The IRS recently released a new tax form (Form 8938) that may need to be filed with your tax return this year if you have an ownership in certain “foreign financial assets.” Foreign financial assets include: foreign bank accounts; foreign broker accounts; investments in foreign bonds or securities; ownership interests in a foreign trust; certain foreign pension payments; and investments in any foreign entity which may hold such assets as real estate, a trade business, etc.
The reporting rules and filing thresholds are complex, but if the value of your foreign financial assets was in excess of $50,000 (or $100,000 if married filing jointly) at the end of 2011 or exceeded $75,000 ($150,000 if married filing jointly) at any time during 2011, and you are a United States citizen or resident alien, you are required to file the new form. These dollar thresholds are four times higher for taxpayers who lived abroad during 2011.
The penalty for failure to provide the required information with your tax returns is $10,000 unless your failure to file is due to reasonable cause. Continue reading »
On Wednesday, Dec. 15th, the Senate passed the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010” (“2010 Tax Relief Act” or “Act”) and the House of Representatives passed it the next evening. Continue reading »
President Obama announced on Monday, December 6th that he had reached a framework agreement with Republican leaders in Congress regarding the extension of the individual income tax cuts. Recent media reports indicate that White House officials will try to persuade Democrats to support the framework agreement, but due to resistance from his party, President Obama may need to rely heavily on Republican support to move the proposal through Congress.
Who is ready to pay more taxes in 2011? The income tax cuts that were enacted in 2001 and 2003 under President Bush expire on December 31, 2010. Unless Congress acts now, which means the Democrats and Republicans have to agree on what should be extended and what can expire, everything resets to the tax law in effect as of January 1, 2001. The following is a summary of some of those changes and actions you may want to take to avoid the changes; any actions should be discussed with your tax advisor. Note that both sides want some or all of these expiring provisions extended but no one knows what the future (of tax) holds.
- Higher tax rates: Highest tax brackets increase with a maximum rate of 39.6% instead of current 35%. Planning – If you think you will be affected by the return of higher rates, consider accelerating income into 2010 or deferring deductions.
- The Marriage Penalty returns: Tax brackets change, affecting married returns with taxable income around $125,000. The reason for this change is that the current brackets eliminate the Marriage Penalty by making them 200% of a single person’s tax bracket. The old law was approximately a 67% increase.
- Capital gains tax increases: The current 15% rate for long-term gains increases to 20% – a 1/3rd increase in the tax rate. Planning – Now may be a good time to recognize some of those gains in stocks you have been holding. If you want to maintain your investments, you can sell for a gain and repurchase the same stock; the “wash sale” rule only applies to losses.
- Dividends: Most dividends on stock have been taxed at capital gains rates (15%) since 2003 but will be taxed as ordinary income in 2011 – with a maximum rate of 39.6%. Planning – If you own a privately-held taxable corporation (not an S corporation), consider paying a dividend by year end. If the company still needs those funds, you can lend back the net-of-tax dividend.
- Alternative Minimum Tax (AMT): Every year for the past number of years, Congress has passed a one-year patch so that AMT does not affect a large number of “middle-class” taxpayers. This will have to be addressed in 2010 and again in 2011 or millions of taxpayers will find they are subject to additional taxes.
“When will we know the answers so that we can plan efficiently for income taxes?” That is an excellent question. Some pundits believe that the lame-duck Congress will address this after the November elections. Others believe that it won’t be addressed until a new Congress convenes in January 2011 and any changes will be effective as of January 1, 2011. Stay tuned to this blog for information when (if?) new tax legislation is passed.