Do I need to file Form 8938 with my Taxes, “Statement of Specified Foreign Financial Assets”?

The IRS has just updated their directive regarding the declairing of foreign financial assets for individual taxpayers both here in the US and US Expats abroard. Here is a summary of what they are saying.

Certain U.S. taxpayers holding specified foreign financial assets with an aggregate value exceeding $50,000 will now need to report information about those assets on the new Form 8938, which must be attached to their annual income tax return. Higher asset thresholds apply to U.S. taxpayers who file a joint tax return or who reside abroad.

The Form 8938 reporting applies for specified foreign financial assets in which the taxpayer has an interest in taxable years starting after March 18, 2010. For most individual taxpayers, this means they will start filing Form 8938 with their 2011 income tax return to be filed this during this tax filing season and remember it is important to realize there is up to $10,000 civil penalty for not filing the form 9838 as well as possible criminal penalties.

 So does it mean you? Here is the guide:

You must file Form 8938 if:

1. You are a specified individual.

A specified individual is:

• A U.S. citizen
• A resident alien of the United States for any part of the tax year
• A nonresident alien who makes an election to be treated as resident alien for purposes of filing a joint income tax return
• A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico

AND

2. You have an interest in specified foreign financial assets required to be reported.

A specified foreign financial asset is:

• Any financial account maintained by a foreign financial institution, except as indicated above
• Other foreign financial assets held for investment that are not in an account maintained by a US or foreign financial institution, namely:
  • Stock or securities issued by someone other than a U.S. person
  • Any interest in a foreign entity, and  any financial instrument or contract that has as an issuer or counterparty that is other than a U.S. person.

AND

3. The aggregate value of your specified foreign financial assets is more than the reporting thresholds that applies to you:

• Unmarried taxpayers living in the US: The total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year
• Married taxpayers filing a joint income tax return and living in the US: The total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year
• Married taxpayers filing separate income tax returns and living in the US: The total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
• Taxpayers living abroad. You are a taxpayer living abroad if:
  • You are a U.S. citizen whose tax home is in a foreign country and you are either a bona fide resident of a foreign country or countries for an uninterrupted period that includes the entire tax year, or

You are a US citizen or resident, who during a period of 12 consecutive months ending in the tax year is physically present in a foreign country or countries at least 330 days.

Reporting specified foreign financial assets on other forms filed with the IRS.

If you are required to file a Form 8938 and you have a specified foreign financial asset reported on Form 3520, Form 3520-A, Form 5471, Form 8621, Form 8865, or Form 8891, you do not need to report the asset on Form 8938.

If you are a taxpayer living abroad you must file if:

• You are filing a return other than a joint return and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or

You are filing a joint return and the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year. However, you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets.

Even if a specified foreign financial asset is reported on a form listed above, you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is more than the reporting threshold that applies to you.

Well if that all sounds rather confusing then do not worry, contact your retained tax advisor or call us here at Simply-Bookkeeping +1832.426.3845 and we will review your situation and make recommendation as to the best course of action. 

If you have filed your taxes already but failed to submit the Form 8938 if required, then please seek Council

The Top 12 Tax Return Preparation Errors

We found these sage pointers by Ed Mendlowitz, CPA from Withum CPAs in New Brunswick, N.J.

Take heed if you intend to use popup tax return stores that appear just for the season in all manner of places and ensure they dont make these simple mistakes that can cost you lots.

Over the years Ed Mendlowitz, has compiled this handy list of the most frequently found errors in tax return preparation:

1. Number transposition and spelling errors. This includes income and deduction amounts and client Social Security numbers, addresses and zip codes. Spelling errors should also be avoided – they indicate a lack of attention to what you are doing.

2. Unreported 1099 income. Clients frequently leave out 1099s, but the preparer should make sure all 1099 items from last year are accounted for. Missing 1099s that were not final
for last year should be accounted for.

3. Tax payments. Entering incorrect and unpaid amounts can be avoided by requiring the client to provide “proof” of the payments. Entering “incorrect” amounts provided by the client
is a major cause of tax notices.

4. Keeping review notes after the return is completed. This can create liability issues if there is ever a controversy over the return. Review notes usually deal with errors and
omissions and the type and quantity of them can indicate a lack of training, proper
procedures, adherence to processes or care. Retaining these notes cannot ever help you.

5. Not correcting reason for tax notices for prior year on this year’s return. This is a no
brainer, but for many preparers there is a disconnect between a notice for last year’s return
and the preparing of this year’s return.

6. Not questioning numbers that stretch the imagination. My imagination is likely to be
different from yours, but a client with high debt indicated by mortgage and home equity loan
interest usually won’t be making cash charitable contributions equal to 8 percent of their
gross income. Likewise for maximum allowable IRA contributions. Explain the requirements
for substantiating these deductions and ask client if they have it.

7. Not following up enough with clients to get missing information. This could create last minute rushes and unhappy clients, even though it was because of client’s lack of response.

8. Not specifically asking clients if they have, can sign or control a foreign bank account.

9. Not telling client about items that aren’t on return. Items such as traditional and Roth
IRAs, SEPs, making charitable contributions with appreciated stock, claiming a grown child
with minimal income who lives with client as a dependent, or signing up for an employer’s
401k plan and/or flexible spending account, or partial exercising of ISOs to avoid AMT.

10. High mortgage interest deductions. Excessive amounts (usually over $50,000) are a red flag for the IRS. Make sure the interest is not from excessive mortgages, that the funds were used for proper purposes or that the interest tracking rules have been complied with and if mortgage proceeds were used for investment purposes, it is properly reflected on the return.

11. Alternative minimum tax. Watch for unapplied AMT credits and AMT NOLs, and state tax refunds reported as income even though not deducted in prior year because of AMT.

12. Not calling a client to relay unexpected (and especially bad) final results.

We know it is easy to walk into the local high street preparer or get it all done with your groceries shopping and perhaps if your just filing a 1040EZ then this is a good deal as its generally free. However, once it comes too married with children or taxpayers with small business interests or complex investments then its best to seek the knowledge and advice of firms that really understand tax and how to make sure you are in the best position for the maximum deductions and refunds you are entitled too.

For professional tax advice seek out your local CPA firm or the tax team at Simply-Bookkeeping can help. 

Reducing Business Financial Management Fee's By a Tidy Chart of Accounts

So many companies fail to set up their charts of accounts correctly in QuickBooks. All too often as a professional  bookkeeping and business financial management firm we observe charts of accounts resembling a collage of accounts in unfathomable format without any logical order, containing duplicate if not triplicate accounts, inconsistent protocols, and even inappropriate, if not undecipherable, names. When the outside finance professional receives this mess at tax time, the trial balance necessitates countless hours of reclassifications and groupings to connect and coordinate the amounts with the classifications required on tax returns and financial statements. At an average public accounting fee of $150 per hour, clients bear the costs of needless expensive clean ups, often tacking on an additional $500 to $600 per year to their annual financial management bills

There is no excuse for not having a chart of accounts set up in a format compatible with and reported on one’s tax return as well as one’s financial statement. Once set up, a simple click in QuickBooks prints a readable and well-organized financial report for internal management, bankers, other creditors, bonding companies, shareholders, et al. In addition, with some mapping to a compatible tax software program, the client’s trial balance amounts can be exported to the company’s tax return by the tax preparer with another click of the mouse.

And so, in order to minimize costs associated with the preparation of tax returns and those  interim and year-end financial reports by an outside accountant, businesses would be well advised to adopt account names, account groupings, and an overall format predicated upon their requisite tax returns. This format need not be inconsistent with that used for internal and external financial reporting, since subaccounts would provide any necessary detail required by management and interested outside parties; while a simple click under report modification in QuickBooks re-arranges the expense accounts in alphabetical order, often the desired presentation for banks.

Setting up a robust and ordered chart of accounts is not an overwhelming task in QuickBooks. Through the availability of wizards and industry specific templates Accounts easily can be created, edited, and merged with a matter of clicks. If you need a starting point, grab your tax return or financial statement compiled by your outside finance professional, and enter the accounts found therein, decomposing summary accounts into subaccounts in QuickBooks. In addition, always remember to backup your company’s QuickBooks’ file before merging two accounts in the event you wish to reverse the process. By creating a more organized and efficient chart of accounts, you will not only save on financial management fees but you will improve your financial reporting in-house as well.

If your still not sure or have a Tax or Bookkeeping question? Please feel free to submit it via the contact us form on our website www.Simply-Bookkeeping.com or call us at +1 832.426.3845.

e-File is open for business

The Internal Revenue Service opened the 2012 electronic tax return filing season today (17 Jan 2012) with a reminder to taxpayers that e-file remains the best way to get fast refunds and ensure accurate tax returns.

With most people receiving a refund, the fastest way to get a refund is by e-filing and using direct deposit to their bank account. Taxpayers can get their money automatically in as few as 10 days in most cases.  In 2011, more than 79 million refunds were electronically deposited into taxpayers’ accounts, saving them a trip to the bank

Also good point to note is that taxpayers should also only use paid preparers who must sign the returns they prepare and enter their Preparer Tax Identification Numbers (PTINs).  Preparers are required to sign the returns they prepare and include their PTINs. Although paid preparers sign returns, taxpayers are legally responsible for the accuracy of every item on their return. Preparers are also required to give taxpayers a copy of their returns.

Cashflow is King For The Small Business

A company needs cash to stay in business. A company needs cash to grow. A company needs cash to compete. A company can look good on paper, and yet not have enough cash to make it through the next month. Hence, the importance of balancing cash flow.

Remember, cash flow is the money your company has available so it can pay salaries, rent, expenses, payables and equipment. When you create a new invoice for a product or a service, it shows up in the books as an asset. However, the money isn't available yet. You can't pay for anything until the customer pays the accounts receivable.

These activities affect cash flow:

• Customers slow to pay invoice.
• Not enough or slow sales.
• Standard expenses, such as payroll, rent and phone service.
• Unexpected expenses, such as building repairs and replacing broken expensive equipment.
• Charging too much or too little for products and services.
• Failure to consider financing. 

Simple example on how timing affects cash flow: a customer that pays you in 45 days affects your ability to pay your credit card bill that's due every 30 days. Since the customer is over two weeks late, you may be stuck paying a fee for missing the payment due date.

You can do many things to manage your cash flow, such as changing your the bill cycle for your credit card payment so you can pay at a different time of the month and consult with your bookeeping team.

The following five basic laws set the tone for better cash flow management.

cashflow