Expatriates Must Substantiate Travel Expenses in Writing to Get a tax Deduction

Many expats deduct travel and entertainment expenses for their businesses on their tax returns. You can only succeed in the event of an IRS audit (which are now becoming common with  respect to US expatriates), if you can prove the amount deducted and the relationship to your business with written records. The rules are simple:

Under Code Sec. 274, heightened substantiation requirements apply to: (1) any traveling expense, including meals and lodging away from home; (2) any item with respect to an activity in the nature of entertainment, amusement, or recreation; (3) any expense for gifts; or (4) the use of “listed property,” such as a passenger automobiles.

When you wish to deduct travel and entertainment expenses, you r must substantiate those deductions by adequate  written records or by sufficient evidence corroborating the taxpayer's own statement: (1) the amount of the expense; (2) the time and place of the travel, use of the property, etc.; (3) the business purpose of the expense, and (4) the business relationship to the taxpayer of the deduction . To do this, a taxpayer must maintain records and documentary evidence that in combination are sufficient to establish each element of an expenditure or use. (Reg. § 1.274-5T(c)(1) and Reg. § 1.274-5T(c)(2) 

We can help if you are audited or planning so you can deduct all of your business expenses. Let us do your expatriate tax return preparation. We have been doing expat returns for over 31 years.  WWW.TaxMeLess.com   or email ddnelson@gmail.com.

IRS, Australia and United Kingdom Engaged in Cooperative Effort to Combat Offshore Tax Evasion

The tax administrations from the United States, Australia and the United Kingdom announced today a plan to share tax information involving a multitude of trusts and companies holding assets on behalf of residents in jurisdictions throughout the world. This trend is fast spreading around the world and in a few years will be the rule in a large number of other countries.

The three nations have each acquired a substantial amount of data revealing extensive use of such entities organized in a number of jurisdictions including Singapore, the British Virgin Islands, Cayman Islands and the Cook Islands.  The data contains both the identities of the individual owners of these entities, as well as the advisors who assisted in establishing the entity structure.

The IRS, Australian Tax Office and HM Revenue & Customs have been working together to analyze this data and have uncovered information that may be relevant to tax administrations of other jurisdictions. Thus, they have developed a plan for sharing the data, as well as their preliminary analysis, if requested by those other tax administrations.

“This is part of a wider effort by the IRS and other tax administrations to pursue international tax evasion,” said IRS Acting Commissioner Steven T. Miller. "Our cooperative work with the United Kingdom and Australia reflects a bigger goal of leaving no safe haven for people trying to illegally evade taxes.”

There is nothing illegal about holding assets through offshore entities; however, such offshore arrangements are often used to avoid or evade tax liabilities on income represented by the principal or on the income generated by the underlying assets. In addition, advisors may be subject to civil penalties or criminal prosecution for promoting such arrangements as a means to avoid or evade tax liability or circumvent information reporting requirements.

It is expected that this multilateral cooperation and coordinated effort will allow many countries to efficiently process this information and effectively enforce any laws that may have been broken.  Increasingly, tax administrations are working together in this way to assist one another in identifying non-compliance with the tax laws.

U.S. taxpayers holding assets through offshore entities are encouraged to review their tax obligations with respect to these holdings, seek professional advice if necessary, and to participate in the IRS Offshore Voluntary Disclosure Program where appropriate.  Failure to do so may result in significant penalties and possibly criminal prosecution.

If you have a problem and need help, please email us at ddnelson@gmail.com .  We have helped hundreds of expat and domestic taxpayers come into compliance with the complex US tax reporting requirements.

IRS Announces 2013 Foreign Earned Income Exclusion Amount and Foreign Housing exclusion amounts

The maximum foreign earned income exclusion that can be claimed for 2013 is $97,600. Remember if both you and your spouse live abroad and both work each of you gets to claim this offset against your respective foreign wages and self employment income.

The IRS new guidelines for the housing exclusion  or deduction for 2013 have also been released. This includes  foreign rent, utilities and maintenance expense that can be claimed in addition to the foreign earned income exclusion  has also been released. There is a minium amount of housing expenses that are not deductible is $15,616.  The maximum amount varies by country ( the charts shows amount before deducting the $15,616). Tokyo in the IRS's  opinion is now the most expensive city in the world since it has the highest maximum. of $117,100.  To see the Maximum amount allowed for your home country CLICK HERE.

Learn more at www.TaxMeLess.com or email us at ddnelson@gmail.com 

Two Sentenced for Not Disclosing Foreign Bank Accounts to IRS

Read about the Sentences received  by two taxpayers who thought they could hide their assets and income abroad from the IRS.   One is 79 years old. ARTICLE IN USA TODAY

Your FBAR (TDF 90-22.1) forms must be received by the IRS by 6/30/13 reporting your foreign financial assets (including foreign pension plans in many instances).  Penalties for filing late or not at all can be $10,000 or more per year including possible criminal prosecution similar two the two guilty taxpayers mentioned in the article above.

Where Are the Potential Tax Cheats - IRS List Communities Where The Cheats are Located

The National Taxpayer Advocate used confidential data from 2009 tax returns to identify clusters of potential tax cheats in more than 350 communities. The Internal Revenue Service assigns a score to each tax return rating the likelihood agents will collect additional tax money from an audit. The higher your score, the more likely you are to get audited.  If you live in one of the communities listed when you go to the attached link, it may significantly

increase your chances of aduit!

The study focused on sole proprietorships, which account for two-thirds of all U.S. businesses. The median scores for sole proprietors in these cities, towns and neighborhoods were among the highest scores in the country:

LIST OF TOWNS AND STATES WHERE IRS STUDY SHOWS THE TAX CHEATS ARE LOCATED ( LOOK AT IT TO SEE IF YOUR TOWN IS INCLUDED)

President Obama and Vice President Biden’s 2012 Tax Returns

President Obama and Vice President Biden’s 2012 Tax Returns 

Today, the President released his 2012 federal income tax returns. He and the First Lady filed their income tax returns jointly and reported adjusted gross income of $608,611. The Obamas paid $112,214 in total tax. 

The President and First Lady also reported donating $150,034 – or about 24.6 percent of their adjusted gross income – to 33 different charities. The largest reported gift to charity was $103,871 to the Fisher House Foundation.

The President’s effective federal income tax rate is 18.4 percent. The President believes we must reform our tax system which is why he has proposed policies like the Buffett Rule that would ask the wealthiest Americans to pay their fair share while protecting families making under $250,000 from seeing their taxes go up. Under the President’s own tax proposals, including limitations on the value of tax preferences for high-income households, he would pay more in taxes while ensuring we cut taxes for the middle class and those trying to get in it.

The President and First Lady also released their Illinois income tax return and reported paying $29,450 in state income tax.

DOWNLOAD THE OBAMAS’ TAX RETURNS

The Vice President and Dr. Jill Biden also released their 2012 federal income tax returns, as well as state income tax returns for both Delaware and Virginia. The Bidens filed joint federal and combined Delaware income tax returns. Dr. Biden filed a separate non-resident tax return for the state of Virginia. Together, they reported adjusted gross income of $385,072. The Bidens paid $87,851 in total federal tax for 2012. They paid $13,531 in Delaware income tax and $3,593 in Virginia income tax. The Bidens contributed $7,190 to charity in 2012.

DOWNLOAD THE BIDENS’ TAX RETURNS

 

Tax Extensions, Penalties and Due Dates for US Expatriates

• Though expats get an automatic extension to file until June 15th, 2013, for their 2012 tax return, if any taxes are owed they must pay those in by April 15th, 2013 to avoid penalties and interest.
• Expats can get a further extension of time to file their 2012 return up to October 15th, 2013 by filing form 4868 prior to 6/15.
• Your FBAR (TDF 90-22.1) for required for reporting foreign financial accounts (including bank accounts, many foreign pension accounts, foreign stock brokerage accounts, and other various foreign financial accounts) must be received by the IRS by June 30th , 2013 for the 2012 year. It cannot be extended for any reason.  The penalty for late filing can be $10,000 or more.
• In most instances, if you need to amend an income tax  return to report unreported income or expenses it can be done up to three years from the date it was originally filed.
• The statute of limitations never runs out on any tax year until you file a tax return for that year. Best to always file a tax  return to cause this statute to run out.
• You have until 4/15 to open your IRA and fund it even though your tax return is extended for 2012. Remember you must have earned income in excess of the foreign earned income exclusion you take on Form 2555, in order to even be eligible to make a regular IRA or Roth IRA contribution.  You are also limited by your total income or if covered by a US corporate pension plan.
• Penalties:
• The late filing penalty is 5 percent per month of all unpaid taxes due with the return when finally filed up to a maximum of 25 percent.  If you file late, but have already paid in all taxes due, you will incur no penalty.
• The  Late payment of tax penalty is 1/2 percent per month and interest that is adjusted quarterly which has been running at 2 to 3 percent per annum.
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IRS Audits Drop, but Not on the Wealthy -Also more good news, Number of IRS Employees also drops

U.S. taxpayers were slightly less likely to face an IRS audit last year, according to an analysis issued Tuesday.

The IRS acknowledged that the number of audits of individuals dropped last year, but said examinations of taxpayers with incomes over $200,000 and over $1 million increased in fiscal 2012.

IRS audits dropped 5.3% in federal fiscal year 2012 to 1,481,966 audits of individual tax returns, based on IRS data analyzed by the Transactional Records Access Clearinghouse, a data research and distribution organization based at Syracuse University.

                                                              Read More about this in USA Today

Read About How They Are Hiding Assets Offshore and Avoiding Taxes

• Government officials and their families and associates in Azerbaijan, Russia, Canada, Pakistan, the Philippines, Thailand, Mongolia and other countries have embraced the use of covert companies and bank accounts.
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• The mega-rich use complex offshore structures to own mansions, yachts, art masterpieces and other assets, gaining tax advantages and anonymity not available to average people.

  

  Gold Coins Hidden Abroad

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• Many of the world’s top’s banks – including UBS, Clariden and Deutsche Bank – have aggressively worked to provide their customers with secrecy-cloaked companies in the British Virgin Islands and other offshore hideaways.
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• A well-paid industry of accountants, middlemen and other operatives has helped offshore patrons shroud their identities and business interests, providing shelter in many cases to money laundering or other misconduct.
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• Ponzi schemers and other large-scale fraudsters routinely use offshore havens to pull off their shell games and move their ill-gotten gains.

Read More about Secrecy for Sale on the International Consortium of  Investigative Journalists Website.

ROTH IRAs ARE GREAT FOR US EXPATRIATES THAT QUALIFY - SEE THE RULES BELOW.

• Roth IRAs (if you qualify based on your income) are ideal for US expatriates because due to the foreign earned income exclusion and credits for foreign income taxes paid, they often owe little or no tax on their US tax return. A regular IRA results in a deduction an expatriate may not need in that situation.
• You cannot make Roth  IRA contributions unless your earned income for the tax year exceeds the foreign earned income exclusion taken in that year.  If your earned income does does exceed your foreign earned income exclusion, you can make a Roth IRA contribution limited only by the maximum allowed and the amount your earned income exceeds your foreign earned income exclusion if less than the maximum contribution allowed.
• You also cannot make an Roth IRA contribution if your  modified adjusted gross income exceeds a certain amount.  That amount  (which is lower if you are covered by a US pension plan and is  much higher if you are not covered by a US pension plan) is set forth in Publication 590 (on pages 62 and 63 )  which can be downloaded below.  If your modified adjusted gross income exceeds this maximum you cannot contribute to an IRA.  To determine that phase out amount you must add back the  foreign earned income exclusion you took on your tax return and use formula set forth in Publication 590.
• If you over contribute to an Roth IRA (more than is allowed under the law), you will not be penalized if you withdraw that contribution on or before  the due date of your tax return.                                You can also in most situations  notify the IRA administration  company to have that contribution re-designated to your subsequent tax year.
• The maximum contribution is $5000 for 2012, and $6,000 if you are over 50.  You may also be able to make a contribution for your spouse in the same amounts subject to certain limits.
• You must make the contribution and open the Roth IRA no later than April 15th following the end of the calendar year.
• Roth IRA contributions may be withdrawn at any time without taxes or penalties; earnings may be withdrawn tax-free and penalty-free once you reach age 59½ and the account has been open for at least five years.
• Roth IRA Earnings may be subject to taxes and penalties if distributed before age 59½ and before the the contributions included in the distribution are at least five years old.

• There is a 6 percent penalty per year for over contributions
• We have noted one of the biggest mistakes made by expatriates is contributing money to regular IRAs (deductible) or Roth IRAs  when they are eligible under the rules above. The penalties for these over contribution can become extreme.
• Publication 590 contains all of the IRA complex rules. Download it here.
  
  

Let us know if you need help with your 2012 expatriate or international taxes. Visit our website at www.TaxMeLess.com . Email us at ddnelson@gmail.com