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If you own foreign investments, you may have an additional federal tax filing requirement this year. Read more

Friday, February 3rd, 2012

If you own foreign investments, you may have an additional federal tax filing requirement this year.

Form 8938, “Statement of Specified Foreign Financial Assets,” is due April 17, 2012, and is filed as part of your individual tax return. You’ll use Form 8938 to disclose interests in certain foreign financial accounts when your ownership exceeds the reporting requirements.

What are the reporting requirements? They vary depending on where you live and your filing status. For example, say you’re married and live in the United States, and you’ll file a joint tax return for 2011. You’ll include Form 8938 with your tax return when the total value of your reportable assets on the last day of 2011 is more than $100,000, or if the value exceeds $150,000 at any time during the year.

Tip: In some cases, you may also need to file Form 8938 for tax year 2010.

Reportable assets include investment accounts you own that are held in foreign financial institutions, interests in foreign entities, and stocks or securities issued by foreign individuals or companies.

You’ve probably noticed the reporting requirements are similar to the “Report of Foreign Bank and Financial Accounts” (FBAR), a separate return you may already be filing. Be aware the new Form 8938 does not replace the FBAR, which you’ll still need to complete by June 30.

Penalties for failure to file Form 8938 start at $10,000. We urge you to contact us so we can help you evaluate your filing requirements for foreign investments.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

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Rundown of 2012 Tax Law changes

Thursday, January 5th, 2012 
* PAYROLL TAX CUT for employees extended through February
 29, 2012. (Social security tax rate on wages up to
 $110,100 will be 4.2% rather than 6.2%.)
* ADOPTION TAX CREDIT decreases to $12,650 for adoption
 of an eligible child.

* SECTION 179 maximum deduction decreases to $139,000,
 with a phase-out threshold of $560,000.

* STANDARD MILEAGE RATE for business driving remains at
 55.5¢ a mile. Rate for medical and moving mileage
 decreases to 23¢ a mile. Rate for charitable driving
 remains at 14¢ a mile.

* ESTATE TAX top rate remains at 35%, and the exemption
 amount increases to $5,120,000. The ANNUAL GIFT TAX
 EXCLUSION remains at $13,000.

* 401(k) maximum salary deferral increases to $17,000
 ($22,500 for 50 and older).

* SIMPLE maximum salary deferral remains at $11,500
 ($14,000 for 50 and older).

* IRA contribution limit remains at $5,000 ($6,000 for
 50 and older).

* KIDDIE TAX threshold remains at $1,900 and applies up
 to age 19 (up to age 24 for full-time students).

* NANNY TAX threshold increases to $1,800.

* TRANSPORTATION FRINGE BENEFIT limit decreases to $125
 for vehicle/transit passes and increases to $240 for
 qualified parking.

* SOCIAL SECURITY taxable wage limit increases to
 $110,100. Retirees under full retirement age can earn
 up to $14,640 without losing benefits.

* HSA CONTRIBUTION limit increases to $3,100 for
 individuals and to $6,250 for families. An additional
 $1,000 may be contributed by those 55 or older.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

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Consider making gifts before year-end

Tuesday, November 22nd, 2011

A lifetime gifting program might trim both your estate and income taxes. First, there’s the annual exclusion for gifts. Currently, you can give $13,000 annually to any number of recipients without paying federal gift tax. Married couples can double this amount by gift-splitting; a gift of $26,000 from one spouse is treated as if it came half from each.

Gifts do more than help out children who need the money. They also reduce your estate so your estate will pay less estate tax upon your death. Apart from annual gift giving, you can currently transfer (during your lifetime or through your estate) a total of $5,000,000 with no estate or gift tax liability. On amounts above this threshold, you or your estate will be faced with taxes at the current top rate of $35%. So a consistent program of annual gift giving might create substantial tax savings.

Note that gifts to individuals do not entitle you to an income tax deduction. A gift isn’t a charitable contribution. Conversely, a gift doesn’t constitute taxable income to the recipient. Gifts of income-producing property may, however, reduce your taxable income. Once you’ve given the property away, the recipient, not you, receives the income it produces and pays any income tax due on it.

One advantage to annual gift giving is that it is relatively simple to do, especially if you’re giving away cash. Another advantage is flexibility. You’re not locked into anything; you can see how much you can afford to give away each year. You can give away anything – cash, stock, art, real estate. Valuation is the fair market value on the date of the gift. Subsequent appreciation, if any, belongs to the donee’s estate, not yours.

Before you give away assets, be sure you will not need them yourself to provide income in later years. Consider the impact inflation will have on your resources.

Proper planning is essential in this area; get professional assistance before you do any gift giving. Contact our office if we can help.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

Posted in Individual Tax Issues, Investing, Tax Preparation, Tax Updates | No Comments »

Sticking to the rules when making charitable contributions can save tax dollars. Here are three tips.

Monday, November 14th, 2011

* Recordkeeping is vital if you want to be able to deduct a contribution to charity.

What records do you need? For starters, to claim an itemized deduction, you’re required to have support for all cash contributions, no matter what the amount. A bank statement, a copy of the cancelled check, or a credit card record will usually suffice for donations under $250. For donations of $250 or more, a statement from the charity is required, giving the charity’s name, the date, the amount of your donation, and the value of goods and services received for the donation, if any. In the case of payroll donations, your pay stub or W-2 can back up your deduction.

The substantiation rules for noncash donations such as household items differ depending on the type of property and its value. For instance, you’ll need a contemporaneous written acknowledgment from the charity for donations of $250 or more. As a general rule, “contemporaneous” means you receive the acknowledgment before you file your return or before the due date of your return, whichever is earlier.

* Make a gift from your IRA. The break allowing a transfer of up to $100,000 from your IRA to a qualified charity is available for 2011. To benefit, you must be over age 70½, and the contribution has to be a direct payment from your IRA to the charitable organization.

* Write down your vehicle mileage for charitable driving. Written records rule, whether you claim the standard mileage deduction of 14¢ a mile or actual expenses. Make sure your log or other paperwork includes the name of the charity, the date, and the miles you drove or the total cost you incurred.

Please call for advice on getting the most benefit from your donations, including appreciated property and out-of-pocket expenses.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

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