift.
- You gave someone (other than your spouse) a gift of a future interest that he or she cannot actually possess, enjoy, or receive income from until sometime in the future.
- You gave your spouse an interest in property that will terminate due to a future event.
- You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone’s tuition or medical expenses.
US TAX RULES FOR RENTAL INCOME FROM SECOND HOMES
Posted on July 16th, 2018US Tax rules on rental income from second homes can be complicated, particularly if you rent the home out for several months of the year and also use the home yourself.
There is, however, one provision that is not complicated. Homeowners who rent out their property for 14 or fewer days a year can pocket the rental income, tax-free. In other words, if you live close to a vacation destination such as the beach or mountains, you may be able to make some extra cash by renting out your home (principal residence) when you go on vacation–as long as it’s two weeks or less. Although you can’t take depreciation or deduct for maintenance, you can deduct mortgage interest, property taxes, and casualty losses on Schedule A (1040), Itemized Deductions.
In general, however, income from rental of a vacation home for 15 days or longer must be reported on your tax return on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to the net investment income tax. You should also keep in mind that the definition of a “vacation home” is not limited to a house. Apartments, condominiums, mobile homes, and boats are also considered vacation homes in the eyes of the IRS.
Furthermore, the IRS states that a vacation home is considered a residence if personal use exceeds 14 days or more than 10 percent of the total days it is rented to others (if that figure is greater). When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.
Example: Let’s say you own a beach house (your “second home”) and rent it out during the summer between mid-June and mid-September. You and your family also vacation at the house for one week in October and two weeks in December. The rest of the time the house is unused.
The family uses the house for 21 days, and it is rented out to others for 121 days for a total of 142 days of use during the year. In this scenario, 85 percent of expenses such as mortgage interest, property taxes, maintenance, utilities, and depreciation can be written off against the rental income on Schedule E. As for the remaining 15 percent of expenses, only the owner’s mortgage interest and property taxes are deductible on Schedule A.
Tax Reform and Vacation Rentals
Under tax reform, a homeowner is limited to writing off a maximum of $750,000 in mortgage interest. If you own a second home as well, the interest from the two properties combined could exceed the $750,000 cap. In addition, property tax deductions (combined with state income taxes) are capped at $10,000. If you do not rent out your second home, you could be losing out on deductions (taxes and mortgage interest) that lower your taxable income. Therefore, it is prudent to consider renting out your second home as a vacation rental since you would then be able to deduct these expenses, and possibly others such as Homeowners Association fees, maintenance expenses, and utilities. Furthermore, you can still use the home 14 days a year (more if you are staying there for home maintenance-related activities) and deduct these expenses. Even if you use it more than 14 days a year, you are still able to deduct these expenses proportional to the amount of rental use.
Questions?
REMINDER: JUNE 15 FILING DEADLINE FOR TAXPAYERS OUTSIDE THE US OR PUERTO RICO
Posted on June 1st, 2018Reminder: Friday, June 15, 2018 is the deadline for filing 2017 returns for U.S. citizens and resident aliens whose tax home and abode are outside the U.S. and Puerto Rico, certain military personnel, and partnerships and corporations with certain foreign connections.
More specifically, an extension of time for filing income tax returns and for paying any tax shown on the return is automatically granted up to the 15th day of the sixth month following the close of the tax year to:
- Partnerships which keep their records and books of account outside the U.S. and Puerto Rico and are otherwise required to file returns on the 15th day of the third month following the close of the tax year; (Reg § 1.6081-5T(a)(1))
- Domestic corporations which transact their business and keep their records and books of account outside the U.S. or Puerto Rico; (Reg § 1.6081-5(a)(2))
- Foreign corporations which maintain an office or place of business in the U.S.; (Reg § 1.6081-5(a)(3))
- Domestic corporations whose principal income is from sources within U.S. possessions; (Reg § 1.6081-5(a)(4))
- U.S. citizens or residents whose tax homes and abodes, in a “real and substantial sense”, are outside the U.S. and Puerto Rico; (Reg § 1.6081-5(a)(5)) and
- U.S. citizens and residents in military or naval service on duty, including non-permanent or short-term duty, outside the U.S. and Puerto Rico. (Reg § 1.6081-5(a)(6))
For those who can’t meet the June 15 deadline, tax-filing extensions are available. One way to obtain such an extension is to call us at US Tax Professionals (604) 281-3318.
REPORTING VIRTUAL CURRENCY TRANSACTIONS
Posted on May 16th, 2018REPORTING VIRTUAL CURRENCY TRANSACTIONS
With the price of Bitcoin hitting record highs in 2017, many Bitcoin holders cashed out not realizing the impact it could have on their tax bill. Many people, for example, did not understand that it was a reportable transaction and found themselves with a hefty tax bill–money they may have been hard-pressed to come up with at tax time. Others may have been unaware that they needed to report their transactions at all or failed to do so because it seemed too complicated.
The good news is that if you failed to report income from virtual currency transactions on your income tax return, it’s not too late. Even though the due date for filing your income tax return has passed, taxpayers can still report income by filing Form 1040X, Amended U.S. Individual Income Tax Return.
The good news is that if you failed to report income from virtual currency transactions on your income tax return, it’s not too late. Even though the due date for filing your income tax return has passed, taxpayers can still report income by filing Form 1040X, Amended U.S. Individual Income Tax Return.
Taxpayers should also be aware that forgetting, not knowing, or generally pleading ignorance about reporting income from these types of transactions on your tax return is not viewed favorably by the IRS. Taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest.
In more extreme situations, taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions. Criminal charges could include tax evasion and filing a false tax return. Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.
Virtual Currency Taxed as Property (2017)
Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency. There are currently more than 1,500 known virtual currencies. Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, some taxpayers may be tempted to hide taxable income from the IRS.
Virtual currency is treated as property for U.S. federal tax purposes. The same general tax principles that apply to property transactions also apply to transactions using virtual currency such as:
- A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.
- Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099-MISC.
- Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2 and are subject to federal income tax withholding and payroll taxes.
- Certain third parties who settle payments made in virtual currency on behalf of merchants that accept virtual currency from their customers are required to report payments to those merchants on Form 1099-K, Payment Card and Third-Party Network Transactions.
- The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer
For more contact US Tax Accountants Mark Schiffer at (604) 281-3318.
US Tax Accountant Warns About Increasing FBAR Penalties for Failure to File
Posted on April 12th, 2018US Tax accountant Mark Schiffer and his team warn that The Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department, has announced the inflation-adjusted increase in the penalty amounts for a failure to file a Report of Foreign Bank and Financial Accounts (FBAR) reporting an interest in a foreign financial account.
Background on FBAR. Each U.S. person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts in a foreign country, must file an FBAR (Report of Foreign Bank and Financial Accounts, i.e., FinCEN Form 114) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
A U.S. person means a U.S. citizen (including a child), an individual who is a resident alien under Code Sec. 7701(b) of the U.S., the District of Columbia, the Indian lands (as that term is defined in the Indian Gaming Regulatory Act), and the Territories and Insular Possessions of the U.S., and an entity, including a corporation, partnership, trust or limited liability company organized or formed under U.S. laws or the law of any State, the District of Columbia, the U.S. Territories and Insular Possessions or Indian Tribes.
A “foreign financial account” is a financial account located outside the U.S. The U.S. includes the states, the District of Columbia, territories and possessions of the U.S., and certain Indian lands. An account maintained with a branch of a U.S. bank that is physically located outside of the U.S. is a foreign financial account. An account maintained with a branch of a foreign bank that is physically located in the U.S. is not a foreign financial account.
A U.S. person has a financial interest in a foreign financial account for which:
- The U.S. person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the U.S. person or for the benefit of another person; or
- The owner of record or holder of legal title is one of certain listed entities, which include
- An agent, a nominee, attorney, or a person acting in some other capacity on behalf of the U.S. person with respect to the account, or
- Any of certain entities controlled by the U.S. person.
The civil and criminal penalties for noncompliance with the FBAR filing requirements are significant. Civil penalties for a non-willful violation can range up to $10,000 per violation (31 U.S.C. 5321(a)(5)(B)(i)), as adjusted for inflation, and civil penalties for a willful violation can range up to the greater of $100,000 (31 U.S.C. 5321(a)(5)(C)), as adjusted for inflation, or 50% of the amount in the account at the time of the violation. As adjusted for inflation, these amounts are, for penalties assessed after 8/1/2016 but before 1/16/2017, $12,663 and $126,626, respectively. A “reasonable cause” exception exists for non-willful violations, but not for willful ones.
Inflation adjustment. For penalties assessed after 1/15/2017, the FBAR penalty for a non-willful failure to report penalty increases from $12,663 to $12,921, and the penalty for a willful failure to report increases from $126,626 to $129,210. For more contact US Tax Accountants Mark Schiffer at (604) 281-3318.
8 Things To Know When Reporting Foreign Income for Filing US Tax Returns
Posted on March 16th, 2018If you are living or working outside the United States, you generally must file and pay your tax in the same way as people living in the U.S. This includes people with dual citizenship.
In addition, U.S. taxpayers with foreign accounts exceeding certain thresholds may be required to file Form FinCen114, known as the “FBAR” as well as Form 8938, also referred to as “FATCA.”
Note: FBAR is not a tax form, but is due to the Treasury Department by April 17, 2018, and must be filed electronically through the BSA E-Filing System website. It may be extended to October 15. FATCA (Form 8938) is submitted on the tax due date (including extensions, if any,) of your income tax return.
8 Things To Know When Reporting Foreign Income for Filing US Tax Returns
Here’s what else you need to know about reporting foreign income:
- Report Worldwide Income. By law, Americans living abroad, as well as many non-U.S. citizens, must file a U.S. income tax return and report any worldwide income. Some key tax benefits, such as the foreign earned income exclusion, are only available to those who file U.S. returns.
- Report Foreign Accounts and Assets. Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.
- File Required Tax Forms. In most cases, affected taxpayers need to file Schedule B, Interest and Ordinary Dividends, with their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.
Some taxpayers may need to file additional forms with the Treasury Department such as Form 8938, Statement of Specified Foreign Financial Assets or FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).
FBAR. Taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2017 (or in 2018 for next year’s filing returns) must file a Treasury Department FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).
Form 8938. Generally, U.S. citizens, resident aliens, and certain non-resident aliens must report specified foreign financial assets on Form 8938, Statement of Specified Foreign Financial Assets if the aggregate value of those assets exceeds certain thresholds:
If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year Taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets.
The threshold is higher for individuals who live outside the United States and thresholds are different for married and single taxpayers. In addition, penalties apply for failure to file accurately.
Please contact the office if you need additional information about thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted and what information must be provided.
Note: An individual may have to file both forms, and separate penalties may apply for failure to file each form.
- Review the Foreign Earned Income Exclusion. Many Americans who live and work abroad qualify for the foreign earned income exclusion when they file their tax return. This means taxpayers who qualify will not pay taxes on up to $102,100 of their wages and other foreign earned income they received in 2017 ($103,900 in 2018). Please contact the office if you have any questions about foreign earned income exclusion.
- Don’t Overlook Credits and Deductions. Taxpayers may be able to take either a credit or a deduction for income taxes paid to a foreign country. This benefit reduces the taxes these taxpayers pay in situations where both the U.S. and another country tax the same income. However, you cannot claim the additional child tax credit if you file Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion.
- Automatic Extension. U.S. citizens and resident aliens living abroad on April 17, 2018, qualified for an automatic two-month extension (until June 15) to file their 2017 federal income tax returns. The extension of time to file also applies to those serving in the military outside the U.S. Taxpayers must attach a statement to their returns explaining why they qualify for the extension.
- Additional Extension of Time to File. U.S. citizens and resident aliens living abroad may be granted a filing extension of up to six months (October 15, 2018) by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return prior to the due date of the tax return (April 17, 2018). However, a taxpayer filing an extension must pay any tax due by the original date or be subject to late payment penalties and interest.
- Get Tax Help. If you’re a taxpayer or resident alien living abroad that needs help with tax filing issues, IRS notices, and tax bills, or have questions about foreign earned income and offshore financial assets in a bank or brokerage account, don’t hesitate to call.
US Tax Accountant Explains Owing Back Taxes Could Affect Passport Renewal
Posted on February 15th, 2018US Tax Accountant, Mark Schiffer, warns that starting in February 2018, individuals with “seriously delinquent tax debts” will be subject to a new set of provisions courtesy of the Fixing America’s Surface Transportation (FAST) Act, signed into law in December 2015.
The FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt and also requires the State Department to deny their passport application or deny renewal of their passport. In certain instances, the State Department may revoke their passport.
Taxpayers affected by this law, warns the US Tax Accountant, are those with a seriously delinquent tax debt, generally, an individual who owes the IRS more than $51,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired, or the IRS has issued a levy.
Taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt by doing the following:
• Paying the tax debt in full
• Paying the tax debt timely under an approved installment agreement,
• Paying the tax debt timely under an accepted offer in compromise,
• Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice,
• Having requested or have a pending collection due process appeal with a levy, or
• Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.
However, a taxpayer’s passport won’t be at risk under this program if an individual:
• Is in bankruptcy
• Is identified by the IRS as a victim of tax-related identity theft
• Has an account that the IRS has determined is currently not collectible due to hardship
• Is located within a federally declared disaster area
• Has a request pending with the IRS for an installment agreement
• Has a pending offer in compromise with the IRS
For taxpayers serving in a combat zone, and who also owe a seriously delinquent tax debt, the IRS postpones notifying the State Department and the individual’s passport is not subject to denial during this time.
Taxpayers who are behind on their tax obligations should come forward and pay what they owe or enter into a payment plan with the IRS and may qualify for one of several relief programs, including the following:
• Taxpayers can request a payment agreement with the IRS by filing Form 9465, Installment Agreement Request. Taxpayers can download this form from IRS.gov and mail it along with a tax return, bill or notice. Some taxpayers may be eligible to use the online payment agreement to set up a monthly payment agreement for up to 72 months.
• Financially distressed taxpayers may qualify for an offer in compromise, an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to determine the taxpayer’s ability to pay.
If you owe back taxes and are worried your passport could be revoked because of unpaid taxes, please contact US Tax Accountant Mark Schiffer.
