If your financial life spans multiple countries and you’ve not been paying close attention to your tax issues, be forewarned: This Friday is the deadline for the Internal Revenue Service’s latest offshore tax reporting voluntary disclosure program.
It’s one of those deadlines that most people pay little attention to, despite how much it’s been publicized. It’s the second in a series of IRS efforts — some 15,000 came forward for the previous initiative in 2009 — to bring offshore assets and income into the tax system through a voluntary disclosure program that let taxpayers avoid an array of civil and even criminal penalties (including potential jail time) for foreign income and account violations. Taxpayers who choose the program still face penalties, which may be hefty, but they are far less severe than those the IRS can impose if it uncovers your tax transgressions.
While you may think that this effort affects mainly uber-wealthy taxpayers with numbered accounts in Switzerland, the rules apply to a far broader, and more eclectic, group of people. Among those who could be affected are dual residents who haven’t filed returns, U.S. citizens (including retirees) who have been living abroad for decades, and immigrants in this country (whether citizens or not) who have maintained financial lives back home. “Some folks might not even realize they have a filing requirement,” says Jim Medeiros, a tax partner in PricewaterhouseCoopers private company services practice. “There are a lot of unintentional violators.”
Some taxpayers will find that complying with the program and paying the penalties aren’t too onerous given the risk it removes. But others may end up with huge unintended tax bills simply because they didn’t know the rules. The voluntary program’s penalty for failing to report foreign accounts on the FBAR, or foreign bank account reporting form is generally 25 percent of the highest aggregate balance in the account between 2003 and 2010. That’s a number that could be well over one-quarter of the current account’s value if its holdings were stocks valued at the peak, and it’s possible that the penalties due could exceed the amount of money now in the account. The FBAR filing is required for any U.S. person with at least $10,000 in a foreign financial account.
Identity theft fraud caught by the IRS has skyrocketed since 2008, the Government Accountability Office said in a report released this week.
n 2010, the GAO said the IRS found 245,000 cases of identity fraud — cases in which Social Security numbers of others were used to either falsely try to collect a refund or to get work and avoid taxes. That is up from fewer than 52,000 cases in 2008.
Nothing riles Americans quite like taxes: who pays what, whether the government needs to raise them or might slash them, and how much they’re eating away at our paychecks.
And when it comes to tax avoidance — the legal means of minimizing one’s tax burden, not to be confused with its illegal cousin, tax evasion — a growing chorus of critics say high tax rates are to blame, and an overly complex tax code isn’t helping. The emerging point of view: The higher tax rates get, the more people will try to figure out ways to stop paying them.
Whoo hoo! A refund. Speaking personally, this is the first time in about 10 years that I’ve qualified for a refund. I think it’s because I took this full-time job at Reuters and signed up to have big bucks deducted from my paycheck. And it’s because 2010 tax breaks passed retroactively actually lowered my total tax bill (and those of many others).
This year, the average tax refund is pushing $3,000, according to the Internal Revenue Service. Many financial advisers believe that it is a big mistake to get a big refund. Getting a big refund means you’ve loaned the IRS money all year long without earning a penny in interest. “My gripe with large tax refunds… is two-fold,” Eleanor Blayney, the consumer advocate for the CFP Board of Standards, said in a recent press statement. “First, they make mincemeat of any attempt to manage your cash flow. Second, they often go unplanned.” She advocates budgeting your taxes as closely as you possibly can to the amount you’ll actually owe when the year ends, and integrating the extra cash you’re not sending the IRS into a reasonable spending and saving budget.
If you are one of those chronic procrastinators who has yet to close out the 2011 tax season, don’t waste time reading all of this. Just file an extension asap. If you think you’ll owe money, send a check along with it.
And what if you’re reading this after the April 18 deadline has passed? Go directly to your post office and mail an extension form right now. It couldn’t hurt.
Whether it’s the NFL player who forgot to mail in his tax return or the person who exercised his stock options and triggered a huge tax bill, negotiator Jim Camp has seen a lot of people get into sticky situations with the Internal Revenue Service.
With 25 years of experience, Camp sat down with Prism Money to offer advice on how to successfully negotiate with the taxman.
Tax deadline day, April 18, is quickly approaching.
Before you file, make sure you’re grabbing all of the deductions due to you. Robert Spielman, a certified public accountant and partner in the tax and business services practice at Marcum LLP, sat down with Prism Money and shared several ways to navigate the muddy waters of tax season. Here is his advice.
What are the best ways to reduce taxable income?
Use all the credits you can. This one is a no-brainer. There are a million credits for individuals and not everyone knows about them. There’s the new home buyer credit and the energy credit for installing new windows, energy efficient appliances, solar energy or anything like that. There’s one set of college credits.
It’s the simplest things that can trip you up at tax time, like not getting money into your account or forgetting to sign your return. But this year, with so many tax changes, there are even more minefields.
If you were thinking you’d do your tax return the old-fashioned way, by hand, just stop now. Get an accountant or a tax-software program. Without software — which, yes, even accountants use — you’ll be unlikely to get through your return without errors.
A threatened government shutdown won’t stop Internal Revenue Service commissioner Douglas Shulman from filing his own taxes on time; they’re already done. “I make sure it gets done on time,” he told Reuters. “I just have to look it over.” He said that taxpayers should follow that example and not expect to get any extra filing time if there is a temporary federal work stoppage.
“The IRS will be accepting tax returns,” he told the National Press Club in a luncheon speech on April 6. “The American people should file their taxes and they are required to file by April 18.”
Don’t stay up at night worrying about having your taxes audited, or imagining horrible interrogation scenarios with tax agents and windowless rooms. Fewer than one percent of returns are ever examined, and the vast majority of those are done through the mail and not in person. More reassuringly, more than one in 10 of those audits result in “no change” in the amount the taxpayer owes.
That data and more is included in the Internal Revenue Service’s most recent data book. In 2009, the IRS received 187 million returns, and it audited 1.7 million returns in fiscal year 2010, producing a 0.9 percent audit rate. So breathe.