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Several businesses in our economic environment are getting crushed with banks not lending to them and consumers tightening their spending belts. Congress wants to give you back some of your money. What? Congress wants to give me back money? Yes, Congress passed a new law extending and expanding the treatment of net operating losses (NOLs) for corporations and flow-thru entities(S-corporations & Partnerships). Before this law was enacted, a business with a NOL could carry back two years and carry forward 20 years of its NOLs to offset taxable income incurred in those years. In addition, there is one temporary rule for small business. Under present law, an eligible small business with annual gross receipts of $15,000,000 or less over a three year period can carry back a 2008 NOL up to five years. The new law allows all companies to carry back its NOL in 2008 or 2009 for five years preceding its current year NOL. However, with any good law, it has limitations. Let’s take a look at these new laws and see if you are eligible to receive money from the IRS for a 2008 or 2009 NOL.
This law allows all businesses to carry back its 2008 or 2009 (not both) NOL for five years. For example, a company has taxable income of $100,000 each year from 2004 through 2008. In 2009, the company incurs a $350,000 NOL. The company can elect to carry back its 2009 NOL five years, to 2004 and the remaining four years. However, the law limits your NOL carry back to the fifth year proceeding the current year NOL to 50% of taxable income. So, in our example, a 2009 NOL carried back to 2004 is limited to 50% of taxable income. The remaining $300,000 NOL balance can offset taxable income in years 2005, 2006, 2007.
There is one exception when carrying back a NOL for 2008 or 2009. If an eligible small business elected to carry back a 2008 NOL, it can also make the election for 2009. If it elects to make the election in 2009, it will have to follow the 50% limitation for the fifth year.
The election under the new law must be made by the due date (including extensions) for the tax return filed for the taxpayer’s last taxable year beginning in 2009. Keep in mind that the election is irrevocable. Fiscal year taxpayers can make the election for tax years beginning or ending in 2008 or 2009.
If you know now you are going to have a NOL in 2009, please notify your tax consultant so he or she can start to prepare your timely refund claim to the IRS.
If you have any questions or concerns, please contact me by phone or e-mail.
561.686.8666
mstevens@rdwarnercpa.com
November 11, 2009
November 6, 2009
The Time is Right to Buy a Principal Residence
The housing environment is fertile with opportunities for first-time home buyers and long-term residents of the same principal residence. Congress passed new legislation extending and expanding the First-Time Homebuyer Tax Credit. Mortgage rates for a fixed thirty year loan have dipped below 5%, which historically is very low. And the housing market, close and near its bottom, is littered with houses and condos selling at the lowest levels in years. Buying a house right now is the right time for the right reasons. Let’s take a look at these reasons.
First, married couples purchasing a home for the first-time will receive an $8,000 tax credit from the IRS. Yes, that’s right; the IRS will give you $8,000 for purchasing a home valued between $80,000 and $800,000. What if I am single? You will get a $4,000 tax credit. You need to close on your purchase by April 30, 2010 or have a written binding contract by April 30, 2010 and close on your new principal residence before June 30, 2010 to receive your tax credit. This credit starts to phase out for individual taxpayers with incomes above $125,000 and for taxpayers who file jointly the phase out starts at income levels over $225,000. The only rub on this new law is, if you sell this house within three years of purchase you will have to pay back the credit.
Furthermore, if you have lived in your current principle residence for the last five years you are eligible for this tax credit. Maybe you are thinking about moving up in the market, relocating to another region of the country, or steeping down into a more affordable home. The maximum tax credit will be $6,500 for married couples and $3,250 for single and married couples filing separately. This credit is subject to income limitations and purchase dates and values mentioned above.
Second, there are two tax advantages of owning a home. Taxpayers can deduct the interest on their mortgage payments as well as property taxes paid on IRS Schedule A. Until now, most taxpayers were using the standard deduction when filing their taxes. Not any more, if you buy a home. By itemizing on Schedule A, taxpayers can reduce their taxes and in most cases increase the amount of refund they get back each year from the IRS.
Third, with interest rates floating around low levels, the time is right to purchase a principal residence. Most likely, interest rates will increase over the next one to three years when inflation starts to rise and the Federal Reserve tightens the money supply. Do not miss this opportunity; you might not see low interest rates again for a number of years and by then the tax credit will be gone along with higher priced homes on the market.
Finally, the housing market is close to hitting its bottom, there is no better time to buy than right now. There are sellers right now offering their homes at reduced prices by what the markets calls short sales. With high inventory levels in the housing market, most sellers are willing to negotiate prices to get the deal done.
Do not miss this opportunity to purchase a home and live the America Dream. Go and buy a home today.
If you have questions or concerns, please contact me @ mstevens@rdwarnercpa.com
First, married couples purchasing a home for the first-time will receive an $8,000 tax credit from the IRS. Yes, that’s right; the IRS will give you $8,000 for purchasing a home valued between $80,000 and $800,000. What if I am single? You will get a $4,000 tax credit. You need to close on your purchase by April 30, 2010 or have a written binding contract by April 30, 2010 and close on your new principal residence before June 30, 2010 to receive your tax credit. This credit starts to phase out for individual taxpayers with incomes above $125,000 and for taxpayers who file jointly the phase out starts at income levels over $225,000. The only rub on this new law is, if you sell this house within three years of purchase you will have to pay back the credit.
Furthermore, if you have lived in your current principle residence for the last five years you are eligible for this tax credit. Maybe you are thinking about moving up in the market, relocating to another region of the country, or steeping down into a more affordable home. The maximum tax credit will be $6,500 for married couples and $3,250 for single and married couples filing separately. This credit is subject to income limitations and purchase dates and values mentioned above.
Second, there are two tax advantages of owning a home. Taxpayers can deduct the interest on their mortgage payments as well as property taxes paid on IRS Schedule A. Until now, most taxpayers were using the standard deduction when filing their taxes. Not any more, if you buy a home. By itemizing on Schedule A, taxpayers can reduce their taxes and in most cases increase the amount of refund they get back each year from the IRS.
Third, with interest rates floating around low levels, the time is right to purchase a principal residence. Most likely, interest rates will increase over the next one to three years when inflation starts to rise and the Federal Reserve tightens the money supply. Do not miss this opportunity; you might not see low interest rates again for a number of years and by then the tax credit will be gone along with higher priced homes on the market.
Finally, the housing market is close to hitting its bottom, there is no better time to buy than right now. There are sellers right now offering their homes at reduced prices by what the markets calls short sales. With high inventory levels in the housing market, most sellers are willing to negotiate prices to get the deal done.
Do not miss this opportunity to purchase a home and live the America Dream. Go and buy a home today.
If you have questions or concerns, please contact me @ mstevens@rdwarnercpa.com
August 25, 2009
The Veil is Lifted on Swiss Bank Accounts
Recently, Swiss bank UBS and the IRS reached an agreement which severs long-held tradition of banking secrecy in Switzerland. Under the agreement, the Swiss government will give names to the IRS of suspected U.S. tax evaders who have accounts at UBS, which are estimated to total around $18 billion dollars. According to the statement from the US Justice Department, the IRS will submit a treaty request to the Swiss government asking for details on specific accounts. The Swiss government will then tell UBS to turn over the information. In addition, the IRS will receive information on accounts of various sizes and types, including bank-only accounts, custody accounts in which securities or other investments were held and offshore company nominee accounts that allowed an individual to indirectly hold beneficial ownership in the accounts.
After the decision, IRS Commissioner, Douglas Shulman, stated, "We will be receiving an unprecedented amount of information; this agreement represents a major step forward with the IRS's efforts to pierce the veil of bank secrecy and combat offshore tax evasion." Most likely, the IRS will continue to leverage its efforts by using this decision and the patriot act, which gives US authorities the ability to monitor all off shore accounts owned by Americans and aggressively pursue all foreign bank accounts in places like the Bahamas and Cayman Islands which have similar banking practices like the Swiss.
Back in March, the IRS rolled out a leniency program to encourage taxpayers to come forward with foreign bank accounts and take advantage of its voluntary disclosure practice program. In providing guidance, the IRS wanted to separate the good from the bad. Those who wanted to comply and those who still wanted to avoid their tax responsibility. Let’s take a look at the reporting requirements first and then look at the voluntary disclosure practice program next.
Who must file and how? Each United States person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing this report with the Department of the Treasury on or before June 30, of the succeeding year. Information is reported on IRS Form TD F 90-22.1, a Report of Foreign Bank and Financial Account (FBAR) and mailed to Department of the Treasury in Detroit, Michigan.
Do I have a Foreign Financial Account? If you own or have authority over a foreign financial account, including a bank account, brokerage account, mutual fund, unit trust, or other types of financial accounts, then you may be required to report the account yearly to the Internal Revenue Service. Under the Bank Secrecy Act, each United States person must file a Report of Foreign Bank and Financial Accounts (FBAR).
Who is a United States Person? “United States person" includes a citizen or resident of the United States, or a person in and doing business in the United States. The term "person" includes individuals and all forms of business entities, trusts, and estates.
What constitutes signature or other authority over an account? A person has signature authority over an account if such person can control the disposition of money or other property in it by delivery of a document containing his or her signature (or his or her signature and that of one or more other persons) to the bank or other person with whom the account is maintained.
For some taxpayers, they have been reporting all of their foreign income on their requisite tax forms as well as filing IRS Form TD F 90-22.1 by its due dates. But for others, they reported all their taxable income and were not aware of their FBAR reporting obligations. These taxpayers are not required to enter into the voluntary disclosure practice program because they have reported all of their taxable income in prior and current years. These taxpayers should file the delinquent FBAR reports according to the instructions and attach a statement explaining why the reports are filed late. In addition, they need to send copies of the delinquent FBARs together with copies of tax returns for all relevant years, by September 23, 2009, to the Philadelphia Offshore Identification Unit. The IRS will not impose a penalty for the failure to file the FBARs. In addition, taxpayers whose only interest are signature authority or have a financial interest in a hedge fund or other co-mingled account do not have to report until June 30, 2010 for tax year 2008.
On the other hand, taxpayers who have not reported their foreign accounts and earnings can use the IRS voluntary disclosure practice program. According to the IRS, a taxpayer should mail a letter to the nearest Special Agent in Charge, IRS Criminal Investigation stating you want to make a voluntary disclosure. The letter should contain all your identifying information, including name, address, Social Security Number or other Taxpayer Identification Number, passport number and date of birth, and should also include an explanation of any previously unreported or underreported income or incorrectly claimed deductions or credits related to undisclosed foreign accounts or undisclosed foreign entities, including the reason(s) for the error or omission. It should also include a power of attorney (Form 2848). Of course there is no free lunch with the IRS when it comes to taxes. Here is a breakdown of tax obligations for taxpayers who use and do not use the IRS’s voluntary disclosure practice program.
Taxpayers who are accepted into the disclosure program will incur the following civil penalties:
1) Taxes & Interest for the past six years (2003 – 2008) will be assessed. The taxpayer must file and or amend all returns including Form TD F 90-22.1, Report of Foreign Bank and Financial accounts (FBAR).
2) The IRS will either assess either an accuracy or delinquency penalty for all affected years. No reasonable cause exception is available under this provision.
3) The IRS will assess a penalty equal to 20 percent of the amount in a foreign bank account or entity in the year with the highest aggregate account or asset value. The penalty is reduced to five percent if:
a) The taxpayer did not open them or cause them to be opened or formed;
b) There has been no activity during the period the accounts/entities were controlled by the taxpayer; and
c) All applicable U.S. taxes have been paid on the funds in the accounts and only the earnings have escaped U.S. taxes.
Taxpayers who elect not to use the disclosure program will most likely incur the following criminal penalties:
1) A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000.
2) Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000.
3) A person who fails to file tax return is subject to a prison term of up to one year and a fine of up to$100,000.
4) Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.
The era of banking secrecy is over with the recent appetite for transparency. With budget shortfalls and record deficits, Congress is supporting the United States Treasury Department to ferret out taxpayers who still choose to evade paying taxes by creating offshore bank accounts. Taxpayers are confronted with complying or taking the risk of not getting caught. The later looks like a losing hand.
If you need help or have questions, please e-mail or call
mstevens@rdwarnercpa.com
561.686.8666
After the decision, IRS Commissioner, Douglas Shulman, stated, "We will be receiving an unprecedented amount of information; this agreement represents a major step forward with the IRS's efforts to pierce the veil of bank secrecy and combat offshore tax evasion." Most likely, the IRS will continue to leverage its efforts by using this decision and the patriot act, which gives US authorities the ability to monitor all off shore accounts owned by Americans and aggressively pursue all foreign bank accounts in places like the Bahamas and Cayman Islands which have similar banking practices like the Swiss.
Back in March, the IRS rolled out a leniency program to encourage taxpayers to come forward with foreign bank accounts and take advantage of its voluntary disclosure practice program. In providing guidance, the IRS wanted to separate the good from the bad. Those who wanted to comply and those who still wanted to avoid their tax responsibility. Let’s take a look at the reporting requirements first and then look at the voluntary disclosure practice program next.
Who must file and how? Each United States person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing this report with the Department of the Treasury on or before June 30, of the succeeding year. Information is reported on IRS Form TD F 90-22.1, a Report of Foreign Bank and Financial Account (FBAR) and mailed to Department of the Treasury in Detroit, Michigan.
Do I have a Foreign Financial Account? If you own or have authority over a foreign financial account, including a bank account, brokerage account, mutual fund, unit trust, or other types of financial accounts, then you may be required to report the account yearly to the Internal Revenue Service. Under the Bank Secrecy Act, each United States person must file a Report of Foreign Bank and Financial Accounts (FBAR).
Who is a United States Person? “United States person" includes a citizen or resident of the United States, or a person in and doing business in the United States. The term "person" includes individuals and all forms of business entities, trusts, and estates.
What constitutes signature or other authority over an account? A person has signature authority over an account if such person can control the disposition of money or other property in it by delivery of a document containing his or her signature (or his or her signature and that of one or more other persons) to the bank or other person with whom the account is maintained.
For some taxpayers, they have been reporting all of their foreign income on their requisite tax forms as well as filing IRS Form TD F 90-22.1 by its due dates. But for others, they reported all their taxable income and were not aware of their FBAR reporting obligations. These taxpayers are not required to enter into the voluntary disclosure practice program because they have reported all of their taxable income in prior and current years. These taxpayers should file the delinquent FBAR reports according to the instructions and attach a statement explaining why the reports are filed late. In addition, they need to send copies of the delinquent FBARs together with copies of tax returns for all relevant years, by September 23, 2009, to the Philadelphia Offshore Identification Unit. The IRS will not impose a penalty for the failure to file the FBARs. In addition, taxpayers whose only interest are signature authority or have a financial interest in a hedge fund or other co-mingled account do not have to report until June 30, 2010 for tax year 2008.
On the other hand, taxpayers who have not reported their foreign accounts and earnings can use the IRS voluntary disclosure practice program. According to the IRS, a taxpayer should mail a letter to the nearest Special Agent in Charge, IRS Criminal Investigation stating you want to make a voluntary disclosure. The letter should contain all your identifying information, including name, address, Social Security Number or other Taxpayer Identification Number, passport number and date of birth, and should also include an explanation of any previously unreported or underreported income or incorrectly claimed deductions or credits related to undisclosed foreign accounts or undisclosed foreign entities, including the reason(s) for the error or omission. It should also include a power of attorney (Form 2848). Of course there is no free lunch with the IRS when it comes to taxes. Here is a breakdown of tax obligations for taxpayers who use and do not use the IRS’s voluntary disclosure practice program.
Taxpayers who are accepted into the disclosure program will incur the following civil penalties:
1) Taxes & Interest for the past six years (2003 – 2008) will be assessed. The taxpayer must file and or amend all returns including Form TD F 90-22.1, Report of Foreign Bank and Financial accounts (FBAR).
2) The IRS will either assess either an accuracy or delinquency penalty for all affected years. No reasonable cause exception is available under this provision.
3) The IRS will assess a penalty equal to 20 percent of the amount in a foreign bank account or entity in the year with the highest aggregate account or asset value. The penalty is reduced to five percent if:
a) The taxpayer did not open them or cause them to be opened or formed;
b) There has been no activity during the period the accounts/entities were controlled by the taxpayer; and
c) All applicable U.S. taxes have been paid on the funds in the accounts and only the earnings have escaped U.S. taxes.
Taxpayers who elect not to use the disclosure program will most likely incur the following criminal penalties:
1) A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000.
2) Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000.
3) A person who fails to file tax return is subject to a prison term of up to one year and a fine of up to$100,000.
4) Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.
The era of banking secrecy is over with the recent appetite for transparency. With budget shortfalls and record deficits, Congress is supporting the United States Treasury Department to ferret out taxpayers who still choose to evade paying taxes by creating offshore bank accounts. Taxpayers are confronted with complying or taking the risk of not getting caught. The later looks like a losing hand.
If you need help or have questions, please e-mail or call
mstevens@rdwarnercpa.com
561.686.8666
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