Oriental Language Comments

For some reason the last few weeks I am getting a lot of comments in an Oriental language. I think that they are in Chinese but they could be Japanese. They are quite long and contain a few headings in English so it looks to me like they are written by someone who reads English.

I have no idea why they are being sent here. It looks like someone has gone to a lot of work writing them. As you can tell from my headings my main business is Canadian and US income taxes, which must be done in western languages. I don´t want to publish them because I have no way of finding out what they mean.

Can anybody tell me why they are being sent here so that I can decide what to do with them?

When To Incorporate

Many people make a big mistake by incorporating at the wrong time. One of my friends made this mistake and he was a Chartered Accountant. He was involved in a real estate development scheme. He incorporated the whole scheme prematurely. Their plans showed the development as becoming profitable at a particular date and he set up the incorporation a few months ahead. The rental market changed and they lost a lot of money for several months, or possibly two or three years.

Because they were incorporated they could not carry the business losses back to their personal tax returns so they had to pay it and could not take deductions for it. This was in Canada. The equivalent in the US would be changing from an S corporation or an LLC to a C corporation.

Before income tax became such a major drag on businesses it was only necessary to incorporate when many or most of the investors did not take an active part in running the business. Now income tax is a major factor, usually much more important than the operational point mentioned above.

It is always difficult to determine when a business is going to become profitable. Unless most of the investors have experience in the business they are guessing. There are also factors that come out of the blue to bite you in the behind. Once a long time ago I was working in a small steel fabrication business. We were churning out estimates for small metal-clad buildings for potential buyers. All of them expected the Canadian government to remove the sales tax on building materials at the next budget. The budget came and the tax stayed. All of a sudden we were not producing any estimates and I was unemployed.

In conclusion you should not set up a corporation or go from an S corporation to a C corporation until the business is actually making money and there are good reasons to expect it to continue to do so. You can never be completely certain but this will often save you from big disasters.

Educational deductions

There is one cute little trick that works like a charm to rescue a tax client who has taken a course that has something to do with his or her occupation but has not got an official receipt for this educational course.

I saw this done several times and I did it myself several times. It was never questioned by Revenue Canada and I am pretty sure that the IRS would not object to it either. There was a large school in Vancouver, Canada that offered courses in modelling, hairdressing and such things but was not registered with Revenue Canada so they could not issue official educational receipts.

What we did was place the school expenses on a business statement and then show nominal income on the same statement. As an example if the client had taken a hairdressing course we would show a business statement as a hairdresser and show say $25 income as a hairdresser and $800 or whatever had actually been paid as a business expense. The client then had a $775 business loss instead of an $800 educational expense. We might have done this statement for free or charged $5 for it because we had to fill in a bunch of stuff at the top of the page but it was still a really good deal for the client.

This worked first of all because it was very close to what had actually occurred, and secondly because Revenue Canada expected to see income from this business in future.

There are many more little dodges like this that can be used when a taxpayer has an expense that does not quite fit into any particular category but clearly has a business purpose. Using any of these little dodges must be done very carefully because if the paperwork is not clear the tax authorities will deny the deduction and maybe do more than that. It is necessary to balance the chance of trouble with the tax authorities against the loss of a legitimate business expense.

Recently I saw some expense claims that were ridiculous. One woman charged a new fur coat as an expense of advertising her business but her business had nothing to do with fur. I could not see any connection with her advertising and neither did the IRS. I think that they hit her with a penalty for this claim.

Border Hijinks

There are many strange things that happen at international borders. It seems like many politicians and bureaucrats make up rules for some purpose known only to themselves. Let me fill you in on some of those that happen at the US-Canada border.

For many years a white woman who lived in eastern Canada was hassled every time she crossed the line into the US. The reason was that a black man with the same date of birth and a similar name had done something in the US to attract police attention. Apparently it took her over half an hour every time to convince the border guards that she was not the bad guy. How long does it take you to tell the difference between a white woman and a black man?

The Canadian border guards will usually refuse entry to anyone who has been convicted of impaired driving. This created a problem once when a man who was in charge of the FBI for a couple of states came to Canada, with an invitation from the prime minister’s office, and was refused entry because of an impaired driving conviction. Going the other direction, a Canadian with a conviction for shoplifting was refused entry to the US.

In the US the right to bear arms is guaranteed under the constitution. The same does not apply in Canada. Many US citizens drive into Canada without realizing that it is illegal to transport guns across the border. Please be careful about this. Check the glove box of your car before entering Canada.

My friend George had several problems at the border. He was a citizen of India. He had taken part of his education, including his CPA and a Master’s degree in taxation, in the US. I could not imagine how a CPA could make such a stupid mistake but he let his visa lapse. He drove into Ontario on a vacation and tried to re-enter the US. He was told that since he had overstayed his visa he would not be allowed to re-enter the US for a set period, five years I think.

For some reason that was not clear to me he was really upset that it was a female officer who gave him this message. I do not believe that a male officer would have treated him any differently. I am not sure how he got a Canadian work permit but apparently he did not have a problem doing that. Eventually he applied for and received a waiver on the bar, which cut his exile time from about 5 years to about 3. He also applied for and received Canadian citizenship.

There is a type of visa that is usually referred to as a TN. It applies to the NAFTA countries. It allows entry for anyone who has a job offer in one of about 120 different occupations, generally those that require a bachelor’s degree. George got one as a Canadian citizen. On the north border these are given out at the border.

A little later he was working in California as a CPA. His visa was near expiry so he went across the border to Tijuana and attempted to return and get another TN visa. He was not allowed to do so. I do not know where he should have gone, possibly Mexico City. After a day or two he got a permit allowing him to go back into California, pick up his gear, and drive north to Vancouver. He arrived one evening and we had a nice chat. The next day he went to the border and asked for a TN visa. They gave it to him with no problem and he went back to his job in California.

A couple of times I prepared US and Canadian income tax forms for a Canadian man who was working in California as a Chief Operating Officer of a software company. Sometime after this job ended and he had returned to Canada he tried to enter the US using his Canadian passport. He was told that this was incorrect, since he had a green card and was supposed to present it. They stated that this was entering the US under false pretenses. They kept him at the border while his wife went back to their home in Vancouver to pick up his green card. They processed it and let him go. He was told that if she had not brought his green card he would have gone to jail.

Another Canadian man was not so lucky. He was a client of the company I was preparing income taxes for but I never met him. He went across the border to the US on a Sunday morning. At the border he told them that he and his wife were going shopping in Bellingham, a small town just over the border. Then he drove to the Bellingham airport. The border people had someone on duty at the airport and they closed in on him because this did not match what he had told them at the border. They searched him and discovered that he had scheduled a job interview in California. They were going to take him to jail in Seattle but my employer intervened and persuaded them to send him back to Canada. I am not sure if he got a 5-year or a 10-year bar from entering the US but he definitely could not take the job that he wanted to interview for.

Several years ago they ran a bus every week. It started at Seattle and went all the way to the Mexican border. At every stop along the way they picked up illegals from Mexico and Central America. At the border they told them all not to come back. We all thought that it was hilarious that sometimes some of the passengers were back in Seattle before the bus came back the next week.

Two different people made the same totally idiotic mistake. One had moved from the Deep South, say Alabama, to Canada many years before. He began driving into the US frequently. He saw that some people went right across, bypassing the lines of cars that were waiting at the border. About 2006 he inquired and was told that if he wanted to join them he could fill in a form to get approved. He filled it in and sent it off. Sometime later he got a message telling him to come to the US Customs office to pick up his certificate. He arrived and was told that he was on his way to a murder trial in Alabama. He was to be the defendant.

A few years later another man made virtually the same mistake. There are charter airlines that take Canadians to Mexican beach resorts. They usually go once a week. It is a direct flight. One man was on this and missed his return flight. He decided to take another flight, and selected one that changed planes in the US. As he went through Immigration he was informed that his travel plans had to be changed because the state of Washington was going to put him on trial for murder.

I cannot imagine what these guys thought they were doing. In both cases the charge was about 28 years old but no law enforcement agency writes off a murder.

I am passing them on to you because I thought that some of you might be interested. I do not want you to make the same mistakes.

As stated in another post here, I prepare US and Canadian income tax forms and would appreciate the chance to do yours this year.

Tax Season is Here

Today I interviewed by phone for a tax preparation job in Vancouver. It was with an accounting company. I do not know if they will offer me a job or not. The job was preparing T1 returns. They did not seem to be interested in my experience preparing 1040s.

US taxes are much more complex than Canadian taxes. This is because individual US legislators can add complexities to the tax code. This is usually done to provide a benefit to either a campaign contributor or a constituent. In Canada only the Finance Minister can add a complication.

The US taxes their citizens no matter where in the world they live. The only other country that does this is Eritrea. The US provides a system of deductions for earned income in other countries.

I have only ever seen 2 US citizens living in Canada who had to pay US tax after figuring their Canadian taxes. This is because they can treat their Canada Pension Plan and Employment Insurance as taxes. The only ones who have to pay are usually only in this category because they have made a capital gain that is taxable at a higher rate in the US.

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.

Please send your tax questions

Please send me your tax questions. This time of year I am advertising my tax preparation services.

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.

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.

Asset Seizures

Many governments are desperate for cash. The asset seizures are examples of what governments will do when they need cash. Do not expect the IRS to miss this fact. I am posting this to make sure that you understand just how much they want your money.

Several cynics have said that there is no reason to go into politics unless you want to spend other people’s money. There are far too many politicians who act on this viewpoint. They do not consider taxpayer funds as being real money. The final result is, as you might expect, that many if not most government bodies spend far more money than they can obtain by legal means. The amounts involved are much larger than the average person can comprehend and this results in even more spending.

Many years ago I heard a story about a fellow who was a bit of a spendthrift. Someone asked him why he did not live within his means and he replied that he was having difficulty living within his means PLUS his credit. He was the archetype of many government bodies.
This has resulted in borrowing ridiculous amounts of money, in many cases far more than can ever be repaid.

It is not only federal and state governments who have done this. Unconfirmed reports say that several cities are still paying interest on bonds that were sold to raise money to build sports stadiums that have already been demolished. It is hard to see that cities have any business building sports stadiums in the first place. The team managements convinced the city fathers that a new sports stadium would make the city appear to be big-league, and that the team should get a tax break as well. This lasts until the team manages to sucker in another group of city fathers. Then they move and the stadium becomes a white elephant.

The state and federal governments have borrowed as much as they can and now they have decided to take over the business that the mafia have lost recently. They are going into theft in a big way. According to the Washington Post the amount stolen using various asset forfeiture schemes is more than the amount stolen in burglaries by a margin of 4.5 billion to 3.9 billion. These forfeitures are illegal under the 4th, 5th, 6th, and 7th amendments to the US Constitution.

This is often stated as being a part of the War on Drugs. The Departments of Homeland Security and Justice have provided training and financial support to train police officers in how to engage in the practice of “highway interdiction.” This involves using minor infractions as excuses to stop citizens, request warrantless searches, and seize cash.

These remind me of something that happened in the 1950s. There were many speed traps set up on the highway that went from the northeast to Florida. A magazine, possibly Popular Mechanics, published a big article describing every one of these. They told drivers where to slow down so that they would not get a speeding ticket for disobeying a speed limit sign that was hidden behind a shrub or something similar.

Attempts are now being made to nationalize retirement accounts. A new type of retirement account called MyRA has been announced which consists almost entirely of lending money to the federal government, although they said that it was simply to buy government bonds.
FATCA’s purpose is to keep track of any funds that US taxpayers manage to get outside of the US. The net result has been that many financial companies all over the world have closed out all accounts owned by US taxpayers and refused to open new ones for them.

Several months ago James Dale Davidson, who is an international investor among other things, reported that he had tried to wire money, probably a couple million, from his bank to make an offshore investment. He had made many similar international investments in the past, but this time his banker told him that he, the banker, would go to jail if he allowed Davidson to make this investment. Apparently someone in the Treasury Department thought that if he wired this money offshore he might not be wiring it back. The fact that Davidson had paid US income tax on offshore investments many times in the past was not enough to outweigh the fear that he might not bring this one back.

There are several big problems associated with “highway interdiction.” One of the most important it that it destroys trust in police. The basic idea behind police activities is that the citizens will notify the police when they see a crime being committed. Someone who has been robbed by a police officer is much less likely to do this.

One important step that you should take is to never ever give an officer permission to search anything on your person or in your car,

An international body has suggested that all governments should levy a one-time-only 10 % wealth tax to get money to keep their spendthrift ways going. If this actually happens it will not be one time only. It will be announced that way but then it will be repeated a few more times.

It is difficult to see how voters can rein in the big spenders in legislatures. The only method that I know of is to follow the advice of Martin Luther King. A group of black people came to him and said that they were now registered as voters but they had to choose between two white segregationist candidates. He told them to vote against the incumbent. This worked so well that there are probably only a few people under the age of 60 who have ever seen the name of a white segregationist candidate on a ballot.

I would like to suggest that you consider following this procedure next year.

Getting ready for tax year 2015

I specialize in cross-border income taxes. There are believed to be about a million US citizens living in Canada and about the same number of Canadian citizens living in the US.

US citizens or green card holders need to file no matter where in the world they live unless their income is below the minimum. This minimum changes from year to year and depends on your age and family status. I should have the 2015 numbers sometime in January.

Canada only requires people to file for the part of the year that they are in Canada, and also for property, such as real estate, that they own when they are outside the country. When I was working for another agency the head man told me that the agency got Canadians the year that they moved to the US and again the year that they moved back to Canada. In those years they had to file in both countries. The returns work better if the two are prepared at the same time by the same person.

Since one or two years ago the IRS has taken the position that if you were legally married to anyone anywhere you are still married even if you live in a state that does not recognize gay marriage unless you have been divorced somewhere that accepts gay divorce. Canada is more open about it. They have accepted gay marriage and common-law marriage for many years. They have only accepted gay divorce since 2005. The agency head I mentioned above and I were talking to a gay client and the agency head told him that gay divorce was the next logical step to take. The first gay divorce was granted about a month later in Nanaimo, BC. Two lesbian women got married in 2003, separated in 2004, and divorced in 2005.

I have been informed that the software that I use for US taxes will be ready on January 14. It will allow me to get information from clients’ stock trading accounts and then place this information in their tax returns directly. Of course this will only be possible if the client decides to provide me with the necessary authorization.

It will still be necessary to look at the information very closely. Many small companies amalgamate with other companies, do consolidations, and change names frequently. These are often difficult to follow. This has been a very difficult year financially for small mining companies so I will have to be extra careful with these. Today I read that a company that was named after Isis, the Egyptian goddess, has had to change their name.

I will be able to efile Canadian tax returns as soon as the software for these returns is available, probably near January 14. My authorization for efile for US tax returns will not come until later in the year, probably near the end of March. Until then I will have to either send paper copies or pdf files of these returns to the client.

There are advantages of efiling returns. First of all, instead of sending paper returns and then having someone at Canada Revenue Agency or the IRS enter them into a program to produce a computer file, we simply send the computer file that we have produced. This decreases the problems caused by data entry errors. It also speeds up the process.

US citizens who live in Canada should not take out Tax Free Savings Accounts. The IRS considers these to be trusts and there is a big form involved. In one case they instructed me to take out an Employer Identification Number for a TFSA. This was for a $2000 bank account in Calgary. I could not imagine it having employees anywhere, especially not in the US, but this is what they asked for so it was what I provided. After making this application I told the client that it looked like we had been providing training for some new IRS employees.

It will still be necessary to file information on foreign financial accounts twice, to different branches of the IRS. I do not know why they want this information twice but we are stuck doing what they ask. The second set, which was due the end of June for many years, is now due at the same time as the main form 1040.

This is necessary if the maximum value of foreign accounts at any time in the year is USD 10,000 or more. This includes not only your own accounts, but any accounts for which you have signing authority, be they for a Boy Scout troop, a service club, a garden club or your child’s college fund. If money for something like a property purchase goes through your savings account and out again the same day this is counted as part of the $10,000.

Of course I would be happy to prepare your returns for you. If you want to send paper copies (I specifically mean copies, not originals) please write to me at dave@daves-income-tax-online.com to make sure that you have my correct address before sending them. If you are using your multi-functional printer to make the copies you can simply email me the images that your scanner makes so that I can print them out at my end instead of sending them through the mail or using a messenger service.

Recently I read that last tax season a USPS employee noticed that he or she was delivering hundreds of tax refund checks to one address. The IRS was notified. They had sent millions of dollars of phony refunds to the same address. I have no idea why their computers did not notice this, but as you should be aware an ordinary computer cannot do anything that its programmers did not include in its instructions.

The exception to this rule is Watson, the computer that beat human experts at playing Jeopardy. I have been granted access to Watson and will try to use it to predict the stock market. If I make a million dollars on the stock market using Watson’s predictions I will get out of the income tax preparation business and go into the business of decreasing my own income taxes.

That makes it pretty clear that I intend to stay in the income tax preparation business for a long time to come.