The Foreign Bank Account Report

June 21, 2014 : The Foreign Bank Account Report was originally set up to prosecute money laundering, but it is now also being used to combat offshore tax evasion. At the end of 2013, the IRS enforcement program has resulted in collection of over $5.5 billion, which the US Treasury Department believes to be a fraction of actual pertaining to offshore tax evasion.

U.S citizens, resident aliens and certain non resident aliens are required to report worldwide income from all sources including foreign accounts and pay taxes on income from those accounts at their individual rates.

Federal law requires a US person who has a financial interest in or signature authority over one or more foreign accounts with aggregate value greater than $10000 to report same. The FBAR must be filed on or before June 30th for foreign financial accounts aggregating more than $10000 in the previous calendar year. Any person required to file the FBAR must keep certain records of the account for five years. The law requires a resident or citizen of the United States or a person in and doing business in the United States, to keep records and or file reports when making transactions or maintaining a relationship with a foreign financial agency.

The FBAR is required for each calendar year during which the aggregate amounts in the accounts exceeding $10000 valued in US dollars at any time during the calendar year. Example, if the statement closing balance is $9000 but at any time during the year a balance of $150000 appears on a statement, the maximum value is $15000.

Convert foreign currency by using the official exchange rate in effect at the end of the year in question for converting the foreign currency into US dollars. The official treasury rates of exchange for the previous quarter year can be obtained at http://fms.treas.gov/intn.htm#rates or calling Dept of Treasury @ 202 874 7994.

 The IRS has been delegated authority to assess FBAR civil penalties.  There are civil penalties for negligence patter of negligence, non-willful and willful violations.  FBAR penalties are determined per account, not per unified FBAR for each person required to file.  Penalties apply for each year of each violation.  There may be multiple FBAR civil penalty assessments arising from one account.

 If anyone is having financial interest in foreign account declare the same by visiting http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html and also amending their tax return if not earlier declared.

 

 

Get Credit for Child and Dependent Care This Summer

June 20 2014 : Many parents pay for childcare or day camps in the summer while they work. If this applies to you, your costs may qualify for a federal tax credit that can lower your taxes. Here are 10 facts that you should know about the Child and Dependent Care Credit:

1. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 usually qualify. For more about this rule see Publication 503, Child and Dependent Care Expenses.

2. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.

3. You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return. Refer to Publication 503 for more details.

4. As a rule, if you’re married you must file a joint return to take the credit. But this rule doesn’t apply if you’re legally separated or if you and your spouse live apart.

5. You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.

6. The credit is a percentage of the qualified expenses you pay. It can be as much as 35 percent of your expenses, depending on your income.

7. The total expense that you can use for the credit in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.

8. Overnight camp or summer school tutoring costs do not qualify. You can’t include the cost of care provided by your spouse or your child who is under age 19 at the end of the year. You also cannot count the cost of care given by a person you can claim as your dependent. Special rules apply if you get dependent care benefits from your employer.

9. Keep all your receipts and records. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your tax return.

10. Remember that this credit is not just a summer tax benefit. You may be able to claim it for care you pay for throughout the year.

Keep Your Records Safe in Case Disaster Strikes

June 5 2014 : Some natural disasters are more common in the summer. But major events like hurricanes, tornadoes and fires can strike any time. It’s a good idea to plan for what to do in case of a disaster. You can help make your recovery easier by keeping your tax and financial records safe. Here are some basic steps you can take now to prepare:

1. Backup Records Electronically.  Many people receive bank statements by email. This is a good way to secure your records. You can also scan tax records and insurance policies onto an electronic format. You can use an external hard drive, CD or DVD to store important records. Be sure you back up your files and keep them in a safe place. If a disaster strikes your home, it may also affect a wide area. If that happens you may not be able to retrieve your records.

2. Document Valuables.  Take photos or videos of the contents of your home or business. These visual records can help you prove the value of your lost items. They may help with insurance claims or casualty loss deductions on your tax return. You should store them with a friend or relative who lives out of the area.

3. Update Emergency Plans.  Review your emergency plans every year. Update them when your situation changes. Make sure you have a way to get severe weather information. Have a plan for what to do if threatening weather approaches.

4. Get Copies of Tax Returns or Transcripts.  Form 4506, Request for Copy of Tax Return, to replace lost or destroyed tax returns. If you just need information from your return, you can order a free transcript online or by calling 800-908-9946. You can also file Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript orForm 4506-T, Request for Transcript of Tax Return.

5. Count on the IRS.  If you fall victim to a disaster, know that the IRS stands ready to help. You can call the IRS disaster hotline at 866-562-5227 for special help with disaster-related tax issues.

Tips to Help You Pay Your Tax Bill

May 25, 2014 : If you get a tax bill from the IRS, don’t ignore it. A delay may cost you more in the long run. The longer you wait the more interest and penalties you may have to pay. Here are few tips to help you avoid those extra charges:

1. Pay electronically.  Using an IRS electronic payment to pay your tax is quick, accurate and safe. You also get a record of your payment. Your options include:

  • IRS Direct Pay
  • Electronic Federal Tax Payment System
  • Credit or debit card

Direct Pay and EFTPS are free services. If you pay by credit or debit card, the company that processes your payment will charge a fee.

2. Pay monthly if you can’t pay in full.  If you can’t pay all at once, apply for a payment plan. Most people and some small businesses can apply using the IRS Online Payment Agreement Application . You can also apply for a plan using Form 9465, Installment Agreement Request. 

3. Check out a direct debit pay plan.  A direct debit pay plan is the lower-cost hassle-free way to pay. The set-up fee is less than other plans – $52 instead of $120. With this type of plan, you pay each month automatically from your bank account. There are no reminder notices from IRS, no missed payments and no checks to write and mail.

4. Consider an Offer in Compromise.  An Offer in Compromise allows you to settle your tax debt with the IRS for less than the full amount. An OIC may be an option if you can't pay your tax in full. It may also apply if full payment will create a financial hardship. .

5. Pay by check or money order.  Make your check or money orderpayable to the U.S. Treasury. Be sure to include:

  • Your name, address and daytime phone number
  • Your Social Security number or employer ID number if business tax
  • The tax period and related tax form, such as “2013 Form 1040”

Mail it to the address listed on your notice. Do not send cash in the mail.

Tax Information for Students Who Take a Summer Job

May 20, 2014 : Many students take a job in the summer after school lets out. If it’s your first job it gives you a chance to learn about the working world. That includes taxes we pay to support the place where we live, our state and our nation. Here are eight things that students who take a summer job should know about taxes:

1. Don’t be surprised when your employer withholds taxes from your paychecks. That’s how you pay your taxes when you’re an employee. If you’re self-employed, you may have to pay estimated taxes directly to the IRS on certain dates during the year. This is how our pay-as-you-go tax system works.

2. As a new employee, you’ll need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use it to figure how much federal income tax to withhold from your pay. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form.

3. Keep in mind that all tip income is taxable. If you get tips, you must keep a daily log so you can report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your tax return.

4. Money you earn doing work for others is taxable. Some work you do may count as self-employment. This can include jobs like baby-sitting and lawn mowing. Keep good records of expenses related to your work. You may be able to deduct (subtract) those costs from your income on your tax return. A deduction may help lower your taxes.

5. If you’re in ROTC, your active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training isn’t taxable.

6. You may not earn enough from your summer job to owe income tax. But your employer usually must withhold Social Security and Medicare taxes from your pay. If you’re self-employed, you may have to pay them yourself. They count toward your coverage under the Social Security system.

7. If you’re a newspaper carrier or distributor, special rules apply. If you meet certain conditions, you’re considered self-employed. If you don’t meet those conditions and are under age 18, you are usually exempt from Social Security and Medicare taxes.

8. You may not earn enough money from your summer job to be required to file a tax return. Even if that’s true, you may still want to file. For example, if your employer withheld income tax from your pay, you’ll have to file a return to get your taxes refunded

Make Plans Now for Next Year’s Tax Return

May 1st 2014 : Most people stop thinking about taxes after they file their tax return. But there’s no better time to start tax planning than right now. And it’s never too early to set up a smart recordkeeping system. Here are some tips to help you start to plan for this year’s taxes:

1. Take action when life changes occur.  Some life events, like a change in marital status, the birth of a child or buying a home, can change the amount of taxes you owe. When such events occur during the year, you may need to change the amount of tax taken out of your pay. To do that, you must file a new Form W-4, Employee's Withholding Allowance Certificate, with your employer. If you receive advance payments of the premium tax credit it is important that you reportchanges in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace.

2. Keep records safe.  Put your 2013 tax return and supporting recordsin a safe place. That way if you ever need to refer to your return, you’ll know where to find it. For example, you may need a copy of your return if you apply for a home loan or financial aid. You can also use it as a guide when you do next year's tax return.

3. Stay organized.  Make sure your family puts tax records in the same place during the year. This will avoid a search for misplaced records come tax time next year.

4. Contact us for tax prepare ration.  If you want to hire a tax preparer to help you with tax planning, start your search now. Choose a tax preparer wisely. You are responsible for the accuracy of your tax return no matter who prepares it. Contact us to help you.

5. Think about itemizing.  If you usually claim a standard deduction on your tax return, you may be able to lower your taxes if you itemize deductions instead. A donation to charity could mean some tax savings. See the instructions for Schedule A, Itemized Deductions, for a list of deductions.

Things to Know about IRS Notices and Letters

April 22, 2014 : Each year, the IRS sends millions of notices and letters to taxpayers for a variety of reasons. Here are ten things to know in case one shows up in your mailbox.

1. Don’t panic. You often only need to respond to take care of a notice.

2. There are many reasons why the IRS may send a letter or notice. It typically is about a specific issue on your federal tax return or tax account. A notice may tell you about changes to your account or ask you for more information. It could also tell you that you must make a payment.

3. Each notice has specific instructions about what you need to do.

4. You may get a notice that states the IRS has made a change or correction to your tax return. If you do, review the information and compare it with your original return.

5. If you agree with the notice, you usually don’t need to reply unless it gives you other instructions or you need to make a payment.

6. If you do not agree with the notice, it’s important for you to respond. You should write a letter to explain why you disagree. Include any information and documents you want the IRS to consider. Mail your reply with the bottom tear-off portion of the notice. Send it to the address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

7. You shouldn’t have to call or visit an IRS office for most notices. If you do have questions, call the phone number in the upper right-hand corner of the notice. Have a copy of your tax return and the notice with you when you call. This will help the IRS answer your questions.

8. Keep copies of any notices you receive with your other tax records.

9. The IRS sends letters and notices by mail. We do not contact people by email or social media to ask for personal or financial information.

10. For more on this topic contact us.

Unpaid Debt Can Affect Your Refund

April 21, 2014 : If you owe a debt that’s past-due, it can reduce your federal tax refund. The Treasury Department’s Offset Program can use all or part of your refund to pay outstanding federal or state debt.

Here are five facts to know about tax refunds and ‘offsets.’

1. The Bureau of Fiscal Service runs the Treasury Offset Program.

2. Debts such as past due child support, student loan, state income tax or unemployment compensation may reduce your refund. BFS may use part or all of your tax refund to pay the debt.

3. You’ll receive a notice if BFS offsets your refund to pay your debt. The notice will list the original refund and offset amounts. It will also include the agency that received the offset payment and their contact information.

4. If you believe you don’t owe the debt or you want to dispute it, contact the agency that received the offset. You should not contact the IRS or BFS.

5. If you filed a joint tax return, you may be entitled to part or all of the refund offset. This rule applies if your spouse is solely responsible for the debt. To request your part of the refund, file Form 8379, Injured Spouse Allocation.

Options for Taxpayers Who Owe Taxes

If you owe taxes but can’t pay in full, the IRS has options for you. Most importantly, make sure you file your tax return and pay as much as you can. Then let the IRS help you choose your best option to pay. Here are some options to consider, even if you can’t pay the full amount right now:

• Borrow the money.  If you don’t have the money to pay all your taxes now, then you may want to get a loan from a bank or other source. The interest rate may be lower than the interest and penalties the IRS charges on late taxes. You also may be able to borrow against your assets or sell them to raise cash.

• Make an Online Payment Agreement.  If you are unable to pay in full, then consider paying over time. If you owe $50,000 or less, you can apply for an installment agreement. You may choose to make convenient monthly direct debit payments for up to 72 months. With this option, there are no checks to write or send. And you won’t miss a payment or pay late.  One can apply by filing Form 9465, Installment Agreement Request.

The IRS can also help if your tax debt is more than $50,000 or you need more than six years to pay. In these cases, the IRS may ask for further financial information. See Form 433-A or Form 433-F, Collection Information Statement.

• Use an Offer in Compromise as a last resort.  An Offer in Compromise is an agreement that allows you to settle your tax debt for less than the full amount. Generally, the IRS will accept an offer if it represents the most the agency can expect to collect within a reasonable time. The IRS looks at several factors to make a decision on your offer.

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