Expatriate Tax Questions
How The ACA Affects Your Taxes
Why Choose Powers
Public Realtions & Marketing
US Economic Survival
IRS Denying FEIE to U.S. expats
Foreign National US Tax Guide
Tax Court Limits IRA Rolloves
Taxpayer Scam and Identity Theft
Tax Changes and Highlights for 2016 and
The Most Overlooked Tax
1) WE HAVE MOVED our office so anyone planning to stop by
need know we are now located in the front second floor office of 854 Route 6 in
2) WE ARE LEAVING FOR VACATION ON APRIL 18, 2017 AND
RETURNING APRIL 24 and will return calls and emails starting April 25. So please
have your tax information to us early this year by March 31.
3) Earned Income Tax and Additional Child Care Credit
Refunds will be delayed again this year as the IRS increases security review of
these returns, however they will not be issuing partial refunds but rather
holding back the entire tax refund. Although electronic filing begins January
23, the earliest that the IRS will begin issuing refunds that include these
refundable credits will be the week of February 27 and this four week lag will
continue throughout tax filing season. SO IF YOU HAVE THESE REFUNDABLE TAX
CREDITS BE SURE TO FILE EARLY and preparation fees are due at the time the
returns are filed, not when the refund is issued. Also if you are entitled to
these credits you need to provide evidence that you are entitled to the
dependency deduction and the child's address.
4) New clients need to show proof of identity and social
security numbers before we are permitted to prepare the return and photo ID.
These past few years the IRS has released $ Billions of fraudulent tax refunds
as identity thieves have hacked into medical records and personnel records. What
the IRS should have done 15 years ago was to require personal identity numbers
to be assigned to each persons social security number.
Here are some other key tax facts that you need to know for 2016:
- Foreign Bank Account Reports (FBARs)..The
due date is now pushed up to APRIL 15
after decades of FBARs (Old forms 90-22.1 and now Form 114) being due by
June 30 and the $10,000 late penalty will now be effective on April 15. I
have been in this business long enough to know that there was a very good
reason for June 30 being the due date and that was to enable Americans with
foreign bank accounts sufficient time to obtain the required information
from their foreign financial institutions. However it is what it is so now
along with all your other tax information, you need to be sure to provide us
with your FBAR information so it can be prepared, reviewed and approved and
filed by April 15.
- HSA (Health Savings Accounts): If you
maintain a HSA be certain to provide us with all the details including the
date it was opened, the opening and closing balances for the year,
distributions from the HSA and how the money was used. NOTE that as
contributions to the HSA are deductible, although money withdrawn to pay
medical bills is not taxable (nor are the reimbursed expenses deductible),
money withdrawn for purposes other than qualified medical expenses is
subject to tax.
- IRA (Individual Retirement Account): Annual
contributions to IRA plans are only deductible if made by April 15 of
the year following the tax year. Annual limits for 2016 and 2017 are $5,500
for those under age 50 and $6,500 if age 50 or older. Often people overlook
the increased contribution limit if they are age 50 by the end of the year.
- 2016 vs. 2017 Tax Penalty Amounts and Exemptions For
Not Having Health Insurance Under ObamaCare: Although there is much
discussion regarding relealing and replacing the Affordable Health Care Act
(ObamaCare) the law is still in effect for 2016 and unless repealed, for
2017. Presently the penalties for not having health insurance are
substantially greater than last year and the GREATER of:
||$695 or 2.5% of income
||$2,085 or 2.5% of income
||$695 or 2.5% of income
||$2,085 or 2.5% of income
||$325 or 2% of income
||$975 or 2% of income
||$95 or 1% of income
||$285 or 1% of income
Remember that there are government subsidies available to
offset the cost of insurance premiums depending on family modified adjusted
gross income (MaGI). When coverage is purchased through a government
exchange an "advanced" subsidy can be applied to reduce the monthly premium
cost. However as a reconciliation is required when the tax return is
prepared, any excess subsidy must be repaid when the tax return is filed.
This is why we suggest that if possible, the full premium should be paid
each month and if you are entitled to a subsidy it will be issued to you as
part of your tax return refund or used to reduce any tax that you otherwise
- NEW and IMPORTANT! American
opportunity credit may be disallowed. If you take the American opportunity
credit even though you aren’t eligible, you may not be able to take this
credit for up to 10 years. In previous years some taxpayers have been taking
credits for tuition and qualified education costs that they were not
entitled to. One example is that on the Form 1098-T Tuition Statement issued
by educational institutions, Box 1 was often left blank leaving it up to the
parent or student to calculate the actual tuition paid (including that paid
with student loans). However Box 2 showed the amount billed sometimes BEFORE
student grants and subsidies or the amount billed was not timely paid OR pay
have included charges for the following semester that fell in the next
calendar year. The IRS is now looking into these returns and should they
find that there is an error in the amount claimed as a refundable credit
they will DENY ALL FUTURE CLAIMS FOR COLLEGE TUITION CREDIT FOR 10 YEARS,
even for other students.
- Be sure to examine Form 1098-T to determine that
the amount in Box 1 is correct and that you advise us separately of your
NET out of pocket for qualified tuition and study related materials and
lab fees. ROOM AND BOARD ARE NOT QUALIFIED EXPENSES.
- CHECK THE AMOUNTS CLAIMED AS PAID EXPENSES ON ALL
RETURNS FILED FOR THE PRIOR THREE TAX YEARS TO SEE IF AN AMENDED RETURN
NEEDS TO BE FILED as if a credit was claimed incorrectly it is
better to repay the amount than have the IRS disallow all future
- Remember that not all parents with students are
entitled to tuition credits if their income exceeded the threshold
amount for the year.
Electronic Filing PIN. Electronic
Filing PIN, an IRS-generated PIN used to verify your
signature on your self-prepared, electronic tax return, is
no longer available. To validate your signature, you must
use your prior-year adjusted gross income or prior-year
self-select PIN. See
identification number (ITIN) renewal. If
you were assigned an ITIN before January 1, 2013, or if you
have an ITIN that you haven't included on a tax return in
the last 3 consecutive years, you may need to renew it. If
this is the case please advise us immediately. Please note
that finally the IRS has now stated that they will be
issuing or renewing ITINs by applying even though not
accompanied by a tax return. In prior years this has created
problems for foreign persons who were required to have ITINs
in order that their distributable income from U.S.
investments and business activities could be reported to the
IRS along with any withholding tax that was due, which
created significant problems.
Standard mileage rates. The
2016 rate for business use of your vehicle is 54 cents a
mile. The 2016 rate for use of your vehicle to get medical
care or to move is 19 cents a mile.
Adoption credit. The
adoption credit and the exclusion for employer-provided
adoption benefits have both increased to $13,460 per
eligible child in 2016. The amount begins to phase out if
you have modified adjusted gross income (MAGI) in excess of
$201,920 and is completely phased out if your MAGI is
$241,920 or more.
Foreign source income. If
you are a U.S. citizen with income from sources outside the United States
(foreign income), you must report all such income on your tax return unless
it is exempt by law or a tax treaty. This is true whether you live inside or
outside the United States and whether or not you receive a Form W-2 or Form
1099 from the foreign payer. This applies to earned income (such as wages
and tips) as well as unearned income (such as interest, dividends, capital
gains, pensions, rents, and royalties).
If you live outside the United States, you may be able to
exclude part or all of your foreign earned income.
VERY IMPORTANT THIS YEAR ..Most income
excluded by virtue of a tax treaty between the U.S. and other countries, unless
specifically exempted, needs to be reported on an information return Form 8833.
Because there has been virtually no guidance from the IRS, with the exception of
Canadian retirement savings pensions, as to what needs to be reported and what
does not, we have seen situations where preparers of U.S. tax returns, sometimes
Big 4 CPA firms, have not been disclosing certain treaty exclusion transactions.
Our sources have informed us that the IRS intends to begin focusing their
attention toward American participants in foreign based retirement savings plans
that are not plans maintained by foreign employers. Should you have any
activities that involve a foreign pension or retirement savings plan be sure to
let us know.
MANY OF THE FILING DUE DATES HAVE CHANGED.
BELOW IS A LIST HOWEVER THE TAX RETURN DUE DATES THAT WILL AFFECT MANY OF OUR
CLIENTS WILL BE THAT CALENDAR YEAR PARTNERSHIPS ARE NOW DUE BY
MARCH 15 (INSTEAD OF APRIL 15). ALSO ALL FORMS W-2 AND FORMS
1099 MUST BE FILED WITH SOCIAL SECURITY OR THE IRS NO LATER THAN JANUARY 31!
New Due Dates: Effective
for 2017 Filing Season
First, as a result of preliminary
feedback from government officials that the individual tax return due date
of April 15 and extension until Oct. 15 were "cut in stone," tax
practitioners did not propose that individual tax return due dates change,
and they did not change.
Second, the new federal due dates apply to 2016 tax returns and the 2017
filing season and beyond. However, it should be noted that the new rules
apply to tax years beginning after Dec. 31, 2015, so they will apply to
short-year returns beginning in 2016, before the general 2017 filing season.
For example, if during its tax year beginning in 2016, a partnership has a
technical termination, or a corporation goes out of existence or changes its
tax year sometime in 2016, the new due dates would apply to the entity's
Below is a list of the new federal due dates generally applicable for
2016 tax returns (2017 filing season) and beyond.2
March 15 (Extensions Until Sept. 15)
- Form 1065, U.S. Return of Partnership Income; and
- Form 1120S, U.S. Income Tax Return for an S Corporation.
Note: This is the due date for the tax return and also for
the Schedules K-1 that the entity must provide to its owners.
April 15 (Extensions Until Oct. 15, Unless Noted Below)
- Form 1040, U.S. Individual Income Tax Return;
- Form 1041, U.S. Income Tax Return for Estates and Trusts
(extensions until Sept. 30);
- Form 1120, U.S. Corporation Income Tax Return (extensions
until Sept. 15 until 2026, see note below); and
- FinCEN Form 114, Report of Foreign Bank and Financial Accounts
(FBAR) (any late filing penalty for a first-time filer may be waived).
Note: Calendar-year C corporations can get extensions until
Sept. 15 until tax years beginning after 2025, when the extended due date
will be Oct. 15. June 30 fiscal-year-end C corporations (returns due Sept.
15) can get extensions to April 15 until tax years beginning after 2025;
after 2025, June 30 fiscal-year-end C corporations will have an Oct. 15 due
date and can get extensions until April 15.
May 15 (Extensions Until Nov. 15)
- Form 990, Return of Organization Exempt From Income Tax
July 31 (Extensions Until Oct. 15)
- See more at: http://www.thetaxadviser.com/issues/2016/aug/nex-season-due-dates-have-new-logical-order.html#sthash.JiJDseCN.dpuf
“Revocation or Denial of Passport in Case of Certain Tax Delinquencies,”
Signed by President Obama in December,2015, buried within the new Highway
Transportation Act, is the provision that will be incorporated into the Internal
Revenue Code titled the "Revocation or Denial of Passport in Case of Certain Tax
Delinquencies", basically granting the IRS the power to demand that the State
Department either revoke or deny renewal of a U.S. passport for any U.S. person
whom the IRS computer claims as owing $50,000 or more in taxes (including
interest and penalties). Although Constitutional Due Process states that a U.S.
citizen has the right to face their accuser and is innocent until proven guilty,
when it comes to owing taxes, the burden of proof is on the taxpayer that the
assessment by the tax authorities are incorrect in their claim. It is yet to be
determined if this authority will extend to corporate officers for taxes
assessed against businesses. In any event, although it may contribute to closing
the tax gap and collecting some $400,000 in revenue owed the U.S. government
over the next 10 years, this is minor compared to the exhaustive damage that can
result from an IRS computer or collection enforcement agent issuing such a
directive to the State Department when the assessment is incorrect or in the
process of being resolved (which is often the case). Despite tax legislation
enacted in 1998 which equalized the playing field and expanded the rights of
taxpayers, the 21st Century has seen the introduction of a computer based
revenue system which does not always work as it should, for one reason being a
substantial reduction in trained and knowledgeable IRS personnel. As a tax
professional I have seen more situations within the past ten years where letters
sent to U.S. persons while working or residing outside the U.S. receive their
mail after the 30 day response deadline pertaining to a notice, or assessments
are automatically generated in error whereby the taxpayer is unable to reach
someone at the IRS by telephone and letters mailed to the IRS are either lost or
the IRS is unable to respond to them in a timely manner. In situations such as
this, given the new expansive power of the IRS (and I assume eventually the
states cooperating with the IRS in a mutual tax collection effort) innocent
taxpayers will find themselves unable to leave the U.S. on business or other
reasons and Americans will be unable to return to the U.S., both creating undue
hardship on American citizens. For more information read
as well as an interesting article from 1998 pertaining to the Taxpayer's Rights
legislation enacted by President Clinton in 1998
Tax Changes and Highlights for 2015 and
The Most Overlooked Tax
Here are some key tax facts that you need to know for 2015:
If you are a high-income household making
more than $413,200 (single) or $464,850 (married filing joint), your tax bracket
will be up to 39.6% from 35%. The new high tax bracket will also be
subject to a capital gains rate of 20% plus the 3.8%
surcharge from the Affordable Care Act in addition to their limited itemized
deductions and personal exemptions. See a summary as prepared by the House
Ways and Means Committee
The standard mileage rates for the use of a car (also
vans, pickups or panel trucks) will be 57.5 cents per mile for business
miles driven, 23 cents per mile driven for medical or moving purposes (down
from 24 cents) and
14 cents per mile driven in service of charitable organizations.
· Beginning 2014
persons under 65 years of age will now see itemized
medical expenses limited to that amount that exceeds 10% of adjusted gross
income. Previously the threshold was 7.5%. Until 2017 this change does not
affect persons 65 years of age or older.·
Tax rate on net capital gain and qualified dividends and
other investment income (Net Investment Income or “NII”.. The maximum tax
rate on net capital gain and qualified dividends has increased to 20% for
some taxpayers for single taxpayers earning over $413,200 and couples
earning over $464,850 plus an additional 3.8%
investment income tax applied to singles earning over $200k and couples
earning over $250k. The purpose of this new tax is to help fund Medicare.
Sales of principal residences still enjoy a $250,000 ($500,000 married
filing jointly) exemption however gains in excess of these amounts will be
subject to the rate increases described above. This is possibly
one of the most confusing tax change for high income taxpayers (the new 3.8
percent Medicare surtax on Net Investment income). Again, persons with an
income of greater than $250,000 if Married Filing Jointly, $200,000 if Head
of Household, Single or a Qualifying Widow and $125,000 if Married Filing
Separately will owe the new tax on Net Investment Income (NII). NII includes
investment income such as interest, dividends, capital gains, passive
income, and rental or royalty income. The tax is assessed on the smaller of
the total NII or excess income greater than the income thresholds.·
Same-sex marriages. If you
have a same-sex spouse whom you legally married in a state (or foreign
country) that recognizes same-sex marriage, you and your spouse generally
must use the married filing jointly or married filing separately filing
status on your 2013 return, even if you and your spouse now live in a state
(or foreign country) that does not recognize same-sex marriage.
On the positive side the PATH Act of
2015 made permanent many of the temporary tax benefit extenders of prior
years including the $500,000 expense deduction on the purchase of business
assets. However in the spirit of making this a true small business
provision, only annual purchases of $2 Million are applicable.
· Foreign source income. If you are a U.S. citizen with
income from sources outside the United States (foreign income), you must report
all such income on your tax return unless it is exempt by U.S. law. This is true
whether you live inside or outside the United States and whether or not you
receive a Form W-2 or Form 1099 from the foreign payer. This applies to earned
income (such as wages and tips) as well as unearned income (such as interest,
dividends, capital gains, pensions, rents and royalties).
· Foreign financial assets. If you had foreign financial
assets in 2013, you may have to file Form 8938 with your return. If we prepare
your tax return we need to know the details for each foreign financial asset
including the names and addresses of persons owing the FFIs, their social
security numbers or ITINs, the name and address of the foreign financial
institution, each account number, year-end balance or value. See details in
other articles in this site.
Medical and Dental Costs
medical and dental costs must exceed 10% of your AGI (7.5% if you've reached age
65) before they become tax deductible. That prevents many taxpayers from taking
the medical deduction, but you may have a better chance of passing the threshold
with a little research and some careful planning.
fail to consider the full range of expenses that are deductible. In addition to
health insurance premiums that you (not those paid by your employer) pay, you
generally can deduct the cost of dental work, eye care (including reading
glasses as well as prescription), nontraditional medicine and medically related
transportation. While prescription medications are deductible, most
nonprescription items are not.
for elective surgeries and procedures can also help you take advantage of this
deduction. By bunching your medical costs into a single year and perhaps pushing
a payment into the next year or pulling it into the current one, you can
increase your chances of exceeding the 10% threshold in alternate years.
The Most Overlooked Tax
Out-of Pocket Charitable Deductions
It's hard to overlook the big charitable gifts you made during the
year, by check or payroll deduction (check your December pay stub). But little
things add up, too, and you can write off out-of-pocket costs incurred while
doing work for a charity. For example, ingredients for casseroles you prepare
for a nonprofit organization's soup kitchen and stamps you buy for a school's
fund-raising mailing count as charitable contributions. Keep your receipts. If
your contribution totals more than $250, you'll also need an acknowledgement
from the charity documenting the support you provided. If you drove your car for
charity in 2015, remember to deduct 14 cents per mile, plus parking and tolls
If you were looking for a position in the same line of work as your
current or most recent job, you can deduct job-hunting costs as miscellaneous
expenses if you itemize. Qualifying expenses can be written off even if you
didn't land a new job. But suck expenses can be deducted only to the extent that
your total miscellaneous expenses exceed 2% of your adjusted gross income.
Moving Expenses to Take Your First Job
Although job-hunting expenses are not deductible when looking for
your first job, moving expenses to get to that job are. And you get this
write-off even if you don't itemize. To qualify for the deduction, your first
job must be at least 50 miles away from your old home. If you qualify, you can
deduct the cost of getting yourself and your household goods to the new area. If
you drove your own car on a 2015 move, deduct 23 cents a mile, plus what you
paid for parking and tolls.
State Tax Paid Last Spring
Did you owe tax when you filed your 2014 state income tax return in
the spring of 2015? Then remember to include that amount in your state-tax
deduction on your 2015 federal return, along with state income taxes withheld
from your paychecks or paid via quarterly estimated payments during the year.
Note that some states will not allow this deduction.
A College Credit for Those Long Out of College
College credits aren't just for youngsters, nor are they limited to
just the first four years of college. The Lifetime Learning credit can be
claimed for any number of years and can be used to offset the cost of higher
education for yourself or your spouse....not just for your children. The credit
is worth up to $2,000 a year, based on 20% of up to $10,000 you spend for
post-high-school courses that lead to new or improved job skills. Classes you
take even in retirement at a vocational school or community college can count.
If you brushed up on skills in 2015, this credit can help pay the bills. The
right to claim this tax-saver phases out as income rises from $54,000 to $64,000
on an individual return and from $108,000 to $128,000 for couples filing
Credits for Energy-Saving Home Improvements
There's no longer a tax credit to encourage homeowners to save
energy by, for example, installing storm windows and insulation. But the law
still offers a powerful incentive for those who install qualified residential
alternative energy equipment, such as solar hot water heaters, geothermal heat
pumps and wind turbines. Your credit can be 30% of the total cost (including
labor) of such systems installed through 2016.
Don't miss out on this tax break if you use a flex plan for child
care costs. You can still claim the dependent care credit to the extent your
expenses are greater than the amount you pay through your flexible spending
account. The maximum dependent care costs funded through an FSA are $5,000. But
the credit applies to as much as $6,000 of eligible expenses for filers with two
or more children under the age of 13. In that case, you'd rim the first $5,000
of dependent care costs through the FSA, and the next $1,000 would be eligible
for the credit. For most filers, taking the dependent care credit will save an
extra $200 in taxes. Of course, no credit is allowed for any child care costs
that are paid via the flex plan.
Keep in mind if your school-age child is going to a summer day
camp, the cost qualifies for the dependent care credit. So, if you send your
child to any special day camps this summer, such as those for sports, computers,
math or theater, don't forget this break. Ditto for camps to help with reading
or study skills. But the cost of summer school or tutoring programs aren't
eligible for the credit...they are treated as education, not care. The other
rules for the credit aren't affected: The child must be under 13, and expenses
must be incurred so the parents can work.
Tax Breaks for Education
Let's look at
two tax breaks for education, now that kids are back in college. Withdrawals
from 529 plans used for postsecondary education are tax-free. Eligible expenses
include the cost of tuition, books, supplies and any mandatory fees. Room and
board also qualify if the student is enrolled in the school at least half-time.
Opportunity Credit is worth up to $2,500 per student for each of the first four
years of college. It's based on 100% of the first $2,000 spent on qualifying
college expenses and 25% of the next $2,000. This break starts to break for
individuals with adjusted gross incomes above $80,000...$160,000 for marrieds...and
ends when AGI tops $90,000 and $180,000, respectively. The student must be in
school at least half-time, and eligible expenses include tuition, books and
required fees. But the cost of room and board doesn't qualify for this credit.
these two education tax breaks can be somewhat tricky. That's because you can't
use the same college expenses for both benefits. For example, if you take $8,000
from a 529 plan for college tuition, you can't also use that $8,000 as a
qualifying education expense in figuring your American Opportunity Credit.
Tips For Deducting More at Tax Time
One of the
biggest secrets to getting the most from tax deductions and credits is plain old
planning and recordkeeping.
Your home loans,
sales receipts, medical bills, and charitable contributions are among the
nuggets that you may be able to turn into a sizable chunk of tax-deduction gold
next April 15. You need to know the value and collect it throughout the year,
not rush at the last minute to find lost receipts and try to remember the cash
donations you made 15 months ago.
come in two basic types: "above the line" and "below the line." The "line" is
your adjusted gross income or AGI. Above-the-line deductions, such as
contributions to a traditional IRA or health savings account, are subtracted
from your income, thus lowering your AGI.
A lower AGI, in
turn, can increase the value of your below-the-line deductions, which often come
with limits. For example, you can deduct your medical and dental expenses only
in the amount that exceeds 10% of your AGI (7.5% if you're 65 or older) and if
you itemize deductions on your federal tax return. (You can't claim these
expenses if you take the standard deduction.) So the lower your AGI, the quicker
you hit 10% and can start deducting.
For 2015, the
standard deduction is $6,300 for taxpayers who are single or married filing
separately, $12,600 for married filing jointly, and $9,250 for "head of
household" (single taxpayers with dependents). This amount increases for those
age 65 or older.
Contributions to Charity
charitable contributions can be one of the biggest missed opportunities for most
taxpayers. Many taxpayers may not miss the deduction entirely, but may be
reporting a lower amount than they actually gave because they didn't keep good
records. From front-door solicitations by the neighborhood kids to contribution
requests at the supermarket or pet store checkout, opportunities to give
abound-and add up.
As with medical
expenses, getting in the habit of keeping receipts in a dedicated folder can
help you capture the full value of your charitable contributions.
forget about donations of clothing and household items. The rules have gotten
stricter for the condition of the donated items and the documentation you need
to support your deduction. Be sure to know what they are before you donate. You
can't take a photo of a donated designer dress after it's gone.
for charitable activities is also deductible at 14 cents a mile in 2015. But,
again, good records are a must, both for documenting your trips and for simply
remembering that you took them.
contributions of $250 or more of any kind, you're required to obtain a written
acknowledgement from the charity, and most nonprofits are good about sending
them without your having to ask. Still, it's important to keep a running tally
of your contributions throughout the year.
Filing state tax returns will be
easier for many same-sex married couples, now that the Supreme Court has said
that they have a constitutional right to marry and that all states must
recognize same-sex marriages performed elsewhere. Those who marry and live in
one of the states that didn't recognize their marriage prior to the high court's
ruling should now be able to use the same filing status as other married couples
in that state and needn't file separate state returns. Ditto for estate and gift
tax planning in those states that impose the tax.
will benefit from the uniformity in state marriage laws. They'll no longer need
separate systems to manage benefits and calculate state taxes for same-sex
married workers that differ from those set up for opposite-sex marrieds. For
instance, in states that didn't recognize same-sex marriage, workers were taxed
on the value of health benefits for same-sex spouses but not for opposite-sex