The Department of Treasury and the IRS announced the implementation of the requirements for the Foreign Account Tax Compliance Act (FATCA). This new law is for the non-compliance of U.S. taxpayers with foreign accounts. Financial institutions in foreign countries and United States holding agents will be given enough time to get documentation together in order to be compliant with the new law.

The implementation of FATCA will aid in U.S. efforts to fight for compliance with offshore account holders. The IRS is fully aware that taking action on this is huge for all financial institutions. It reflects how serious the IRS and the Treasury Department is about enforcing this law, but they also understand how challenging it will be for the financial institutions that are affected. They will need to adjust how they do business to make compliance as easy as possible for everyone.

As part of the Hiring Incentives to Restore Employment (HIRE), the FACTA was made into law in 2010. It required all FFIs (foreign financial institutions) to report all information about their accounts held by U.S. taxpayers to the IRS. The FFIs that participate will enter into an agreement with the IRS to:

-Identify all U.S. taxpayer accounts,

-Report information to the IRS regarding U.S. accounts, and

-Withhold a 30% tax on payments to non-participating FFIs and account holders who are unwilling to provide the required information.

Should an FFI not enter into this agreement, they will have to withhold some payments such as U.S. interest and dividends, gross proceeds from U.S. taxpayer deposits on securities, and all pass-thru payments.

IRS Notice 2011-53. The IRS and the Treasury will provide a feasible time frame for FFIs and U.S. agents to put into action the requirements of the FATCA. The FATCA notices specifies the following:

-An FFI must enter into an agreement with the IRS by June 30th, 2013, to make sure it is identified as a participating FFI in enough time to let withholding agents stop withholding beginning on January 1st, 2014.

-Withholding on U.S. source dividends and interest paid to non-participating FFIs will begin on Jan. 1st, 2014, and withholding on all allowed payments will be fully in place on Jan. 1st, 2015.

-Requirements for identifying new and pre-existing U.S. accounts will begin in 2013. Reporting requirements will begin in 2014.

-High risk accounts include private banking accounts with a balance that is equal to or greater than $500,000.

The IRS and the Department of Treasury are working with businesses and foreign government to make sure the FATCA is effective.

If you have any questions about the FATCA, please contact a tax professional.   

Daniel Stoica Accounting Professional

It’s summer and school is out, which means plenty of students will be out looking for summer jobs. Keep in mind, though, that the IRS wants you to remember that you won’t be keeping all of the money you will make from that summer job. You will have taxes withheld from your pay check.

There are six IRS tips to keep in mind when you start your summer job.

1. On your first day of your new job, you will be required to fill out a W-4, Employee’s Withholding Allowance. Your employer will use this form to determine how much tax will be taken out each pay period. If you have more than one summer job, you will fill out a W-4 for each job. To make sure the correct amount is being taken out, you can check the Withholding Calculator on the IRS website.

2. Depending on the type of summer job you get, you might get tips as part of your income. All tips are taxable and you must account for that at tax time. 

3. A lot of students take on odd jobs during the summer to make some extra money, and any income your receive, from either baby-sitting or mowing lawns, is taxable.

4. If you earn $400 or more from those odd jobs, you will also end up having to pay self-employment taxes, because you are, basically, self-employed. These taxes pay for your Social Security and Medicare benefits. Social Security and Medicare are for the self-employed as well as those who work for someone else, for when you retire. Your self-employment tax is calculated on the 1040 Form, Schedule SE.

5. If you are in the ROTC program for advanced training, your food and lodging allowances are not taxable. But active duty pay, the pay you get for summer ROTC, is subject to tax withholding.

6. There are special rules that apply if you are a newspaper carrier. You are considered a “direct seller” and are self-employed as far as your taxes are concerned, if you meet the following conditions:

-Your job involves delivering newspapers.
-All of your pay comes from sales instead of the hours you work.
-You are under contract as a newspaper delivery service worker that states you are not an employee and must withhold your own taxes.

Keep these simple tips in mind when looking for your summer job and you will not be penalized for not withholding enough in taxes come tax time.

Daniel Stoica Accounting Professional

Information on taxes can be found on the IRS website at www.irs.gov and is accessible 24 hours a day, 7 days a week, 365 days a year. There, you will find answers to every income tax question and you are able to download forms at any time.

You will also find information on the benefits of e-filing. E-filing is the fastest and easiest way to file your tax return. The IRS has made it simple to file on their website, with secure forms, and   provides answers to questions regarding how and where to have your refund returned to you. Two out of three taxpayers who file are doing so electronically. Almost 70% of taxpayers qualify for free e-filing.

On the IRS website you are able to check the status of your refund. If you chose to have your refund direct deposited into your bank account or you requested a check in the mail, you can click on “Where is my refund?” . Simply enter your social security number (it’s secure), your filing status, and the amount you are expecting, and you get the status of your refund.

The website even shows you how to make electronic payments of any taxes you owe. You can use a credit or debit card, authorize electronic payments, or enroll in the Treasury Department’s Electronic Federal Tax Payment System to make your payment. Electronic payments are fast easy, and secure.

Just answer a few questions and give your tax information through the EITC Assistant to see if you qualify for the Earned Income Tax Credit.

The IRS website has made it very easy to request forms, documents, and any other paperwork you may need. Nearly every tax-related document can be downloaded from the IRS website.

You can even figure the exact amount of your withholdings by using the IRS Withholding Calculator, which is also found on their website.

If you have trouble paying your taxes on time, you even have the option to apply for a payment agreement on the website. Look for the Payment Agreement Application to set up a payment plan with the IRS.

You can look for charities to see if they qualify for exemption from federal taxes. If they do, look to see what percentage of your contributions are tax deductible.

The IRS website even allows you to find out about the updated changes to the tax laws. These change regularly, so you should check often. Some tax revisions are in place for certain parts of the tax year and some laws are amended by Congress. The site shows changes that affect both individuals and businesses.

Visit www.IRS.gov when you have questions or need more information on your taxes. It really is a great resource for many of your tax questions.  For all the rest of your questions, seek the help of a qualified tax professional. 

Daniel Stoica Accounting Professional

IRS Tax Tip: IR-2011-39, April 7, 2011

If you are one of those taxpayers who will do just about anything to get out of paying your taxes, and you think you found a way to get out of it, you might want to reconsider it because the IRS will find out.

The IRS recently released its annual list of the worst tax scams with a warning to consumers to not even try pulling one over on the government. There are probably many taxpayers who haven’t filed yet because they owe money. They may have been thinking about ways to get around paying them, which will cause a lot of problems down the line, including fines, liens, and even jail.

The annual “dirty dozen”, as the IRS refers to scams people have used to evade paying taxes, are listed below. They range from putting money in offshore accounts to claiming non-existence dependents.  Some of the most devious scams have been perpetrated by dishonest tax preparers who used tactics to get more of a refund for their clients and take some off the top for themselves.

Besides the obvious scams, there are some methods that have most likely crossed the minds of many taxpayers. The IRS has reported that some taxpayers have lied about how much they earn, embellished or made up charitable donations and claimed they withheld more in Social Security in order to reduce their taxable income.

The IRS has also reported that some taxpayers try to get out of paying their taxes by claiming that paying taxes is not mandated in the constitution. (There are several videos on YouTube that claim this, as well). Others have even gone as far as to claim that it’s “against their religion”. The Supreme Court has, again and again, determined this to be a unjustified argument.

If the IRS believes you have tried any of these scams, you will be audited and fined $5,000 or more, or even incarcerated for worse offenses. And, if you know someone who has tried to pull off one of these scams, you should notify the IRS. You may be rewarded for your honesty.

Here is the full list of the worst scams:
• Hiding income offshore – This is where taxpayers deposit money in banks in such places as the Cayman Islands or Switzerland
• Identity theft and phishing – This scam has been running rampant for quite some time. People steal IDs and Social Security numbers to take another person’s identity
• Return preparer fraud – Tax preparers making false claims on their clients’ tax returns for their own gain
• Filing false or misleading forms – exaggerating or claiming false information on your tax return to pay less on their taxes
• Frivolous arguments – claiming that paying taxes is unconstitutional or against your religion
• Nontaxable Social Security benefits with exaggerated withholding credits – trying to take more credits and deductions on income that is actually taxable
• Abuse of charitable organizations and deductions – claiming to have given to charity or exaggerating how much you actually did give to a charity
• Abusive retirement plans – transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions
• Disguised corporate ownership – Corporations are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number,
• Zero wages – reporting that you made no money at all during the tax year
• Misuse of trusts – the inappropriate use of private annuity trusts and foreign trusts to shift income and deduct personal expenses
• Fuel tax credit scams – individuals who claim the tax credit for nontaxable uses of fuel when their occupations or income levels make the claim unreasonable

To avoid becoming one of the “dirty dozen”, consult with a trusted tax professional to prepare your taxes.

Daniel Stoica Accounting Professional