Tax

Like clockwork, every year, there’s a new twist on old scams. This year, it is the IRS impersonation phone scam whereby criminals fake calls from the Taxpayer Advocate Service. The TAS is an independent organization within the IRS that help protect your taxpayer rights. TAS can help if you need assistance resolving an IRS problem, if your problem is causing financial difficulty, or if you believe an IRS system or procedure isn’t working as it should. Typically, a taxpayer would contact TAS for help first, and only then would TAS reach out to the taxpayer. TAS does not initiate calls to taxpayers out of the blue.

How the scam works

Like many other IRS impersonation scams, thieves make unsolicited phone calls to their intended victims fraudulently claiming to be from the IRS. In this most recent scam variation, callers “spoof” the telephone number of the IRS Taxpayer Advocate Service office in Houston or Brooklyn. Calls may be ‘robo-calls’ that request a call back. Once the taxpayer returns the call, the con artist requests personal information, including Social Security number or individual taxpayer identification number (ITIN).

In other variations of the IRS impersonation phone scam, fraudsters demand immediate payment of taxes by a prepaid debit card or wire transfer. The callers are often hostile and abusive. Alternately, scammers may tell would-be victims that they are entitled to a large refund but must first provide personal information. Other characteristics of these scams include:

• Scammers use fake names and IRS badge numbers to identify themselves.
• Scammers may know the last four digits of the taxpayer’s Social Security number.
• Scammers spoof caller ID to make the phone number appear as if the IRS or another local law enforcement agency is calling.
• Scammers may send bogus IRS emails to victims to support their bogus calls.
• Victims hear background noise of other calls to mimic a call site.
• After threatening victims with jail time or with, driver’s license or other professional license revocation, scammers hang up. Others soon call back pretending to be from local law enforcement agencies or the Department of Motor Vehicles, and caller ID again supports their claim.

Telltale signs of a scam call

While the IRS or the TAS will never do any of the following, scammers will often:

• Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes.
• Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
• Demand that taxes be paid without giving taxpayers the opportunity to question or appeal the amount owed.
• Ask for credit or debit card numbers over the phone.
• Call about an unexpected tax refund.

Tax scams can happen any time of year, not just at tax time and its important to stay alert to scams that use the IRS or other legitimate companies and agencies as a lure. If you have any concerns, please call the office.

• By Leon Clinton
• April 16, 2019

If you are living or working outside the United States, you generally must file and pay your tax in the same way as people living in the U.S. This includes people with dual citizenship.

In addition, U.S. taxpayers with foreign accounts exceeding certain thresholds may be required to file Form FinCen114, known as the “FBAR” as well as Form 8938, also referred to as “FATCA.”

FBAR is not a tax form, but is due to the Treasury Department by April 15, 2019, and must be filed electronically through the BSA E-Filing System website. It may be extended to October 15.

FATCA (Form 8938) is submitted on the tax due date (including extensions, if any,) of your income tax return.

Here’s what else you need to know about reporting foreign income:

1. Report Worldwide Income. By law, Americans living abroad, as well as many non-U.S. citizens, must file a U.S. income tax return and report any worldwide income. Some key tax benefits, such as the foreign earned income exclusion, are only available to those who file U.S. returns.

2. Report Foreign Accounts and Assets. Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.

3. File Required Tax Forms. In most cases, affected taxpayers need to file Schedule B, Interest and Ordinary Dividends, with their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Some taxpayers may need to file additional forms with the Treasury Department such as Form 8938, Statement of Specified Foreign Financial Assets or FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).

FBAR. Taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2018 (or in 2019 for next year’s filing returns) must file a Treasury Department FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).

Form 8938. Generally, U.S. citizens, resident aliens, and certain nonresident aliens must report specified foreign financial assets on Form 8938, Statement of Specified Foreign Financial Assets if the aggregate value of those assets exceeds certain thresholds:

• If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year
• Taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets.

The threshold is higher for individuals who live outside the United States and thresholds are different for married and single taxpayers. In addition, penalties apply for failure to file accurately.

Please contact the office if you need additional information about thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted and what information must be provided.

An individual may have to file both forms, and separate penalties may apply for failure to file each form.

4. Review the Foreign Earned Income Exclusion. Many Americans who live and work abroad qualify for the foreign earned income exclusion when they file their tax return. This means taxpayers who qualify will not pay taxes on up to $103,900 of their wages and other foreign earned income they received in 2018 ($105,900 in 2019). Please contact the office if you have any questions about foreign earned income exclusion.

5. Don’t Overlook Credits and Deductions. Taxpayers may be able to take either a credit or a deduction for income taxes paid to a foreign country. This benefit reduces the taxes these taxpayers pay in situations where both the U.S. and another country tax the same income. However, you cannot claim the additional child tax credit if you file Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion.

6. Automatic Extension. U.S. citizens and resident aliens living abroad on April 15, 2019, qualified for an automatic two-month extension (until June 15) to file their 2018 federal income tax returns. The extension of time to file also applies to those serving in the military outside the U.S. Taxpayers must attach a statement to their returns explaining why they qualify for the extension.

7. Additional Extension of Time to File. U.S. citizens and resident aliens living abroad may be granted a filing extension of up to six months (October 15, 2019) by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Returnprior to the due date of the tax return (April 15, 2019). However, a taxpayer filing an extension must pay any tax due by the original date or be subject to late payment penalties and interest.

8. Get Tax Help. If you’re a taxpayer or resident alien living abroad that needs help with tax filing issues, IRS notices, and tax bills, or have questions about foreign earned income and offshore financial assets in a bank or brokerage account, don’t hesitate to call.

• By Leon Clinton
• April 12, 2019

Tax credits can reduce your tax bill or give you a bigger refund, but not all tax credits are created equal. While most tax credits are refundable, some credits are nonrefundable, but before we take a look at the difference between refundable and nonrefundable tax credits, it’s important to understand the difference between a tax credit and a tax deduction.

Tax credits reduce your tax liability dollar for dollar and are more valuable than tax deductions that reduce your taxable income and tied to your marginal tax bracket. Let’s look at the difference between a tax credit of $1,000 and a tax deduction of $1,000 for a taxpayer whose income places them in the 22% tax bracket:

• A tax credit worth $1,000 reduces the amount of tax owed by $1,000–the same dollar amount.
• A tax deduction worth the same amount ($1,000) only saves you $330, however (0.22 x $1,000 = $220). As you can see, tax credits save you more money than tax deductions.

Tax Credits: Refundable vs. Nonrefundable

A refundable tax credit not only reduces the federal tax you owe but also could result in a refund if it more than you owe. Let’s say you are eligible to take a $1,000 Child Tax Credit but only owe $200 in taxes. The additional amount ($800) is treated as a refund to which you are entitled.

A nonrefundable tax credit, on the other hand, means you get a refund only up to the amount you owe. For example, if you are eligible to take an American Opportunity Tax Credit worth $1,000 and the amount of tax owed is only $800, you can only reduce your taxable amount by $800–not the full $1,000.

Refundable Tax Credits

• The Earned Income Tax Credit
• The Child and Dependent Care Credit
• The Saver’s Credit

Nonrefundable Tax Credits

Examples of nonrefundable tax credits include:

• Adoption Tax Credit
• Foreign Tax Credit
• Mortgage Interest Tax Credit
• Residential Energy Property Credit
• Credit for the Elderly or the Disabled
• Child Tax Credit (tax years prior to 2018)

Partially Refundable Tax Credits

Some tax credits are only partially refundable such as:

• Child Tax Credit (starting in 2018)
• American Opportunity Tax Credit

Questions about tax credits or deductions?

If you have any questions or would like more information about either of these tax topics, please call.

• By Leon Clinton
• April 9, 2019