Tax Cuts and Jobs Act

How Big is Your Tax Cut? Historic tax bill – first since 1986 to radically change the US Tax Law – but how big is your Tax Cut? Tax Rates CURRENT LAW (2017) has a seven tier rate structure: 10, 15, 25, 28, 33, 35 and topping @ 39.6% for all filing statuses. CONFERENCE AGREEMENT Seven tier rate structure still exists: 10, 12, 22, 24, 32, 35 and top tax rate of 37% for all filing statuses.  New rate structure begins after December 31, 2017 and does not apply to tax years after December 31, 2025. COMMENT Lower tax rates is an effective tax cut.  For Expats, you’ll always pay tax to the higher taxing country Standard Deduction CURRENT LAW (2017) Standard Deduction 2017  and as per Conference Agreement: Single/Married Filing Separate:  $6350  INCREASED to $12000 Head of Household: $9350  INCREASED to $18000 Married Filing Jointly /Surviving Spouse: $12700   INCREASED to $24000 Additional deduction for over 65 and blind continues unchanged Increase in Standard Deduction does NOT apply to Tax Years beyond December 31, 2025 COMMENT Overall a decent Tax Cut for Smaller families and individuals Personal Exemption CURRENT LAW (2017): For 2017 the personal exemption amount of $4050 is allowed for taxpayer, taxpayer’s spouse and each dependent. CONFERENCE AGREEMENT From January 1 2018 Personal Exemptions are ELIMINATED until December 31, 2025 COMMENT Eliminating the Personal Exemption is not a Tax Cut partially offset by larger Standard Deduction (and larger Child Tax Credit) it can be nice tax cut for smaller families and individuals. Child Tax Credit CURRENT LAW (2017): Individuals may claim a tax credit for each qualifying child...

Streamlined Filing Procedures

Back Taxes If you’re behind in filing taxes with the IRS, you may be eligible to catch up using Streamlined Filing Procedures.  Streamlined is intended for taxpayers that acted non-willfully and do not have criminal exposure or exposure to civil fraud penalties and willful FBAR penalties.   Streamlined Procedures Streamlined Filing Procedures were updated in 2014 to create Streamlined Foreign Offshore (SFO) and Streamlined Domestic Offshore (SDO).  The eligibility requirements for SFO: US Individuals and estates only Failed to report Foreign Financial Assets and pay all tax due in respect of those assets Able to certify failures are related to non-willful conduct Not currently under IRS examination Have a valid Taxpayer Identification Number (ITIN/SSN) NOTE:  If you do not have an ITIN, you may submit an application for ITIN along with the required tax returns.  For more information on how to apply for ITIN, contact ITIN4U.com SFO Streamlined Foreign Offshore requirements: Meet non-residency requirement must not have US abode AND physically outside the U.S. for at least 330 full days in a calendar year in ONE of the last 3 years in your streamline submission period. IF married filing jointly, both taxpayers must meet the non-residency requirement. You can be a non-filer. If you have not filed US Federal tax return, you can catch up and come into compliance with the IRS.  You may also amend previously filed US Federal tax returns  Non-Willful Non-Willful conduct is defined as: “conduct that is due to negligence, inadvertence or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.” Must provide a Non-Willful Certification: Provide...

US Filing Deadline, Citizen filing from Overseas

Filing Deadline Act quickly!  As a US Citizen filing with the IRS from overseas, the filing deadline for your 2015 tax year is June 15, 2016. If you require more time to complete and file your US Federal tax return, you may file Form 4868 – Application for Automatic Extension of Time to File U.S. Individual Income Tax Return – prior to June 15, 2016.  This extension will allow you to timely file if you file by October 15, 2016.  Remember this is an extension of time to file only.  In the event you have a tax owing, you may be subject to late payment fees and interest from April 18, 2016. Is every US Citizen (or Green Card Holder) living abroad, required to file a tax return?  Yes, if your gross income exceeds the filing threshold for your filing status (see below).  If your earned income is below the Foreign Earned Income Exclusion, you still must file to claim the exclusion. Filing Thresholds If for 2015 your filing status is: Single and under 65 you are required to file a US tax return if your gross income was at least $10,300USD Single and over 65, you are required to file a US tax return if your gross income was at least $11,850 USD Married filing jointly and under 65 you are required to file a US tax return if your gross income was at least $20,600 USD Married filing jointly and 1 spouse was over 65 you are required to file a US tax return if your gross income was at least $21,850 USD Married filing jointly and...

IRS Penalty Abatement

IRS Penalty Panic! You just received a notice from the IRS.  The fees and penalties are high.  Good news, you may be eligible to have the penalties removed.  Sometimes, despite your best efforts, you end up filing your taxes late and paying late.  The Internal Revenue Service assesses late penalties which might be removed on a case by case basis provided you can show Reasonable Cause.  Any reason that establishes a taxpayer exercised ordinary business care and prudence but was unable to comply with the tax law may be considered for penalty abatement. Ordinary business care and prudence include making provision for business obligations to be met when reasonably foreseeable events occur.  A taxpayer may establish reasonable cause by providing facts and circumstances showing you exercised ordinary business care and prudence, but nevertheless were unable to comply with the law. Some of the questions you will be asked include: What happened? When did it happen? Where did it happen? Who is responsible? Why couldn’t the taxpayer comply? How did the taxpayer try to comply? Your reason should clearly address the penalty imposed.  To show reasonable cause, your dates and explanations should clearly correspond with events on which the penalties are based. In determining if you, the taxpayer, exercised ordinary business care and prudence, the IRS will check your compliance history for payment patterns (generally the previous 3 years).  The same penalty previously assessed may indicate you are not exercising ordinary business care. The IRS will consider the length of time between the event cited as reason for the noncompliance and your subsequent compliance. Were the circumstances beyond your control?...

“GOTCHA” — UNANTICIPATED AUDIT ISSUES AFTER QUIET DISCLOSURES

I. Introduction Some taxpayers not willing to pay the 27.5% penalty that otherwise applied under the traditional Offshore Voluntary Disclosure Programs have made quiet disclosures or entered into the Streamlined Filing Compliance Procedures (“Streamlined Program”). Many of these taxpayers rejected the protections of the Offshore Voluntary Disclosure Programs in favor of what they perceived to be a more cost-effective quiet or streamlined disclosure. These taxpayers have subjected themselves to criminal liability and audit adjustments which, depending upon the source of the unreported income, could easily eclipse the 27.5% penalty under the traditional program. In this regard, audits of returns submitted as quiet disclosures or under the Streamlined Program have been (and should be) troubling to both practitioners and clients. This article discusses common audit adjustments that can apply to returns for taxpayers with international activities, including: the disallowance of deductions and credits for U.S. citizens, resident aliens, and nonresident aliens; the disallowance of the foreign earned income exclusion for U.S. citizens and resident aliens; and the Internal Revenue Service’s ability to recharacterize as ordinary income purported gifts and bequests from a partnership or a foreign corporation under Treas. Reg. § 1.672(f)-4. This article also highlights those taxpayers who are most likely to be negatively affected by each type of adjustment.  Finally, for taxpayers who imprudently made a quiet disclosure, this article discusses how to transition the taxpayer from a quiet disclosure to a traditional Offshore Voluntary Disclosure Program. II. Audits of Offshore Returns Generally The audit risk to a taxpayer who corrected errors related to his or her foreign activities often depends upon whether the taxpayer came into compliance...