Monthly Archives: January 2016

All Ready for Tax Year 2015

I am finally ready for Tax Year 2015. All that is left is to connect to the FBARs. For some reason this is slow this year.(but see below)

I do both Canadian and US tax returns, and of course I do returns for taxpayers who have to file in both countries. There is a tax treaty that determines which country gets to tax which income. This is important in cases where a person gets income from both countries in any one year, or when a US citizen is working or living in Canada.

If you want a price quotation give me an idea of the type and number of information slips. If you have financial accounts outside the US and the maximum value of these accounts is more than 10,000 I need to know how many of these accounts you have.

If you want to send me your job to do, do not send originals. Send only copies. Better yet, instead of sending me copies, use your printer-scanner to make images, then send me the images attached to an email. This simplifies the whole process.

I will prepare the returns and send them back to you as PDF files so that you can print them out, sign them and send them in. I can efile Canadian returns now. I hope to be able to efile US returns in late March but it is not possible to determine when the IRS will give me permission. It is to their advantage to have forms efiled because it means that they do not have to input them manually. I should note here that the Canada Revenue Agency charges tax preparation firms $25 per return for handling paper returns unless the firm prepares only a small number of returns.

It is very important to determine if your financial accounts outside the US add up to 10,000 or more. For this purpose take the maximum value that each account had during the year. Often if you take out a loan the loan amount appears in your checking or savings account for only a few minutes but this still counts for determining the limit.

If the total of the maximum value of each account comes over 10,000 then you need to include every financial account that you have signing authority for, even tiny ones like your gardening club, your kid’s Boy Scout troop, or anything like that.

Preparing the statements for these financial accounts is sometimes more work than preparing the income tax statements. They need the complete street address of each financial institution, the account number and the maximum value of the account. I prepare two sets of statements with this information, one to go with your return and another to go to a different branch of the Treasury Department. There must be some logic behind this but I do not see it.

A couple of weeks ago I read that of all the taxpayers who are eligible to receive education credits on their returns only about 2 of every 3 actually make the claims. It is usually necessary to see what has been done in previous years because the American Opportunity Credit is only available for a limited time. The Lifetime Learning Credit has different restrictions.The credit is substantial. I do not know why so many taxpayers miss it. One possible reason is that many tax preparers do not want to take the time to go through the different possibilities so they do not ask about it.

If you are filing a 1040 or 1040NR and have pages and pages of stock transactions I can set up a direct connection between your broker and my software so that the information can be transferred directly. You do not have to tell me your trading password, you only have to tell it to Intuit.

Since writing the above I have found a solution for the FBARs. It took 2 20-minute phone calls to find out what the problem was. Somehow their system had decided that my account was inactive because I had not used it since last tax season. There are several places where they say that FBARs can only be submitted during tax season. I do not see why an account should be declared inactive when it is not used during a time period when it is not supposed to be used, but that is bureaucracy for you.

Please remember that the deadlines are April 15 and probably May 2 in Canada.

A Big New Tax Break?

A big omnibus spending bill went through Congress in 2015, just before the end of the year. It was reported to be in excess of 2000 pages in length. I do not believe that it was physically possible for any of the Congress critters to actually read it in the time available.

A report came from Russia that this bill contained an unbelievably generous provision. I do not know how the Russians got a copy of this bill, or how they divided it up so that multiple people could each read a certain number of pages. The generous provision related to the sale of real estate by non-residents.

Let me explain how real estate sales by non-residents are handled. If there is a capital gain the government wants to tax this gain. They do not want to have to chase the vendor to Timbuktu for the money so they grab it during the sales. The notary or lawyer who is handling and registering the sale sends a fraction of the proceeds to the treasury and issues a statement to the vendor showing the proceeds and the tax withheld. The fraction is chosen, in this case by the IRS, to make sure that there will be a refund.

The vendor fills out a tax form, in the case of an individual a 1040 NR, and reports the sale, the cost base, the cost of improvements, the real estate commission, and all other related costs. He or she asks for a refund. The Canadian procedure is similar, but the vendor has to file two returns asking for refunds. As always, the IRS and Revenue Canada have similar intentions but express them in slightly different ways.

The claim made by the Russian observer is that this process is to change so that these sales will no longer be taxable. They stated that this was a gift to the Saudis for backing the present president. This does not make sense, since the current president seems to be backing Iran instead. In fact his most trusted assistant is an Iranian citizen and her parents still live in Iran. The former Secretary of State similarly had an Iranian as her closest adviser.

On further investigation this is not quite correct. There has been a rule for the last 35 years that adds an additional tax on real estate sales by foreigners or foreign companies. Some purchases were made by corporations that were set up especially for this purpose and placed the foreign owners in minority positions.

The reason for this new provision is to encourage foreign ownership of US real estate to keep the bubble growing.

If you are a non-resident thinking of selling US real estate this year at a profit, please look into this.

I am on the IRS mailing list and I am very interested in following up any action that they take on this. I will be reading their email much more closely than in the past, just to see if they are really going to do this.