Foreign Financial Accounts must be reported

Tax Tip

Do you need to file an FBAR?

So you included Form 8938, Statement of Specified Foreign Financial Assets, with your 2013 federal income tax return to report your interests in certain foreign financial accounts. Do you also need to file a separate Treasury Department report known as the FBAR? This report is easy to overlook, since it's not an IRS form and has special filing requirements.

Here's an overview.

What's an FBAR? FBAR is the short name for Form 114, "Report of Foreign Bank and Financial Accounts." You use the FBAR to report your individual or joint financial interest in, or signature authority over, a financial account in a foreign country — in some cases even if you have included Form 8938 with your federal income tax return.

Filing an FBAR is generally required when the aggregate value of your foreign accounts exceeds $10,000 at any time during the calendar year. Because the account value triggers the filing requirement, you may need to file an FBAR even if your foreign account generates no taxable income.

Note: Form 114 is new for 2013. It replaces Form 90-22.1, which was used in prior years.

What are foreign financial accounts? Financial accounts include deposit and custodial accounts, such as stocks, securities, and mutual funds you hold at foreign financial institutions or foreign branches of U.S. financial institutions. You don't have to include financial accounts held at a U.S. branch of a foreign financial institution, or foreign real estate or personal property you own directly.

When is the FBAR due? Form 114, which you and your spouse can file jointly to report your 2013 foreign accounts and assets, must be submitted electronically by June 30, 2014. No extension of time is available, though you can amend an incorrect return after the initial filing.

While there's no tax due with the FBAR, failure to file can lead to penalties. If you overlooked the filing requirement in prior years, please contact our office. We'll help you get caught up.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Rental Property requires proper documentation

Tax Tip

Renting your home calls for tax planning

Internet sites linking travelers to property owners with space to spare continue to grow in popularity. Whether you travel or not, you might be considering the possibility of signing up and offering for rent all or part of your main home. If so, establishing sound recordkeeping procedures from day one is a good idea.

In addition to a bookkeeping system to keep track of the income and expenses related to your rental, a calendar detailing the days your home was rented will be useful at tax time. The reason? Deductible expenses may be limited when rented property is also your personal residence. Having a written record helps determine which tax reporting rules apply.

For example, say you rent your primary home to a vacationer for 15 days or more during a year. All of the rental income is taxable. However, expenses such as interest, property taxes, utility costs, and depreciation are split between the time your property was rented for a fair rental price and the days you used it personally. The portion related to the rental is deductible up to the amount of your rental income.

What if you have rental expenses in excess of your rental income? You may be able to carry them forward to next year.

Different rules apply when your home is rented for less than 15 days, and when the property you offer for rent is your vacation home or timeshare. Please give us a call. We'll help you plan a tax-efficient rental program.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Alimony is Taxable

Tax Tip

Alimony can affect your tax return

Did you receive alimony in 2013?

You're probably aware that alimony you receive is taxable income. However, determining what's considered alimony may not be as simple as it appears at first glance, because you can receive several types of payments when you divorce or separate from your spouse.

For example, say your agreement includes a noncash settlement such as a house. That's not alimony, and generally is not taxable to you. Voluntary payments made in addition to, or without benefit of, a written court document are generally not alimony, either.

So what is alimony? Alimony is broadly defined as payments you receive in cash from your former spouse under a divorce decree or separation agreement. The payments can't be treated as child support or property settlements in the terms of the legal document, and they must stop at death. Other requirements include living in separate households and not filing a joint federal income tax return.

When you're sure the payments you receive are alimony, you'll need to report them in the year of receipt, using the standard Form 1040. You're also required to provide your social security number to your ex-spouse, and you could have to pay a penalty if you refuse.

Please give us a call to discuss the effect of alimony on your tax situation. We can help you plan your financial future.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Tax Publications are not Binding

Tax Tip

IRS Tax Publications Are Not Binding Precedent

If you are a taxpayer who thinks the answers you receive when calling the IRS help line are always accurate and binding upon the IRS in a subsequent challenge, think again. The IRS will be the first to tell you that the information provided by its help line is not binding on the agency. In other words, even if you follow the advice provided by the IRS, you will not be protected from subsequently being challenged by the IRS and hit with additional taxes, penalties, and interest. The IRS does not stand behind the advice provided by their employees.

The same holds true for IRS publications. In a recent tax court case (Bobrow, TC Memo 2014-21) involving a prominent tax attorney, the court reiterated and emphasized its long-standing position that IRS published guidance is not binding precedent and that taxpayers "rely on IRS guidance at their own peril."

In the Bobrow case, the tax court ruled against the taxpayer, and even imposed a substantial accuracy-related understatement penalty against the taxpayer in spite of an IRS publication that supported his position.

The IRS does not make tax laws; Congress does through the Internal Revenue Code (IRC). The IRS only interprets how the IRC applies in various situations. The advice provided in IRS publications is far more reliable than the opinion provided by a single IRS employee on the phone. However, neither provides binding precedent that can be cited in audit, appeal, or tax court.

The moral of this story is to be cautious in interpreting how the tax laws apply to your particular situation and to seek professional assistance when needed. The IRC is huge and complicated. Please contact this office for assistance.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Finding lost money

Find Lost Money

Unclaimed property refers to accounts in financial institutions and companies that have had no activity generated or contact with the owner for a period of one year or longer (depending upon state law). Common forms of unclaimed property include savings or checking accounts, stocks, uncashed dividends or payroll checks, refunds, traveler’s checks, trust distributions, unredeemed money orders or gift certificates (in some states), insurance payments or refunds and life insurance policies, annuities, certificates of deposit, customer overpayments, utility security deposits, mineral royalty payments, and contents of safe deposit boxes.

Financial institutions and companies will turn these funds over to a state unclaimed property department where the funds are held until claimed by the owner. This typically occurs when you relocate, close a business address, misplace a check, etc. It can also occur if you are the beneficiary of an estate and the trustee is unable to locate you.

There are various ways to locate these assets. There are commercial firms that may seek you out. However, you can perform a search for free in a number of ways. For instance, each state has a website for its unclaimed property department, allowing you to search state by state. Generally, one would only search the state that he or she has been a resident of.

There is also a website developed by the National Association of Unclaimed Property Administrators (NAUPA) that provides links from a map to each individual’s state’s search site. NAUPA is also currently developing a search site that will locate unclaimed money in all states called missingmoney.com. However, that site is currently under development and does not include all states, so it is wise to check both it and all states in which you have been a resident.

What are your odds of finding some lost money? Well, the author, while researching this article, found three accounts in his name totaling over $1,200. A nice bonus for writing the article! Who knows what you will find, but it only takes a few minutes to check and could yield some pleasant surprises. On its website, NAUPA indicated that the average claim was $892. 

If you have any questions, please give this office a call.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Renting your home

Tax Tip

Renting your home calls for tax planning

Internet sites linking travelers to property owners with space to spare continue to grow in popularity. Whether you travel or not, you might be considering the possibility of signing up and offering for rent all or part of your main home. If so, establishing sound recordkeeping procedures from day one is a good idea.

In addition to a bookkeeping system to keep track of the income and expenses related to your rental, a calendar detailing the days your home was rented will be useful at tax time. The reason? Deductible expenses may be limited when rented property is also your personal residence. Having a written record helps determine which tax reporting rules apply.

For example, say you rent your primary home to a vacationer for 15 days or more during a year. All of the rental income is taxable. However, expenses such as interest, property taxes, utility costs, and depreciation are split between the time your property was rented for a fair rental price and the days you used it personally. The portion related to the rental is deductible up to the amount of your rental income.

What if you have rental expenses in excess of your rental income? You may be able to carry them forward to next year.

Different rules apply when your home is rented for less than 15 days, and when the property you offer for rent is your vacation home or timeshare. Please give us a call. We'll help you plan a tax-efficient rental program.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Bartering for Services and Products are Taxable

Bartering for Services and Products Is Taxable

Tax Tip

Bartering is the trading of one product or service for another. Often there is no exchange of cash. In addition to individuals, small businesses sometimes barter to get the products or services they need. For example, a plumber might trade plumbing work with a dentist for dental services. Bartering may take place on an informal one-on-one basis between individuals and businesses, or it can take place on a third-party basis through a modern barter exchange company.

Some individuals and small businesses believe that bartering avoids taxable income because there is no exchange of money. This is not true, however; barter exchanges are considered taxable income by the IRS. The fair market value of goods and services exchanged must be included in the income of both parties to the exchange. 

Business Owners – If you are the owner of a business, you may sometimes find it to your advantage to barter for goods and services rather than pay in cash. You should be aware, however, that the fair market value of the goods that you receive through bartering is taxable income, just as if you had received a cash payment.

Exchanges of services result in taxable income for both parties. Say, for example, that a computer consultant agrees to an exchange of services with an advertising agency. Both parties to the transaction are taxed on the fair market value of the services received. This is the amount they would normally charge for the same services. If the parties agree to the value of the services in advance, this will be considered the fair market value, unless there is contrary evidence.

Income is also realized when services are exchanged for property. For example, if an architectural firm does work for a corporation in exchange for shares of the corporation’s stock, it will have income equal to the fair market value of the stock.

Barter Exchanges – Individuals and business owners sometimes join barter clubs that facilitate barter exchanges. Some exchanges operate out of an office and others over the Internet. Unlike one-on-one bartering, members of exchanges are not obligated to barter or purchase directly from a seller. Instead, when a barter exchange member sells a product or a service to another member, their barter account is credited for the fair market value of the sale. When a barter exchange member buys, the account is debited for the fair market value of the purchase. These clubs generally use a system of “credit units” that are awarded to members who provide goods and services and can be redeemed for goods and services from other members.

If you participate in a barter club, you’ll be taxed on the value of credit units at the time they are added to your account, even if you don’t redeem the units for actual goods and services until a later year. For example, say that in Year 1, you earn 2,000 credit units and each unit is redeemable for one dollar in goods and services. In Year 1, you’ll have $2,000 of income. You won’t pay additional tax if you redeem the units in Year 2, since you will already have been taxed once on that income.

When you join a barter club, you’ll be asked to give the club your social security number or employer identification number and to certify that you aren’t subject to backup withholding. Unless you make this certification, the club must withhold tax from your bartering income at a 28% rate.

By January 31st of each year, the barter club will send you a Form 1099-B, which shows the value of cash, property, services, and credits that you received from exchanges during the previous year. This information will also be reported to the IRS.

If you have questions related to bartering income, please give this office a call.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com