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December 30, 2016

Don’t Miss Filing Deadlines Related to Foreign Income and Assets or These Great Informational Videos


All U.S. citizens and residents (green card holders) must report worldwide income on their federal income tax return. If you lived outside the U.S. on the regular due date of your tax return, the extended filing deadline for your 2016 tax return is Monday, June 15, 2017.  Similarly, the deadline to report interests in certain foreign financial accounts is the same as your tax return (with some exceptions). Here are some important tips to know if these reporting rules apply to you:
• FATCA Requirements.  FATCA refers to the Foreign Account Tax Compliance Act. In general, federal law requires U.S. citizens and resident aliens to report any worldwide income. You must report the existence of and income from foreign accounts. This includes foreign trusts, banks and securities accounts. In most cases you must report the country where each account is located. To do this file Schedule B, Interest and Ordinary Dividends with your tax return.
You may also have to file Form 8938, Statement of Special Foreign Financial Assets with your tax return. Use the form to report specified foreign financial assets if the aggregate value of those assets exceeds certain thresholds. See the form instructions for details.
• FBAR Requirements.  FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts. If you must file this form you file it with the Financial Crimes Enforcement Network, or FinCEN. FinCEN is a bureau of the Treasury Department. You generally must file the form if you had an interest in foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014. This also applies if you had signature or other authority over those accounts. You must file Form 114 electronically. It is available online through the BSA E-Filing System website. The FBAR filing requirement is not part of filing a tax return. The deadline to file Form 114 is June 30.
• View the IRS Webinar.  You can get help and learn about FBAR rules by watching the IRS webinar on this topic. The title is “Reporting of Foreign Financial Accounts on the Electronic FBAR.” The presentation is one hour long. You can find it by entering “FBAR” in the search box of the IRS Video Portal home page. Topics include:
o FBAR legal authorities
o FBAR mandatory e-filing overview
o Using FinCEN Form 114; and Form 114a
o FBAR filing requirements
o FBAR filing exceptions
o Special filing rules
o Recordkeeping
o Administrative guidance
You can access IRS forms, videos and tools on IRS.gov at any time.
Additional IRS resources:
IRS YouTube Videos – International Taxpayers:
Our firm has specialized in expat, nonresident and international tax returns for over 30 years. Need help or further explanation, or your return prepared, contact us.  Email us at ddnelson@gmail.com or visit our website at www.TaxMeLess.com .  

December 21, 2016

2016 Year End Tax Planning Letter from Kauffman Nelson LLP, Certified Public Accountants

As 2016 comes to an end, it is a good time to think of planning moves that will help lower your tax bill for this year and into the future.
Consider the following items when looking at your personal tax planning:
  1. Make use of tax deferral strategies using retirement plans - Maximize 401(k) contributions, IRA contributions, or (if applicable) plans you have set up for your small business.  There are special rules on making IRA contributions for expats so ask us if you are unfamiliar with those rules.
  2. Reduce your taxable income in 2016 – maximize itemize deductions (such as charitable contributions), consider purchases for your business which could be a Section 179 deduction in 2016, etc.
  3. Consider making tax payments before April 18, 2017 if you plan to extend your filing.  This can avoid penalty and interest charges.
Big Change for FBAR (foreign bank account) reporting
For those of you subject to foreign bank account reporting (i.e. those who have non-US bank accounts in excess of $10,000 in aggregate during 2016), the initial deadline for Form 114 has changed from June 30 to April 15 (June 15 for expats).  Extensions are now allowed for this form similar to tax return extensions but FinCen has announced the October 15 extension for the FBAR will be automatic.  More information here:  http://www.thetaxadviser.com/news/2016/dec/fbar-automatic-extension-201615731.html
Other Deadline Changes
Starting in 2016 certain tax return due dates have changed for calendar year businesses:
  1. Partnerships have changed from April 15 to March 15
  2. C Corporation due dates changed from March 15 to April 15
New Administration – possible changes for future years
The new administration has proposed collapsing the current seven tax brackets (currently there is a top rate of 39.6%) to three brackets:


Tax rate
Married filing joint
Single
12%
Less than $75,000
Less than $37,500
25%
$75,000–$225,000
$37,500–$112,500
33%
More than $225,000
More than $112,500


Further proposed changes to basic individual taxation are:
  • Personal and dependent exemptions would be eliminated
  • The head of household filing status would be eliminated; and
  • The standard deduction would be increased to $30,000 to joint filers, and $15,000 for single filers (this may significantly reduce the number of taxpayers who itemized deductions).
Stay tuned for more information when actual legislation comes into effect.


2016 tax rules – a quick review
Income tax rates — Range from 10% to 35% unless taxable income exceeds $415,050 for singles or $466,950 for married couples. Rate on income above those amounts is 39.6%.
2016 foreign earned income exclusion – up to $101,300 of 2016 foreign earned income
2016 foreign housing exclusion – A certain amount of your housing costs (over a base amount of $16,208) can be excluded if you qualify for this exclusion.  Generally, you can consider up to $30,390 in rent and utility costs.  There are certain “high cost” locations where you can potentially deduct a higher amount.  Those can be found near the end of this link:  https://www.irs.gov/pub/irs-pdf/i2555.pdf
Gift tax — Annual tax-free gifts allowed with $14,000 per gift limit. Gifts to non-resident alien spouse of up to $148,000 are not considered a reportable gift.
Breaks now permanent — 1) optional deduction for state and local sales tax in lieu of state and local income tax; 2) the $250 deduction for classroom supplies paid by teachers; and 3) IRA-to-charity transfer of up to $100,000 by taxpayers 70½ or older.
Itemized deductions — Limited for single taxpayers with adjusted gross income (AGI) above $259,400 and married couples with AGI above $311,300.
Alternative minimum tax — Exemption amount for 2016: $53,900 for singles; $83,800 for married filing jointly.
Business expensing — Up to $500,000 for new and used equipment and 50% bonus depreciation for new assets.
Personal exemptions — Phased out for singles with AGI above $259,400 and marrieds with AGI above $311,300.
Capital gains & dividends — Long-term gains taxed at 15% for most taxpayers. Zero percent for those in 10% and 15% ordinary income brackets; 20% for those in 39.6% ordinary income bracket.
Medicare tax on earned income — Medicare surtax of 0.9% imposed on wages and self-employment income exceeding $200,000 for singles and $250,000 for married couples.
Net investment income tax — A 3.8% tax imposed on unearned income for singles with modified AGI exceeding $200,000 and for couples with modified AGI exceeding $250,000.
We look forward to working with you on your 2016 taxes. DOWNLOAD YOUR 2016 EXPATRIATE TAX RETURN QUESTIONNAIRE HERE (Get started early)

2016 FBAR (form 114) Gets an Automatic Extension of Time to File for 2016

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced that, to implement the new due date for FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), of April 15 (April 18 for 2017), it will automatically grant all taxpayers filing the form a six-month extension every year to Oct. 15 (which will be Oct. 16, 2017, because Oct. 15 is a Sunday). FinCEN explained that this six-month extension will be automatic each year and that taxpayers do not have to request extensions.
Section 2006(b)(11) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, changed the due date of FBARs to April 15 to coincide with the due date for individual income tax returns. Before the change, the form was due on June 30, a date that did not coincide with any other individual income tax return deadline, and no extensions were allowed.
The Bank Secrecy Act, P.L. 91-508, and its regulations require FBAR reporting from “[e]ach United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country” (31 C.F.R. §1010.350(a)), if the aggregate maximum values in that person’s foreign accounts exceed $10,000 at any time during the calendar year (31 C.F.R. §1010.306(c)).
- See more at: http://www.thetaxadviser.com/news/2016/dec/fbar-automatic-extension-201615731.html#sthash.4xTfczcV.dpuf

December 2, 2016

Expats and Nonresidents - Amend your Return If Original is not Correct- Easy to Avoid IRS Problems

If there are items of income or expenses, or specialized offshore reporting forms, missing from your tax return it is best to file an amended tax return. If you do not amend to correct errors (in your favor or not) and the IRS discovers the problem first, you risk severe penalties, interest and possible criminal prosecution. The amendment process is simple as described below.

1. When to amend.  You should amend your tax return if you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return.

2. When NOT to amend.  In some cases, you don’t need to amend your tax return. The IRS usually corrects math errors when processing your original return. If you didn’t include a required form or schedule, the IRS will send you a notice via U.S. mail about the missing item.

3. Form 1040X.  Use Form 1040X to amend a federal income tax return that you filed before. Make sure you check the box at the top of the form that shows which year you are amending. Since you can’t e-file an amended return, you’ll need to file your Form 1040X on paper and mail it to the IRS.
Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.

4. More than one year.  If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS. See "Where to File" in the instructions for Form 1040X for the address you should use.

5. Other forms or schedules.  If your changes have to do with other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. If you don’t, this will cause a delay in processing.

6. Amending to claim an additional refund.  If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 16 weeks to process. You will receive any additional refund you are owed.

7. Amending to pay additional tax.  If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.

8. When to file.  To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.


If you need assistance amending your return to make corrections, add forms 8865, 5471, 8621, or other foreign entity and asset reporting forms contact us at ddnelson@gmail.com or phone US 949-480-1235.