Tips for U.S. Taxpayers with Foreign Income

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Did you live or work abroad or receive income from foreign sources in 2013? If you are a U.S. citizen or resident, you must report income from all sources within and outside of the U.S. The rules for filing income tax returns are generally the same whether you’re living in the U.S. or abroad. Here are seven tips from the IRS that U.S. taxpayers with foreign income should know:

1. Report Worldwide Income.  By law, U.S. citizens and resident aliens must report their worldwide income. This includes income from foreign trusts, and foreign bank and securities accounts.

2. File Required Tax Forms.  You may need to file Schedule B, Interest and Ordinary Dividends, with your U.S. tax return. You may also need to file Form 8938, Statement of Specified Foreign Financial Assets. In some cases, you may need to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts. See IRS.gov for more information.

3. Consider the Automatic Extension.  If you’re living abroad and can’t file your return by the April 15 deadline, you may qualify for an automatic two-month filing extension. You’ll then have until June 16, 2014 to file your U.S. income tax return. This extension also applies to those serving in the military outside the U.S. You’ll need to attach a statement to your return to explain why you qualify for the extension.

4. Review the Foreign Earned Income Exclusion.  If you live and work abroad, you may be able to claim the foreign earned income exclusion. If you qualify, you won’t pay tax on up to $97,600 of your wages and other foreign earned income in 2013. See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, for more details.

5. Don’t Overlook Credits and Deductions.  You may be able to take atax credit or a deduction for income taxes you paid to a foreign country. These benefits can reduce the amount of taxes you have to pay if both countries tax the same income.

6. Use IRS Free File.  Everyone can prepare and e-file their federal tax return for free by using IRS Free File. If you make $58,000 or less, you can use brand-name tax software. If you earn more, you can use Free File Fillable Forms, an electronic version of IRS paper forms. Free File is available only through the IRS.gov website. Some Free File software products and fillable forms also support foreign addresses for those who live abroad.

7. Get Tax Help Outside the U.S.  The IRS has offices in Frankfurt, London, Paris and Beijing. IRS staff at these offices can help you with tax filing issues and answer your tax questions. Visit IRS.gov for more information.

 

April 1 Deadline To Take Required Retirement Plan Distributions

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WASHINGTON — The Internal Revenue Service today reminded taxpayers who turned 70½ during 2013 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Tuesday, April 1, 2014.

The April 1 deadline applies to owners of traditional IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457 plans.

The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, for example, a taxpayer who turned 70½ in 2013 and receives the first required payment on April 1, 2014 must still receive the second RMD by Dec. 31, 2014. 

Affected taxpayers who turned 70½ during 2013 must figure the RMD for the first year using their life expectancy on Dec. 31, 2013 and their account balance on Dec. 31, 2012. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the Appendices to Publication 590.

Most taxpayers use Table III (Uniform Lifetime) to figure their RMD. For a taxpayer who turned 71 in 2013, for example, the first required distribution would be based on a life expectancy of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer’s only beneficiary.

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulations inPublication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

The IRS encourages taxpayers to begin planning now for any distributions required during 2014. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount in Box 12b on Form 5498. For a 2014 RMD, this amount would be on the 2013 Form 5498 that is normally issued in January 2014.

More information on RMDs, including answers to frequently asked questions, can be found on IRS.gov.

Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply

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WASHINGTON – The Internal Revenue Service today issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as Bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency.

In some environments, virtual currency operates like “real” currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance — but it does not have legal tender status in any jurisdiction.

The notice provides that virtual currency is treated as property for U.S. federal tax purposes.  General tax principles that apply to property transactions apply to transactions using virtual currency.  Among other things, this means that:

  • • 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.
  • • 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.
  • • 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.
  • • A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

Further details, including a set of 16 questions and answers, are in Notice 2014-21, posted today on IRS.gov.

13 Sample Illegal and Legal Interview Questions.

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1.Age

Inappropriate:

  • How old are you?
  • What year were you born?
  • When did you graduate from high school?

Appropriate:

  • Before hiring, asking if you are over the minimum age for the hours or working conditions.
  • After hiring, verifying same with a birth certificate or other ID, and asking age on insurance forms.

 

2.Citizenship

Inappropriate:

  • Are you a citizen of the US?
  • Are your parents or spouse citizens of the US?
  • On what dates did you , your parents or your spouse acquire US Citizenship?
  • Are you, your parents or your spouse naturalized or native-born US citizens?

Appropriate:

  • If you are not a US citizen, do you have the legal right to remain permanently in the US?
  • What is your visa status (if no to the previous question).
  • Are you able to provide proof of employment eligibility upon hire?

 

3.Criminal Record

Inappropriate:

  • Have you ever been arrested?
  • Have you ever spent a night in jail?

Appropriate:

  • Have you ever been convicted of a crime?

 

4.Disability

Inappropriate:

  • Do you have any disabilities?
  • What’s your medical history?
  • How does your condition affect your abilities?

Appropriate:

  • Can you perform the specific duties of the job.
  • After hiring, ask about medical history on insurance forms.

 

5.Family

Inappropriate:

  • Questions concerning spouse, or spouse’s employment, salary, arrangements, or dependents.
  • What kind of child care arrangements have you made?
  • How will your spouse feel about the amount of time you will be traveling if you get this job?

Appropriate:

  • Can you work overtime?
  • Is there any reason you can’t start at 7:30am?
  • Whether an applicant can meet specified work schedules or has activities or commitments that may prevent him or her from meeting attendance requirements.

 

6.Marital Status

Inappropriate:

  • Are you married, divorced, separated, engaged, widowed, etc?
  • Is this your maiden or married name?
  • What is the name of your relative/spouse/children?
  • Do you live with your parents?

Appropriate:

  • After hiring, marital status on tax and insurance forms.

 

7.Military

Inappropriate:

  • What type or condition is your military discharge?
  • Can you supply your discharge papers?
  • What is your experience in other than US armed forces?

Appropriate:

  • Describe the relevant work experience as it relates to this position that you acquired from a US armed forces.

 

8.National Origin

Inappropriate:

  • What is your nationality?
  • Where were you born?
  • Where are your parents from?
  • What’s your heritage?
  • What is your mother tongue?
  • How did you acquire the ability to speak, read or write a foreign language?
  • How did you acquire familiarity with a foreign country?
  • What language is spoken in your home?

Appropriate:

  • Verifying legal U.S. residence or work visa status.
  • What languages do you speak, read or write fluently?

 

9.Parental Status

Inappropriate:

  • How many kids do you have?
  • Do you plan to have children?
  • How old are your children?
  • Are you pregnant?

Appropriate:

  • After hiring, asking for dependent information on tax and insurance forms.

 

10.Race or Skin Color

Inappropriate:

  • What race are you?
  • Are you a member of a minority group?
  • Appropriate:
  • None

 

11.Religion or Creed

Inappropriate:

  • What is your religious affiliation?
  • Which religious holidays will you be taking off from work?
  • Do you attend church regularly?

Appropriate:

  • Can you work on Saturdays?

 

12.Residence

Inappropriate:

  • Do you own or rent your home?
  • Do you live in town?
  • With whom do you live?

Appropriate:

  • Inquiries about the address to facilitate contact with the applicant.
  • Will you be able to start work at 8:00am?

 

13.Sex

Inappropriate:

  • Do you wish to be addressed as Mr., Mrs., Miss, or Ms.?
  • What are your plans to have children in the future?

Appropriate:

None

 

Source:University of Chicago 

Top 10 Tax Time Tips from the IRS

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Top 10 Tax Time Tips from the IRS

The tax filing season is almost over. You can make tax time easier if you don’t wait until the last minute. Here are 10 important tax time tips:

1. Gather your records.  Collect all tax records you need to file your taxes. This includes receipts, canceled checks and records that support income, deductions or tax credits that you claim on your tax return. Store them in a safe place.

2. Report all your income.  You will need to report your income from all of your Forms W-2, Wage and Tax Statements, and Form 1099 income statements when you file your tax return.

3. Get answers.  Use the Interactive Tax Assistant tool on the IRS website to get answers to many of your questions about tax credits, deductions and many more topics.

4. Use Free File.  You can prepare and e-file a tax return for free using IRS Free File, available exclusively on IRS.gov. If your income was $58,000 or less, you qualify to use free tax software. If your income was higher, or if you’re comfortable doing your own tax return, you can use Free File Fillable Forms, the electronic version of IRS paper forms. Visit IRS.gov/freefile to check your options.

5. Try IRS e-file.  Electronic filing is the best way to file a tax return. It’s accurate, safe and easy. Last year, more than 122 million taxpayers used IRS e-file. If you owe taxes, you have the option to file early and pay by April 15.

6. Weigh your filing options.  You have several options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free, face-to-face help at a Volunteer Income Tax Assistance or Tax Counseling for the Elderly site. Weigh your options and choose the one that works best for you.

7. Use direct deposit.  Combining e-file with direct deposit is the fastest and safest way to get your tax refund.

8. Visit the IRS website 24/7.  IRS.gov is a great place to get everything you need to file your tax return. Visit ‘1040 Central’ for online tools, filing tips, answers to frequently asked questions and IRS forms and publications. Get them all anytime, day or night.

9. Check out number 17.  IRS Publication 17, Your Federal Income Tax, is a complete tax resource. It contains helpful information such as whether you need to file a tax return and how to choose your filing status.

10. Review your return.  Mistakes slow down the receipt of your tax refund. Be sure to check all Social Security numbers and math calculations on your return, as these are the most common errors. If you run into a problem, remember the IRS is here to help. Start with IRS.gov.


IRS Issues Publication on Business Expenses

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WASHINGTON — With the tax deadline getting closer, the IRS has received more than half of all the returns it expects to receive during 2014, the agency announced today. The IRS received more than 75 million individual tax returns as of March 14 and projects that it will receive about 149 million individual income tax returns by the end of the year.

Millions of individual tax filers have business income either as sole proprietors or as sub contractors. Many individual filers also have unreimbursed business expenses. The IRS recently issued Publication 535, Business Expenses, which provides valuable information for these filers. The publication contains useful hints for Tax Year 2013, for which many taxpayers are still completing returns and for Tax Year 2014, for which taxpayers are tracking expenses and making financial decisions.

For Tax Year 2013

Optional safe harbor method to determine the business use of a home deduction, also known as the simplified option for claiming the home office deduction. Beginning in 2013, taxpayers can use the optional safe harbor methodto determine the deduction for the business use of a home.

Standard mileage rate. Beginning in 2013, the standard mileage rate for the cost of operating a car, van, pickup, or panel truck for each mile of business use is 56.5 cents per mile.

Additional Medicare Tax. Beginning in 2013, a 0.9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than:

  • $125,000 if married filing separately,
  • $250,000 if married filing jointly, or
  • $200,000 if single, head of household, or qualifying widow(er) with dependent child.

Medicare wages and self-employment income are combined to determine if a taxpayer’s income exceeds the threshold. RRTA compensation should be separately compared to the threshold. For more information, visit www.irs.gov and enter the following words in the search box: Additional Medicare Tax.

For Tax Year 2014

Standard mileage rate. Beginning in 2014, the standard mileage rate for the cost of operating a car, van, pickup, or panel truck for each mile of business use is 56 cents per mile.

Tax Obligations for Expats and US citizens with offshore holdings.

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There is one basic obligation for US citizens and residents: file their income tax return by April 15. If you have a financial interest in a country other than the US or you have an authorized signature on those financial interests, then two more reporting obligations come to the picture: FBAR and FATCA. The latter is attached and filed with your tax return up to April 15 and the former is filed online separately up to June 30 with no extension.

 Services offered for Expats, US Citizens and Residents with offshore and/or foreign financial holdings.

 If you are an Expat or US Citizen or Resident with offshore and/or foreign financial holdings,you are subject to two additional reporting requirements: FATCA and FBAR.
 
FATCA. if you hold assets over $50,000 in a bank account or any other kind of financial assets outside the US during the year, you need to report it. This reporting goes with your regular income tax return deadline April 15. IRS imposes a penalty of $10,000 if you fail reporting and $10,000 for each month thereafter up to a maximum of $60,000. Criminal charges may also apply.
  
FBAR. if you hold assets over $10,000 in a bank account or any other kind of financial assets outside the US during the year, you need to report it. This reporting requirement is in addition to FATCA. FBAR reporting goes separately of your income tax return and its deadline is June 30. It is an online filing only. IRS imposes a penalty of $10,000 if you unwillfully omit this reporting. If wilfully, you will be subject to a penalty of $100,000 or 50% of your holdings in foreign accounts, whatever is greater. Criminal charges may also apply.
  
Services offered for US citizens and residents with unreported offshore holdings.
 
If you find yourself in non-compliance with these regulations for previous years, there are some remedies that you can benefit from.
 
IRS streamlined Program. If you want to come up-to-date with your foreign holdings over $10,000 because you were unaware of the FBAR rules, this is the program for you: file 3 years back income tax returns and file 6 years back FBAR reports, pay taxes, pay interest but NO PENALTIES AND AVOID CRIMINAL PROSECUTION

 Offshore Voluntary Disclosure Program (OVDP). If you have willfully hidden funds in foreign accounts, then this is the best way to come clean. File 8 years back of income tax returns, 8 years back of FBAR reports, pay taxes, pay interest and pay penalties for up to 27.5% AND AVOID CRIMINAL PROSECUTION.

 
IRS Quiet Disclosures. If you do not want to pay the penalties involved for previous years of noncompliance with FBAR, you can opt for disclosing your offshore financial holdings in the year you file your income tax report without fixing your filings for previous years. But this is very risky and the IRS discouraged it. Keep in mind that you are not protected from criminal prosecution and involves a high-risk approach.
 
US Expatriation. If you are willing to relinquish your citizenship or resident alien status, this could help you to avoid US taxation in general, including FATCA and FBAR, only for FUTURE YEARS. You are still subject for the years you were not in compliance with FBAR and will need to pay your dues of taxes, interest and penalties but in some circumstances and depending on your financial position this could be a valid option. 
 
This discussion is not intended as legal advice and cannot be relied upon for any purpose without the services of a qualified professional.