US Tax & FBAR Help From a Seattle Small Business CPA

The Seattle small business CPA firm of Alisa Na wishes to remind you of the importance of filing taxes while abroad.  This applies to both income tax and Reports of Foreign Bank and Financial Accounts (FBARs), for any US citizen or dual citizen.  Failure to file or pay is heavily penalized, although penalties may not be assessed if you do not owe any US taxes, or had what the IRS considers reasonable cause for failing to file or pay.  If you are currently abroad and have not yet filed, then we urge you to consult your Seattle small business CPA as soon as possible to ensure full compliance.

US Income Taxes
All citizens whose gross income in a given year was not below applicable exemptions and deductions, are obligated to file federal income taxes for that year.

Penalties for Not Filing or Paying Income Taxes
Unfiled taxes are penalized at the rate of 5% of the amount due per month late, up to 25% altogether.  The penalty for unpaid taxes is 0.5% per month, also subject to a 25% limit.

FBARs
These document disclose foreign account balances to the IRS.  Like income taxes, delinquent FBARs must be filed up to six years back.

FBAR Penalties
Deliberately refusing to file an FBAR can be extremely costly: the greater of $100,000 or 50% of the foreign account’s balance, to be precise.  If you should accidentally fail to file, the IRS may assess a penalty of up to $10,000.

New Foreign Financial Assets Reporting Rules
Beginning in 2012, certain types of foreign assets, aggregately valued at over $50,000, must be reported to the IRS.

Many tax complexities accompany living or investing abroad, such as US income taxation, FBARs, and financial asset reporting.  The IRS has published further information on the above topics, and the firm of Alisa Na, CPA, looks forward to serving as your trusted tax assistant and advocate to the IRS.

Start Planning Now for Next Year’s Tax Return

The firm of Alisa Na, a trusted personal and small business CPA in Seattle, urges you to start preparing for your 2012 tax returns today. We suggest the following in order to make next year’s process as easy and efficient as possible:

  • Reduce your withholding to enjoy more savings now, rather than in another year
  • Keep this year’s documents secure and easily accessible
  • Begin and/or maintain an orderly filing system
  • Make sure your employer withholds the proper amounts from each paycheck
  • Find a Seattle small business CPA or personal tax expert sooner, rather than later
  • Learn which items are and are not valid tax deductions, and start planning accordingly
  • Ask your CPA how best to take advantage of tuition payment deductions
  • Use the IRS’s resources to keep informed of tax law changes

Read the latest IRS newsletter for more detailed information on how to save time and money with your next tax return, and we encourage you to contact Alisa Na, CPA to learn more.

Lapse of Air Transportation Excise Taxes after July 22, 2011: Frequently Asked Questions

July 27, 2011

Q. How are federal passenger air transportation excise taxes (commonly referred to as “ticket taxes”) collected?

A. The tax generally is imposed on the “amount paid” for commercial air transportation. When a person purchases a ticket for air transportation, the airline collects the federal passenger air transportation excise taxes from the purchaser and then later pays the collected amount over to the IRS. The amount of tax collected from the purchaser is shown on the purchaser’s receipt as a separate line item, often labeled “federal taxes.”

Q. Which federal air transportation excise taxes expired at the end of July 22, 2011?

A. Until they are reinstated by Congress, the following federal air transportation excise taxes do not apply to transportation beginning on or after July 23, 2011:

The 7.5 percent tax on the base ticket price;
The domestic segment tax of $3.70 per person per segment (a single takeoff and single landing);
The international travel facilities tax of $16.30 per person for flights that begin or end in the U.S., or $8.20 per person for a flight that begins or ends in Alaska or Hawaii; and
The 6.25 percent tax on the amount paid for transporting property by air.
Caution: Other taxes and fees, such as state taxes, security fees, Passenger Facility Charges (PFCs) and excess baggage fees, are not affected by the expiration of the taxes listed above.

Q. If I purchase my ticket after the tax expired and I travel before it is reinstated, can the airline collect the tax?

A. No, airlines are not authorized to collect the tax during any period in which it does not apply.

Q. If I purchase my ticket at a time when the tax is not in effect but I travel after the tax is reinstated, will I be subject to tax?

A. That depends on how such travel is treated in any legislation reinstating the tax. The legislation could either impose tax on all travel occurring after its enactment or provide an exemption for passengers who purchased tickets during the period when the tax was not in effect.

Q. If I travel on or after July 23, 2011, and I purchased my ticket on or before July 22, 2011, am I entitled to a refund for the federal air transportation excise taxes that I paid when I purchased the ticket? If so, will my airline refund the tax to me?

A. Passengers who paid for tickets on or before July 22, 2011, for travel beginning on or after July 23, 2011, may be entitled to a refund of the tax. Airlines are permitted to refund the tax to the passenger, just as they do in the ordinary course of business when issuing refunds for unused refundable tickets (including the associated taxes). Because the airlines and travel service providers already have the information about passenger ticket purchases and travel, and in many cases have payment card information that may facilitate streamlined refunds, the IRS has asked the airlines to provide refunds to eligible passengers when requested. However, passengers who are unable to obtain a refund from the airline may obtain a refund by submitting a claim to the IRS. Because the IRS has no information about passenger ticket purchases or travel dates, travelers who are unable to obtain a refund from the airline will be required to submit proof of taxes paid and travel dates to the IRS under procedures that are under development. The IRS will provide additional guidance at a later date.

Q. What rules apply to the collection and refund of taxes on air freight during the period in which the aviation taxes are not in effect?

A. In general, the rules for the collection and refund of taxes on air freight are the same as the rules with respect to the ticket taxes. In some cases, however, tax is imposed on the amount paid by an affiliate of the company providing the air freight service (rather than on the customer shipping the package). In those cases, only the shipper or its affiliate can obtain a refund from the IRS. The customer may contact the shipper or its affiliate about its policy of rebating such refunds to customers.

(Note: Neither the ticket tax nor the tax on air freight applies to excess baggage fees. Accordingly, tax on those fees was not collected and will not be refunded.)

In addition to the expiration of the federal air transportation excise taxes, rates for certain excise taxes on aviation fuels are reduced beginning on July 23, 2011. Starting on July 23, 2011, the tax rates on aviation gasoline and kerosene used in noncommercial aviation are 4.4 cents per gallon.

Q. I am a dealer that purchased taxed aviation fuel before July 23, 2011. If I hold that fuel on July 23, 2011, am I entitled to a refund of the difference between the pre-July 23, 2011, rate and the new, lower rate effective on July 23, 2011?

A. No, dealers that purchased taxed aviation fuel before July 23, 2011, and hold that fuel on July 23, 2011, are not entitled to a refund for the difference between the pre-July 23, 2011, rate and the rate effective on July 23, 2011. The same answer would apply if the dealer had purchased aviation gasoline.

Q. I am a general aviation pilot who purchased previously taxed aviation fuel on July 23, 2011. Am I entitled to a refund of the difference between the pre-July 23, 2011, rate and the new, lower rate effective on July 23, 2011?

A. No, pilots who purchase previously taxed aviation fuel after July 22, 2011, are not entitled to a refund of the difference between the pre-July 23, 2011, rate and the rate effective on July 23, 2011. The same answer would apply if the pilot had purchased aviation gasoline.

Two-Year Limit No Longer Applies to Many Innocent Spouse Requests

IR-2011-80, July 25, 2011

WASHINGTON — The Internal Revenue Service today announced that it will extend help to more innocent spouses by eliminating the two-year time limit that now applies to certain relief requests.

“In recent months, it became clear to me that we need to make significant changes involving innocent spouse relief,” said IRS Commissioner Doug Shulman. “This change is a dramatic step to improve our process to make it fairer for an important group of taxpayers. We know these are difficult situations for people to face, and today’s change will help innocent spouses victimized in the past, present and the future.”

The IRS launched a thorough review of the equitable relief provisions of the innocent spouse program earlier this year. Policy and program changes with respect to that review will become fully operational in the fall and additional guidance will be forthcoming. However, with respect to expanding the availability of equitable relief:

  • The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.
  • A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired. Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply.
  • The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.

The change to the two-year limit is effective immediately, and details are in Notice 2011-70, posted today on IRS.gov.

Existing regulations, adopted in 2002, require that innocent spouse requests seeking equitable relief be filed within two years after the IRS first takes collection action against the requesting spouse. The time limit, adopted after a public hearing and public comment, was designed to encourage prompt resolution while evidence remained available. The IRS plans to issue regulations formally removing this time limit.

By law, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the Internal Revenue Code, continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request.

Available only to someone who files a joint return, innocent spouse relief is designed to help a taxpayer who did not know and did not have reason to know that his or her spouse understated or underpaid an income tax liability. Publication 971, Innocent Spouse Relief, has more information about the program.

Five “Social” Ways to Get Tax Information You Need

IRS Summertime Tax Tip 2011-09, July 25, 2011

If you use your smartphone to work smarter or you prefer social media resources over hard copy documents, check out the ways the Internal Revenue Service delivers the latest information on tax changes, initiatives, products and services through social media.

1. IRS2Go The IRS launched a smartphone application this year that lets you interact with the IRS using your mobile device. The mobile application can help you get your refund status and tax updates. IRS2Go is available for the iPhone or iTouch and the Android.

2. YouTube The IRS has video channels on YouTube with short, informative videos on various tax-related topics. The videos are in English, American Sign Language and a variety of foreign languages.

3. Twitter IRS tweets include tax-related announcements, news for tax professionals and updates for job seekers. Follow us @IRSnews.

4. Audio files for Podcasts These short audio recordings provide useful information on one tax-related topic per podcast. The audio files are available on iTunes or through the Multimedia Center on IRS.gov (along with their transcripts).

5. Widgets These tools, which can be placed on websites, blogs or social media networks, direct others to IRS.gov for information. The widgets feature the latest tax initiatives and programs and can be found on Marketing Express, the marketing site that allows IRS partners and tax preparers to customize their IRS communications products.

Just remember that the IRS uses these tools to share information with you. Do not post any confidential information on new or social media sites, especially your Social Security number or confidential information. The IRS will not be able to answer personal tax or account questions on any of these sites.

To find links to all of IRS’s social media tools, visit www.irs.gov and click on “IRS New Media.”

Links:

YouTube Video:

Seven Tax Tips for Job Seekers

IRS Summertime Tax Tip 2011-11, July 29, 2011

Many taxpayers spend time during the summer months updating their résumé and attending career fairs. The Internal Revenue Service reminds job seekers that you may be able to deduct some of the expenses on your tax return.

Here are seven things the IRS wants you to know about deducting costs related to your job search:

1. To qualify for a deduction, the expenses must be spent on a job search in your current occupation. You may not deduct expenses you incur while looking for a job in a new occupation.

2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income, up to the amount of your tax benefit in the earlier year.

3. You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.

4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.

5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.

6. You cannot deduct job search expenses if you are looking for a job for the first time.

7. The amount of job search expenses that you can claim on your tax return is limited. You can claim the amount that is more than 2 percent of your adjusted gross income.  You figure your deduction on Schedule A.

For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available onwww.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

Publication 529, Miscellaneous Deductions (PDF)
Tax Center to Assist Unemployed Taxpayers

YouTube Videos:

Job Search Expenses: EnglishSpanishASL

IRS Statement on Airline Ticket and Other Aviation-Related Taxes

July 22, 2011

The laws authorizing the airline ticket tax and other aviation-related taxes expired at midnight on Friday, July 22. The IRS continues to monitor pending legislation related to this issue. The IRS will continue to work with the airline industry to address issues relating to the collection and payment of the taxes involved. Taxpayers do not need to take any action at this time. The IRS will provide further guidance on this issue in the near future.

How to Prepare Before a Disaster Strikes

IRS Summertime Tax Tip 2011-03,  July 11, 2011

A home disaster can be stressful enough without reconstructing important records and accounting for belongings. The Internal Revenue Service encourages taxpayers to safeguard their financial and tax records before disaster strikes. Listed below are four simple tips for individuals on preparing for a disaster.

  1. Take advantage of paperless recordkeeping for financial and tax records. Many people receive bank statements and documents electronically and important documents like W-2s and tax returns can be scanned into an electronic format and stored on a flash drive or CD in a safe place. Keep it with other essential documents like home-closing statements, vehicle titles, insurance records and birth, death or marriage certificates and legal paperwork. Some online services can automatically back up computer files and store them offsite. Regardless of how you save your documents(whether it is electronically or on paper) ensure they are safe from the elements, but also encrypted and/or locked up to guard against disclosure or theft.
  2. Document Valuables The IRS has disaster loss workbooks for individuals that can help you compile a room-by-room list of your belongings. One option is to photograph or videotape the contents of your home, especially items of greater value. You should store the photos or video in a safe place away from the geographic area at risk. This will help you recall and prove the market value of items for insurance and casualty loss claims in the event of a disaster.
  3. Update Emergency Plans Make sure you have a means of receiving severe weather information; if you have a NOAA Weather Radio, put fresh batteries in it. Make sure you know what you should do if threatening weather approaches or if a fire occurs.Review your emergency plans annually.
  1. Count on the IRS In the event of a disaster, the IRS stands ready to help. The IRS has valuable information you can request if your records are destroyed. If you have been affected by a federally declared disaster, you can receive copies or transcripts of previously filed tax returns free of charge by submitting Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return.  Clearly indicate the official name of the disaster in red at the top of the form, to expedite processing and waive the usual fee for tax return copies.

For more information type “Preparing for a Disaster” in the search box at www.irs.gov.

Links:

Preparing for a Disaster
Publication 584, Casualty, Disaster, and Theft Loss Workbook
Form 4506, Request for Copy of Tax Return (PDF)
Form 4506-T, Request for Transcript of Tax Return (PDF)

YouTube Videos:

Preparing for Disasters: EnglishSpanishASL

Beware of Tax Scams

Tax Tip 2011-58, March 23, 2011

The IRS wants taxpayers to be aware of tax scams. These scams are illegal and can lead to problems for taxpayers including significant penalties, interest and possible criminal prosecution. The schemes take several shapes, ranging from promises of large tax refunds to illegal ways of “untaxing” yourself.

Here are three important guidelines to keep in mind:

  • You are responsible and liable for the content of your tax return.
  • Anyone who promises you a bigger refund without knowing your tax situation could be misleading you, and
  • Never sign a tax return without looking it over to make sure it is accurate.

Beware of these common schemes:

Return Preparer Fraud:

Dishonest tax return preparers can cause many headaches for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Choose carefully when hiring a tax preparer. As the saying goes, if it sounds too good to be true, it probably is. No matter who prepares your tax return you are ultimately responsible for its accuracy and for any tax bill that may arise due to a questionable claim.

To increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a requirement that all paid tax return preparers register with the IRS and obtain a preparer tax identification number (PTIN). Later this year, registered preparers will have to pass a competency exam and take continuing education courses.

Identity Theft:

It pays to be choosy when it comes to disclosing personal information. Identity thieves have used stolen personal data to access financial accounts, run up charges on credit cards and apply for new loans. The IRS is aware of several identity theft scams involving taxes or scammers posing as the IRS itself. The IRS does not use e-mail to contact taxpayers about issues related to their accounts. If you have any doubt whether a contact from the IRS is authentic, call 800-829-1040 to confirm it.

Frivolous Arguments:

Promoters have been known to make outlandish claims such as that the Sixteenth Amendment concerning congressional power to establish and collect income taxes was never ratified; that wages are not income; that filing a return and paying taxes are merely voluntary; and that being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don’t believe these or other similar claims. Such arguments are false and have been thrown out of court. Taxpayers have the right to contest their tax liabilities in court, but no one has the right to disobey the law.

For more information about these and other tax scams visit the IRS Web site at http://www.irs.gov. Remember that for the genuine IRS Web site be sure to use .gov. Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov.

The address of the official IRS governmental Web site is http://www.irs.gov.

Links:

Tax fraud alerts

The Truth about Frivolous Tax Arguments

Return Preparer Compliance and Enforcement

Four Tax Tips about Tip Income

IRS Tax Tip 2011-14 January 20, 2011

If you work in an occupation where tips are part of your total compensation, you need to be aware of several facts relating to your federal income taxes. Here are four things the IRS wants you to know about tip income:

1. Tips are taxable. Tips are subject to federal income, Social Security and Medicare taxes. The value of non–cash tips, such as tickets, passes or other items of value, is also income and subject to tax.

2. Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees.

3. Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.

4. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tip income.

Information Source: http://www.irs.gov/newsroom/article/0,,id=234601,00.html

Links:
IRS Publication 1244

IRS Publication 531