Taxpayers Abroad Must File by June 15; Extensions Available; New Filing Deadline Now Applies to Foreign Account Report

Taxpayers living and working abroad that they must file their 2016 federal income tax return by Thursday, June 15.

The special June 15 deadline is available to both U.S. citizens and resident aliens abroad, including those with dual citizenship. For those who can’t meet the June 15 deadline, tax-filing extensions are available and they can even be requested electronically. In addition, a new filing deadline now applies to anyone with a foreign bank or financial account required to file an annual report for these accounts, often referred to as an FBAR.

Here is a rundown of key points to keep in mind:

Most People Abroad Need to File An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income exclusion or the Foreign Tax credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return. A taxpayer qualifies for the special June 15 filing deadline if both their tax home and abode are outside the United States and Puerto Rico. Those serving in the military outside the U.S. and Puerto Rico also qualify for the extension to June 15.

Be sure to attach a statement indicating which of these two situations applies. Interest, currently at the rate of four percent per year, compounded daily, still applies to any tax payment received after the original April 18 deadline. For details, see the When To File and Pay section in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. Special Income Tax Return Reporting for 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. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. 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.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

Choose Free File

Automatic Extensions Available Taxpayers abroad who can’t meet the June 15 deadline can still get more time to file, but they need to ask for it. Their extension request must be filed by June 15. Automatic extensions give people until Oct. 16, 2017, to file; however, this does not extend the time to pay tax. An easy way to get the extra time to file is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an extension on Form 4868. To get the extension, taxpayers must estimate their tax liability on this form and pay any amount due. Another option for taxpayers is to pay electronically and get an extension of time to file. IRS will automatically process an extension when taxpayers select Form 4868 and they are making a full or partial federal tax payment using Direct Pay, the Electronic Federal Tax Payment System (EFTPS) or a debit or credit card. There is no need to file a separate Form 4868 when making an electronic payment and indicating it is for an extension. Electronic payment options are available at IRS.gov/payments. International taxpayers who do not have a U.S. bank account should refer to the Foreign Electronic Payments section on IRS.gov for more payment options and information. Combat Zone Taxpayers get More Time Without Having to Ask for it Members of the military and eligible support personnel serving in a combat zone have at least 180 days after they leave the combat zone to file their tax returns and pay any taxes due. This includes those serving in Iraq, Afghanistan and other combat zone localities. A complete list of designated combat zone localities can be found inPublication 3, Armed Forces’ Tax Guide, available on IRS.gov. Various circumstances affect the exact length of the extension available to any given taxpayer. Details, including examples illustrating how these extensions are calculated, can be found in the Extensions of Deadlines section in Publication 3.

New Deadline for Reporting Foreign Accounts

Starting this year, the deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is now the same as for a federal income tax return. This means that the 2016 FBAR, Form 114, was normally required to be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 18, 2017. But FinCEN is granting filers missing the original deadline an automatic extension until Oct. 16, 2017 to file the FBAR. Specific extension requests are not required. In the past, the FBAR deadline was June 30 and no extensions were available. In general, the FBAR filing requirement applies to anyone who had an interest in, or signature or other authority, over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2016. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-filing System website. Report in U.S. Dollars 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 Forms 114 and 8938 require the use of a Dec. 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. For more information on exchange rates, see Foreign Currency and Currency Exchange Rates.

More Information Available Any U.S. taxpayer here or abroad with tax questions can refer to the International Taxpayers landing page and use the online IRS Tax Map and the International Tax Topic Index to get answers. These online tools group IRS forms, publications and web pages by subject and provide users with a single entry point to find tax information. Taxpayers who are looking for return preparers abroad should visit the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

More information on the tax rules that apply to U.S. citizens and resident aliens living abroad can be found in, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, available on IRS.gov.

You Can File a Joint Return with Your Nonresident /Noncitizen Spouse- Here is how.

Nonresident Spouse Treated as a Resident

Election to File Joint Return

If, at the end of your tax year, you are married and one spouse is a U.S. citizen or a resident alien and the other is a nonresident alien, you can choose to treat the nonresident as a U.S. resident. This includes situations in which one of you is a nonresident alien at the beginning of the tax year, but a resident alien at the end of the year, and the other is a nonresident alien at the end of the year.

If you make this choice, the following rules apply:

You and your spouse are treated, for federal income tax purposes, as residents for all tax years that the choice is in effect.  You and your spouse are treated as residents for your entire tax year for the purpose of your federal individual income tax return, and for the purpose of withholding federal income tax from your wages. However, you may still be treated as a nonresident alien for the purpose of withholding Social Security and Medicare tax. Refer to Aliens Employed in the U.S. – Social Security TaxesYou must file a joint income tax return for the year you make the choice (but you and your spouse can file joint or separate returns in later years), and Each spouse must report his or her entire worldwide income on the joint income tax return.Generally, neither you nor your spouse can claim tax treaty benefits as a resident of a foreign country for a tax year for which the choice is in effect. However, the exception to the saving clause of a particular tax treaty might allow a resident alien to claim a tax treaty benefit on certain specified income.

Example:

Pat Smith has been a U.S. citizen for many years. She is married to Norman, a nonresident alien. Pat and Norman make the choice to treat Norman as a resident alien by attaching a statement to their joint return. Pat and Norman must report their worldwide income for the year they make the choice and for all later years unless, the choice is ended or suspended. Although Pat and Norman must file a joint return for the year they make the choice, as long as one spouse is a U.S. citizen or resident, they can file either joint or separate returns for later years.    

CAUTION! If you file a joint return under this provision, the special instructions and restrictions for dual-status taxpayers do not apply to you.

How to Make the Choice

Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following information:

A declaration that one spouse was a nonresident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year, and that you choose to be treated as U.S. residents for the entire tax yearThe name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)

Amended Return

You generally make this choice when you file your joint return. However, you can also make the choice by filing a joint amended return on Form 1040X, Amended U.S. Individual Income Tax Return within 3 years from the date you filed your original U.S. income tax return or 2 years from the date you paid your income tax for that year, whichever is later. If you make the choice with an amended return, you and your spouse must also amend any returns that you may have filed after the year for which you made the choice.

Suspending the Choice

The choice to be treated as a resident alien does not apply to any later tax year if neither of you is a US citizen or resident alien at any time during the later tax year.

Example:

Dick Brown was a resident alien on December 31, 2015, and married to Judy, a nonresident alien. They chose to treat Judy as a resident alien and filed a joint 2015 income tax return. On January 10, 2016, Dick became a nonresident alien. Judy had remained a nonresident alien. Since neither Dick nor Judy is a resident alien at any time during 2016, their choice to treat Judy as a resident alien is suspended for that year. For 2016, both are treated as nonresident aliens. If Dick becomes a resident alien again in 2017, their choice to treat Judy as a resident alien is no longer suspended. Since Dick is a resident alien, they can again choose to treat Judy as a resident alien and file a joint 2017 income tax return.

Ending the Choice

Once made, the choice to be treated as a resident applies to all later years unless suspended (as explained above) or ended in one of the ways shown below. If the choice is ended for any of the reasons listed below, neither spouse can make a choice in any later tax year.

Revocation by either spouseDeath of either spouseLegal SeparationInadequate records

For a more detailed explanation of these items, refer to the section titled Ending the Choice in Chapter 1 of Publication 519, U.S. Tax Guide for Aliens.

Note: If you do not choose to treat your nonresident spouse as a U.S. resident, you may be able to use head of household filing status. To use this status, you must pay more than half the cost of maintaining a household for certain dependents or relatives other than your nonresident alien spouse. For more information, refer to Head of Household and Publication 501, Exemptions, Standard Deduction, and Filing Information.

Special Situations

If you are a nonresident alien from American Samoa or Puerto Rico, you may be treated as a resident alien.

If you are a nonresident alien in the United States and a bona fide resident of American Samoa or Puerto Rico during the entire tax year, you are taxed, with certain exceptions, according to the rules for resident aliens of the United States. For more information, see chapter 5 of Publication 519, U.S. Tax Guide for Aliens.

If you are a nonresident alien from American Samoa or Puerto Rico who does not qualify as a bona fide resident of American Samoa or Puerto Rico for the entire tax year, you are taxed as a nonresident alien.

Resident aliens who formerly were bona fide residents of American Samoa or Puerto Rico are taxed according to the rules for resident aliens.

Social Security Number

If your spouse is a nonresident alien and you file a joint or separate return, your spouse must have either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). To get an SSN for your spouse, apply at a social security office or U.S. consulate. You must complete Form SS-5. You must also provide original or certified copies of documents to verify your spouse's age, identity, and citizenship. If your spouse is not eligible to get an SSN, he or she can file Form W-7 with the IRS to apply for an ITIN. Refer to Taxpayer Identification Numbers (TIN) for more information.

EXPATRIATES WHO OWE LOTS OF BACK TAXES CAN DO AN OFFER IN COMPROMISE WITH THE IRS

Taxpayers living abroad and in the US who have a tax debt they cannot pay may have heard that they can settle their tax debt for less than the full amount owed. It’s called an Offer in Compromise.

Before applying for an Offer in Compromise, here are some things to know:

• In general, the IRS cannot accept a settlement offer if the taxpayer can afford to pay what they owe. Taxpayers should first explore other payment options. A payment plan is one possibility. Visit IRS.gov for information on Payment Plans – Installment Agreements.
  
• A taxpayer must file all required tax returns first before the IRS can consider a settlement offer. When applying for a settlement offer, taxpayers may need to make an initial payment. The IRS will apply submitted payments to reduce taxes owed.
  
• The IRS has an Offer in Compromise Pre-Qualifier tool on IRS.gov. Taxpayers can find out if they meet the basic qualifying requirements. The tool also provides an estimate of an acceptable offer amount. The IRS makes a final decision on whether to accept the offer based on the submitted application.
  
• Taxpayers wishing to file for an Offer in Compromise should visit IRS website’s Offer in Compromise page for more information. There taxpayers can find step-by-step instructions as well as the required forms. Taxpayers can download forms anytime at www.irs.gov/forms or call 800-TAX-FORM (800-829-3676) and ask for Form 656-B, Offer in Compromise booklet.

Additional IRS Resources:

• Tax Topic 204- Offers in Compromise

IRS YouTube Videos:

• Offer in Compromise – English

If you need help or assistance we can help. Email us at ddnelson@gmail.com 

New Form 5472 Filing Requirements for Foreign-Owned U.S. Disregarded Entities (“FOUSDEs”) - International Tax Blog

Foreign owned US disregarded entities (LLCs) must now file form 5472 and report  on their assets and activities. Previously this was not a requirement and a a nonresident individually owned  US LLC with only income from outside the US did not in many situations have to filed anything with the IRS.  The penaltty for not filing this form is $10,000. Read more below.

New Form 5472 Filing Requirements for Foreign-Owned U.S. Disregarded Entities (“FOUSDEs”) - International Tax Blog

If you need help filing this form or information on it email us at ddnelson@gmail.com 

7 reasons the IRS might audit you

7 reasons the IRS might audit you

Cut IRS Audit Risk, Extend your April 18 IRS Tax Deadline To October 16

The IRS keeps secret what could cause your return to be audited (other than computer audits caused by omission of w2, 1099 or other items reported to the IRS separately from your return). However, after over 30 years of preparing tax returns and observing the results it does seem clear that extending your tax return using Form 4868 does appear to reduce your chance of audit.

 Several years ago an IRS agent confidentially to us that returns are audited in the order they are picked for audit (filing early or on time would cause your return to be picked first) and those filed later under extension are not as likely to be audited because the limited audit staff might not get around to auditing those returns filed undertension because they are busy with returns filed earlier in the year.

Read more in the Forbes article below.

Cut IRS Audit Risk, Extend April 18 Tax Deadline To October 16

If you have questions, are being audited or ? email us at ddnelson@gmail.com

Everything You Wanted to Know About Expat Foreign Earning Income Exclusion (IRC 911)

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If live and work abroad, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction.

If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted annually for inflation ($92,900 for 2011, $95,100 for 2012, $97,600 for 2013, $99,200 for 2014 and $100,800 for 2015). In addition, you can exclude or deduct certain foreign housing amounts.

You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer. Refer to Exclusion of Meals and Lodging in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, and Publication 15-B, Employer's Tax Guide to Fringe Benefits for more information

Foreign earned income elgible for exclusion does include wages (even if paid from US employer) or self employment income and does not include the following amounts:

• Pay received as a military or civilian employee of the U.S. Government or any of its agencies
• Pay for services conducted in international waters (not a foreign country)
• Pay in specific combat zones, as designated by an Executive Order from the President, that is excludable from income
• Payments received after the end of the tax year following the year in which the services that earned the income were performed
• The value of meals and lodging that are excluded from income because it was furnished for the convenience of the employer
• Pension or annuity payments, including social security benefits

Self-employment income: A qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income.  The excluded amount will reduce the individual’s regular income tax, but will not reduce the individual’s self-employment tax.  Also, the foreign housing deduction – instead of a foreign housing exclusion – may be claimed.  Unless the country you work in has an agreement with the US  Social Security Admnistration you will have the pay US self employment tax (social security plus medicare) on your net profit. The foreign earned income exclusion does not apply to the self employment tax.

Figuring the tax: Beginning with tax year 2006, a qualifying individual claiming the foreign earned income exclusion, the housing exclusion, or both, must figure the tax on the remaining non-excluded income using the tax rates that would have applied had the individual not claimed the exclusions.

• Requirements
• Can I Claim the Exclusion or Deduction?
• Tax Home In A Foreign Country
• Bona Fide Resident test
• Physical Presence Test
• Exceptions to Tests
• Figuring The Exclusion
• Choosing The Exclusion
• Revocation
• Which Form to File
• Foreign Housing Exclusion or Deduction
• Individual Retirement Arrangements
• Extension to Claim Foreign Earned Income Exclusion
• Application of Foreign Earned Income Exclusion and the Combat Zone Exclusion to Civilian Contractors Working in Combat Zones (PDF)

References/Related Topics

• Form 2555, Foreign Earned Income
• Form 2555-EZ, Foreign Earned Income Exclusion
• Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return
• Form 2350, Application for Extension of Time to File U.S. Income Tax Return
• Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
• U.S. Citizens and Resident Aliens Abroad

Need more information or wish to discuss your situation, or need help with the preparation of your expat tax return or catching up for past unfiled years, then email us at ddnelson@gmail.com or go to our website at www.taxmeless.com for more information. We have been assisting expats with their US taxes for over 30 years.

Expats Use IRS Form 673 to Reduce Taxes Withheld From Your Wages

Why let the IRS hold your money all year and not get it back until you file your tax return. If you are an expatriate and claim the foreign earned income exclusion (filing form 2555 or 2555 EZ), housing exclusion  you can file Form 673 with your US employer and reduce your tax withholding during the year to the actual amount you may owe at the end of the year or to nothing if you expect to owe the IRS no taxes at all.

You can download this form at https://www.irs.gov/pub/irs-pdf/f673.pd.  If you need help determining the tax you will owe (if any) as an expatriate living abroad, we can help with that determination. Contact us at ddnelson@gmail.com   

Expats that Owe the IRS a Lot of Taxes, Can Make a Deal and Reduce or Eliminate the Balance Due

If you owe the IRS a lot of past taxes, you can do an offer in compromise and reduce or eliminate the balance due. To proceed, you must have filed all of your tax returns and be current on this years required tax payments (if any).  The process can be complex and many firms advertise on TV to help you make a deal with the IRS, and do not deliver but do take your money. The IRS on the webpage set forth below has a question and answer procedure where you can determine if you qualify and how much you can reduce the taxes due.  IRS WEBSITE WITH OFFER IN COMPROMISE CALCULATOR

Remember if you owe the IRS more than $50,000 in back taxes they can have your passport taken away when you enter the US from abroad. You can only get it back after you resolve the problem with the IRS.

If you need help or professional assistance, email us at ddnelson@gmail.com.

Instructive Videos and Links for Expat and International US Taxpayers

Three new videos are now available on the IRS YouTube page, and several more of interest to taxpayers abroad will be released in coming weeks. Now available are:

• International Taxpayers--Filing Requirements. Learn about the requirements for filing an individual income tax return including income limits while living abroad.
• International Taxpayers--Foreign Earned Income Exclusion. Find out who is eligible, what income qualifies and how to claim the exclusion.
• International Taxpayers--Individual Taxpayer Identification Number (ITIN). This video helps non-U.S. citizens determine if they need an IRS-issued tax reporting number, known as an ITIN, and how to apply for one.

Upcoming videos will deal with the foreign tax credit, filing status for a U.S. taxpayer married to a foreign spouse and an introduction to the IRS web site for international taxpayers.

The IRS has also added two new international tax topics to Tax Trails, the agency’s interactive online tool that helps taxpayers get answers to their general tax questions.

The new topics are:

• Am I Required to File a U.S. Individual Income Tax Return (for U.S. Citizens/Resident Aliens Living Abroad and Nonresident Aliens)?
• Filing Status of a U.S. Citizen or Resident Alien Married to a Nonresident Alien.

The International Taxpayers page on IRS.gov is packed with information designed to help taxpayers living abroad, resident aliens, nonresident aliens, residents of U.S. territories and foreign students. Among other things, the web site features a directory of overseas tax preparers.

This is all very complex and often confusing. If you need professional help email us at ddnelson@gmail.com for professional CPA and tax attorney assistance.  We have been doing US International taxes and US expatriate and Nonresident taxes for over 30 years.  Visit our website at www.TaxMeLess.com 

RED FLAGS THAT WILL CAUSE AN IRS AUDIT OF EXPAT OR INTERNATIONAL US TAX RETURNS

Many things may cause your US tax return to be audited. As an expat, in addition to the items list in the article below some items that will cause an audit are:

a. Ownership of a foreign mutual fund and failure to file the special forms required for foreign passive investment companies.
b. Ownership of foreign partnerships and foreign corporations in which you own the majority interest.
c Large. Inheritances or gifts received from nonresident donors when you fail to file form 3520 to report those gifts or inheritances.
d. Unusually large income from outside the US with unusually large deductions offsetting most of that income so little tax is paid.  This might not cause an audit if your paid substantial foreign income taxes abroad and you are claiming a foreign tax credit to offsett your US tax on that income.
e. Other audit triggers from the Huffington Post.


Remember they can audit your return up to three years after it is filed and up to six years if you omitt 25% of your income.  If you want to avoid IRS audits or need representation when the IRS does audit your expat or international tax return email us at : ddnelson@gmail.com

US Expatriates and US Green Card Holders ...New Foreign Tax Credit Guidance from IRS

New Foreign tax credit instructions issued by IRS for US Expatriates and  US permanent residents READ MORE HERE

Surrendering US Citizenship or Greencard? Here is How it Works

Read the following article from Forbs Magazine.  We have advised or represent dozens of US Citizens on the tax aspects of surrender, prepared the forms, etc. We have also assist long term US permanent residents with the tax matters involved with the surrender their green cards We can help you.  Email us at ddnelson@gmail.com 

FORBES MAGAZINE ARTICLE ON EXIT TAX ON SURRENDERING CITIZENS

CAPITAL GAINS AND LOSSES FOR EXPATRIATES AND US NONRESIDENTS, ETC.

When a person sells a capital asset, the sale normally results in a capital gain or loss. A capital asset includes inherited property or property someone owns for personal use or as an investment.

Here are 10 facts that taxpayers should know about capital gains and losses:

1. Capital Assets. Capital assets include property such as a home or a car. It also includes investment property, like stocks and bonds.
2. Gains and Losses. A capital gain or loss is the difference between the basis and the amount the seller gets when they sell an asset. The basis is usually what the seller paid for the asset. For details about inherited property, see IRS Publication 544, IRS Publication 550 and IRS Publication 551.
3. Net Investment Income Tax. Taxpayers must include all capital gains in their income. Capital gains may be subject to the Net Investment Income Tax if the taxpayer’s income is above certain amounts. The rate of this tax is 3.8 percent. For details, visit IRS.gov.
4. Deductible Losses. Taxpayers can deduct capital losses on the sale of investment property but can’t deduct losses on the sale of property they hold for their personal use.
5. Limit on Losses. If a taxpayer’s capital losses are more than their capital gains, they can deduct the difference as a loss on their tax return. This loss is limited to $3,000 per year, or $1,500 if married and filing a separate return.
6. Carryover Losses. If a taxpayer’s total net capital loss is more than the limit they can deduct, they can carry it over to next year’s tax return.
7. Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term.
8. Net Capital Gain.  If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain.
9. Tax Rate. The tax rate on a net capital gain usually depends on the taxpayer’s income. The maximum tax rate on a net capital gain is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gain.
10. Forms to File. Taxpayers often will need to file Form 8949, Sales and Other Dispositions of Capital Assets. Taxpayers also need to file Schedule D, Capital Gains and Losses, with their tax return.

For more on this topic, see Schedule D instructions. Taxpayers can visit IRS.gov to get tax forms and documents anytime.

When you need professional assistance email us at ddnelson@gmail.com or visit our website at www.taxmeless.com 

Look out for these crooked Tax Scams

Here is a recap of this year's "Dirty Dozen" scams that are currently being used against honest taxpayers:

Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill or refund. Don’t click on one claiming to be from the IRS. Be wary of emails and websites that may be nothing more than scams to steal personal information. (IR-2017-15)

Phone Scams: Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation and license revocation, among other things. (IR-2017-19)

Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. Though the agency is making progress on this front, taxpayers still need to be extremely cautious and do everything they can to avoid being victimized. (IR-2017-22)

Return Preparer Fraud: Be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. There are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. (IR-2017-23)

Fake Charities: Be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Be wary of charities with names similar to familiar or nationally known organizations. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. (IR-2017-25)

Inflated Refund Claims: Taxpayers should be on the lookout for anyone promising inflated refunds. Be wary of anyone who asks taxpayers to sign a blank return, promises a big refund before looking at their records or charges fees based on a percentage of the refund. Fraudsters use flyers, advertisements, phony storefronts and word of mouth via community groups where trust is high to find victims. (IR-2017-26)

Excessive Claims for Business Credits: Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers. The credit is usually limited to off-highway business use, including use in farming. Taxpayers should also avoid misuse of the research credit. Improper claims often involve failures to participate in or substantiate qualified research activities and/or satisfy the requirements related to qualified research expenses. (IR-2017-27)

Falsely Padding Deductions on Returns: Taxpayers should avoid the temptation to falsely inflate deductions or expenses on their returns to pay less than what they owe or potentially receive larger refunds. Think twice before overstating deductions such as charitable contributions and business expenses or improperly claiming credits such as the Earned Income Tax Credit or Child Tax Credit. (IR-2017-28)

Falsifying Income to Claim Credits: Don’t invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. Taxpayers are sometimes talked into doing this by con artists. Taxpayers should file the most accurate return possible because they are legally responsible for what is on their return. This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties. In some cases, they may even face criminal prosecution. (IR-2017-29)

Abusive Tax Shelters: Don’t use abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2017-31)

Frivolous Tax Arguments: Don’t use frivolous tax arguments to avoid paying tax. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims even though they have been repeatedly thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000. (IR-2017-33)

Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities. The IRS offers the Offshore Voluntary Disclosure Program  to enable people to catch up on their filing and tax obligations. (IR-2017-35)

Need help or opinion. Email us at ddnelson@gmail.com

IF YOU OWN RENTAL PROPERTY IN ANYWHERE IN MEXICO YOU ARE REQUIRED TO PAY THESE MEXICAN TAXES

Mexico Income Tax

Mexico Value Added Taxes – IVA (16%)   if the unit is furnished*
*IVA is paid by tenant but collected and declared by the owner.

Many nonresidents of Mexico have never paid any taxes on their rental income from properties owned in Mexico.  This is a violation of Mexican tax law.  The Mexico tax code clearly states that these Mexican taxes must be paid on rental income from apartments, houses, and commercial property. Failure to do so can result (and has resulted ) in substantial penalties and legal problems with the Mexican tax authorities.

It is now easy for you to pay these taxes and avoid problems if even if you do not have a Mexican tax identification number.   The Settlement Company® has developed a simple and easy procedure  which will allow you to be tax compliant on your rental income. You do not have to suffer the consequences of failing to pay. Email or phone us now to learn more and to get started.

The Good News:  The IVA you pay in Mexico is deductible on your US tax return and the income taxes you pay in Mexico can offset your US  taxes on the same income dollar for dollar.  You will not be double taxed.

Visit this website for more information and to learn  the rules at: www.RentalTaxMexico.com

Email us with questions at ddnelson@gmail.com

IRS NEW AUDIT TARGEST FOR 2017 INCLUDE INTERNATIONAL AND EXPATRIATE TAX ISSUES

The 6 IRS International audit campaigns or areas the division plans to target for 2017 include:

• declines and withdrawals from the offshore voluntary disclosure program;
• related-party transactions;
• repatriation of income from overseas locations;
• foreign companies doing business in the United States that are not filing appropriately;
• transfer pricing associated with inbound distribution of goods from related parties outside the United States;
• losses claimed in excess of basis in S corporations.

If you need assistance with these items to make certain you are handling it correctly or wish to correct prior to audit, please ask us.  If you are audited we can represent you against the IRS.  Email us at ddnelson@gmail.com  or skype us at; dondnelson.

DO NOT Purchase Foreign Mutual Funds - Or You May Have to File Form 8621 Which Could Take you 48 hours

If you live abroad, or in the USA, do not make the mistake of purchasing a foreign mutual fund.  Why?  Such You must file as separate form for each foreign mutual fund each year.  If the aggregate value of your PFIC stocks are less than $25,000 if filing as single for $50,000 if fiing jointly you are excepted from filing.  There are other exceptions but they are complex and you should read 8621 Instructions to see if your particular situation is excepted.

The IRS estimates it could take 48 hours to analyze the data, analyze the law and then complete the form for just one foreign mutual fund investment (if not excepted from filing). You can  only guess the amount professional tax return preparers will charge to complete these forms.

What is solution to avoid this horrendous tax return problem?  Only purchase foreign stocks directly owned in your own name since these are treated the same as US stocks and the purchase, sale and reporting would be the same as for US stocks. An alternative is to purchase US mutual funds that invest in foreign stocks (these are not considered PFICs) and again treated the same on your tax return as a US stock.

Social Security - When Retiring Abroad In What Countries Can You Continue to Receive Benefits?

If you are retiring abroad and want to collect social security, sometimes there are restrictions and limits imposed by the social security administration. READ MORE ABOUT THE RULES HERE.