All you need to know about PFIC reporting – Form 8621

All you need to know about PFIC reporting – Form 8621

by | Nov 29, 2018 | Blog, Tax Planning, Tax Preparation

All you need to know about PFIC reporting – Form 8621

For any US resident paying taxes and keeping a track of the same is as important a duty as any other. Being on the top of your taxes will not you to plan and sort things out well in advance. On the other hand, it prevents you from getting under the scrutiny of the IRS.Form 8621 One such important aspect of your tax filing is Form 8621. Being aware of what it is and whether or not you should include it in your returns can be quite helpful. Form 8621 comes into the picture if you are someone who has invested or owns an interest in a PFIC or Passive Foreign Investment Company.

Why Should You File?

If due to some reason you forgot or intentionally did not attach a Form 8621 along with your returns, you might be looking at one of the stiffest penalties the IRS has. Your return would come under the category of an incomplete tax return. This, in turn, means that the IRS has the authority to dig deeper and audit your returns until they are convinced.

What is PFIC?

The following is a brief description of what fits into the description of a PFIC.

If more than 75% income of an organization for a taxable year is passive, PFIC would be applicable. For example, if you have a company that invests largely into stocks, ETFs or securities it would come under the passive income category. However, if you have a consulting company they income would fall into the category of earned income.

If more than 50% of the average assets held by a company is utilized to produce passive income or held for the sole purpose of creating passive income, it would come under the purview of PFIC. Rental income for an instance is passive income.

Threshold

Irrespective of whether you are filing your taxes as single or married jointly, if your income from PFIC is more than $25,000, you must report the same. For example, if your PFIC’s make about $50,000 for a taxable year or you have 6 PFIC’s each earning $7000, you will have to include them in your tax filing. On the other hand, if your income from PFIC is about $18,000 for a taxable year, you might not have to declare it.

How To Report PFIC

The first step to reporting your PFIC’s is identifying how many you have in the first place. You can then use any exchange rate to calculate the income. Usually, people follow the data provided by the Department of the Treasury exchange rates or the rates published by the IRS.

Once you have identified the PFICs and used the exchange rates, you can determine if the income has breached the threshold values or not. If it has, then you would need to file the Form 8621 along with your tax returns.

To fill the form, you would need to enter the following information.

  • The name of the shareholder.
  • The address of the shareholder.
  • The year of filing for the shareholder.
  • The type of shareholder.
  • The name and the address of the PFIC.

The last step is a bit more challenging one. It requires you to write a summary of the information provided for Form 8621. The usual summary includes the different classes of shares, the date on which the shares were purchased for a taxable year, the number of shares that a shareholder holds by the end of the year, its valuation and the gains or losses made on them.

Form 8938-All you need to know about Foreign assets reporting

Form 8938-All you need to know about Foreign assets reporting

by | Nov 20, 2018 | Blog, Tax Planning

Form 8938-All you need to know about Foreign assets reporting

Foreign assets reporting,It was after March 2010, that taxpayers in the United States of America were required to report their financial assets in other countries apart from the USA.Form 8938, This addition was initiated by HIRE or Hiring Incentives to Restore Employment Act under the FATCA or Foreign Account Tax Compliance Act. There are two significant parts to the FATCA. Firstly, it allows global financial institutions to report any financial interest of taxpayers in other countries. And secondly, it adds provisions for US taxpayers to declare their assets outside the USA.

Before we get to the details of the ACT, it is important to know which all assets qualify as foreign financial assets. Here is a brief list of the same.

  • Any accounts held with financial institutions such as bank accounts, mutual funds, other investments, outside the United States of America.
  • If a person has any interest in an entity such as a corporation, partnership or member of a trust outside the USA.
  • If a person holds any form of securities such as stocks or bonds which are not part of an investment account.
  • If a person holds any financial interest or instrument where the issuer or counterparty is a non-US resident.

Form 8938

Now that we are cognizant of the different assets, the next obvious question is, should you file Form 8938? Technically any US resident who is impacted by the FACTA must file Form 8938 in their tax returns. However, for the time being, the IRS requires only specific individuals to file the Form along with their returns. Citizens of US, resident aliens, non-resident aliens and non-resident aliens who stay in Puerto Rico or American Samoa qualify to file FORM 8938.

Thresholds for Form 8938

In order to file Form 8938 properly, taxpayers need to be aware of a couple of values. Firstly, the maximum value of their assets for a fiscal year and the asset’s value by the end of the year. A taxpayer must then add up all the maximums and year-end value. This will help the IRS assess if an asset’s value surpasses the thresholds. If and only if the assets exceed the threshold limits set, that a taxpayer must file Form 8938.

The following are the different threshold values set by the IRS.

Unmarried Individual

For an unmarried individual taxpayer, they need to file Form 8938 if their asset’s year-end market value is greater than $50,000 or if it exceeds $75,000 during any part of the year.

If an individual is unmarried and resides outside the USA and qualifies as a bona fide resident or passes the physical presence tests, the limits stand at $200,000 for last day of the year and $300,000 during any time of the year.

Married Individuals

Individuals who are married and are filing their taxes jointly, the Form 8938 would come into the picture if the foreign assets exceed $100,000 on the last day of the fiscal year or exceed $150,000 during any time of the year.

If married individuals are filing their taxes separately, the threshold limits remain the same as that of unmarried individuals.
Along with the above information, it is important to be aware of how to value your foreign assets. To calculate the market value, one must be aware of the maximum value of the asset and convert it to USD. One must only refer to the Treasury Department’s Financial Management Service for conversion rates. And finally, you must file the Form 8938 with your Form 1040.

The above should help you identify assets, whether or not you need to file the Form 8938 and how to file the same.

Don’t Forget These 6 Steps While Filing Your US Taxes in FY 2018

Don’t Forget These 6 Steps While Filing Your US Taxes in FY 2018

by | Nov 19, 2018 | Tax Planning, Tax Preparation

Don’t Forget These 6 Steps While Filing Your US Taxes in FY 2018

On paper,the filing of taxes just limited to one day. However, in most probability, it takes much more efforts. Sometimes, even an entire year’s planning, if you wish to be on the top of taxes. US Taxes Whether you are filing taxes for the very first time or are a seasoned campaigner at that, there are few things not to forget while filing your US taxes in FY 2018. Keeping these in mind will help you file taxes more efficiently and avoid IRS from scrutinizing your filing closely.

Need to file

The first thing that you need to figure out is whether or not you are required to file for taxes. There are a few factors that decide the tax liability of an individual such as the status of filing, age, or dependency. An example of the same would be, an individual who is less than 65 years and has an annual income of less than $12,000 might not actually have to file for taxes. Thus, take a few moments to assess your tax liability and the need for filing taxes.

Be Organized

Whether you a first-timer or have prior experience in filing taxes, it is crucial to be prepared and organized. Staying calm and organized will make the entire process much smoother. If you wish to add deductions to your filing, ensure that you keep receipts or proof for the same. Maintaining a separate file for taxes is the ideal way to go. When you keep all tax-related information at a single place, it becomes easier to deal with it.

Exemptions for Dependents

As already mentioned, it is important to know what your status is while filing for taxes. The status is even more crucial for first-time tax filers or students getting into jobs. If your parents have added you as dependent on their tax filing, you must let go of exemptions. A qualifying child cannot claim for tax exemptions and neither can their parents.

Deductions

There are several clauses in the tax laws which allow citizens to deduct certain expenditures. One must not overlook or ignore these expenses or deductions. Simply because they can reduce your tax liability by a handsome margin. For the year 2017, the average deduction for single tax filers stood at $6,350 and for couples who filed together, it was $12,700. Being aware of the different deductions available can help you save a considerable amount of money in taxes.

State taxes

The tax laws vary depending on the state of which you are a resident. The state tax returns also follow a similar schedule as the federal taxes. Thus, it is important to find out whether or not your income is taxable as per your state tax laws and which expenses qualify as deductions as well. Some of these could be related to your vehicle or home while others could be related to your job.

Verify your documents

Firstly, you need to keep a close eye on your mailbox since most employers and companies send out the W-2 or Form 1099 via emails. Once you do receive them, ensure that you scrutinize the details. If something is wrong with the W-2, ensure that it is corrected at the earliest rather than waiting for the deadlines. Thus, take some time off and verify all of the supporting documents for their authenticity and accuracy. Some time spent on this upfront will save you from a lot of pain down the road.

These are a few things that you should not forget while filing your taxes for the financial year 2018-2019.

Tax tip to avoid late payment penalties

Tax tip to avoid late payment penalties

by | Nov 13, 2018 | Tax Planning

Tax tip to avoid late payment penalties

Tax tip to avoid late payment penalties,Taxpayers should keep copies of tax returns and all supporting documents for at least three years. This will help when adjusting withholding, making estimated tax payments, and filing next year’s return. File and pay taxes on time to avoid a potential late filing/ late payment penalty.

Pay bills with IRS direct pay and receive instant confirmation.

Pay bills with IRS direct pay and receive instant confirmation.

by | Nov 13, 2018 | Tax Planning

Pay bills with IRS direct pay and receive instant confirmation.

Taxpayers can pay tax bills directly from a checking or savings account free with IRS Direct Pay. Taxpayers receive instant confirmation once they’ve made a payment. With IRS Direct Pay, taxpayers can schedule payments up to 30 days in advance. They can change or cancel a payment two business days before the scheduled payment date. Taxpayers who are unable to pay their tax debt immediately may be able to make monthly payments. Before applying for any payment agreement, taxpayers must file all required tax returns.