If you have a foreign bank account that has not been reported to the IRS, then you could be facing serious civil penalties and even criminal penalties. These penalties fall under the Foreign Bank Account Report, (FBAR) violations.
First, it is important to determine if you are required to report your foreign bank account. It comes down to being able to say yes to the following four questions:
- You are now a US citizen or permanent resident or have been in the last six years.
- You have had a foreign bank account for a year or longer since 2008.
- Your balances in all of your foreign accounts exceed $10K
- You have not reported the account through the FBAR paperwork to the IRS.
The civil penalties for not filing the FBAR will be the greater of 50% of your bank account or $100K. The IRS has also indicated that it is willing to charge these penalties cumulatively for up to four or even six years.
This means that you can be charged these penalties for each year you have had the foreign bank account and not reported it to the IRS regardless of the fact that the penalties may well out pace the actual dollar amount in your account.
In addition to expensive civil penalties, you can also face criminal penalties. If the IRS determines that you willfully knew that you should have filed a FBAR and didn’t, they can charge you under FBAR violation laws as well as normal criminal tax prosecution laws.
A criminal prosecution typically occurs when a person has a large amount of taxable income in their foreign bank account that has not been claimed on their tax return.
A tax accountant or tax attorney can walk you through your options if you find yourself in this situation, as the IRS does offer voluntary disclosure programs, but even with taking advantage of one of these programs, you will still suffer the sting of IRS penalties.
If you would like assistance in this area, call 510-222-5800 and ask for Navjeet Chahal.
Chahal & Associates is a tax accounting firm in Northern California with offices in Emeryville, San Rafael and Pinole. We are multilingual and help many foreign business owners establish a business within the United States and comply with the tax rules and avoid foreign bank account penalties. As part of our International Tax Consulting, we also provide High Net Worth Immigration Assistance and Tax Services for Foreign Nationals and Non-Resident Aliens.
Entering the property rental market is a common way to increase your net worth in the long run as well as generate some passive income in the short run. If you are new to the landlord business though, you may fall prey to some common rental property income mistakes when you file your tax return. Of course, the best way to ensure that you don’t make any of the following mistakes is to have a professional prepare, or at least review, your return; however, knowing what the most common mistakes are is a good place to start.
- Not declaring rent when it is received – any rent received by a landlord must be declared in the year it is received. It is common, for example, to require a deposit as well as first and last month’s rent when leasing a property. Even though the last month’s rent isn’t actually due yet it must be declared in the year when you receive the funds.
- Security deposits count as income if not returned – if you collected a $2,000 security deposit and find that you need to keep $1,000 of it when the tenant moves out to repair damages and/or clean the property you need to declare the $1,000 as income. Of course, you may also have corresponding expenses if the funds are used to complete repairs.
- Expenses paid by a tenant are income to the landlord — if your tenant fixes something on the property, the money spent by the tenant is actually income to the landlord if the cost of the repairs is deducted off the rent. Again, you may also have a corresponding deduction for the cost of the repairs, meaning you need to declare both income and expenses.
- Property and furnishings are depreciated differently – property is often rented “furnished”. You may deduct the cost of the furnishings but make sure you calculate the deduction properly. Residential rental property is depreciated over 27 ½ years while furniture is depreciated over just five years.
- Failing to document – if it isn’t in writing is doesn’t count! Everything from your original lease agreement to the cost of replacing a lost key should be documented in writing. Not only does this ensure that you will get credit for all your allowable deductions but is also protects you in the event of an audit by the Internal Revenue Service.
By avoiding these five common rental income tax mistakes you can dramatically reduce the chances of an error on your tax return.
If you are tired of overpaying taxes or even worrying about taxes, call 510-222-5800 and ask for Navjeet. Our goal is to lower your taxes within the letter of the law and make the process stress free.
Chahal & Associates is a Bay area tax and accounting firm. We have three convenient offices to service the Bay area, Emeryville, San Rafael and Pinole. Our firm provides small business accounting services, payroll and a variety of tax services ranging from international tax to IRS Problem Resolution to simple tax preparation. For business owners seeking to establish a business within the United States, we also provide establishing United States Operations, High Net Worth Immigration Planning, Expatriate Taxes, and Resident and Non-Resident Alien Tax Services.
For many that are native to Puerto Rico, the island’s economy is forcing them off the island and onto the main land of the United States. Puerto Rico’s economy is in a death spiral and families are losing their homes and businesses, so why do the rich continue to flock there? The answer can be summed up in two words: tax exemptions.
While the middle and lower economic classes are streaming off the island, the super rich are taking advantage of tax exemptions enacted in 2012 to help the economy. Simply put, Puerto Rico are offering tax exemptions to rich Americans, so they will buy existing businesses and open new ones.
These tax exemptions, which fall under the 2012 Export Services Act and the Individual Investors Act, provide non-residence investors a 3 to 4% flat income tax, zero property tax, as well as 0% tax on earnings and profits.
In addition, investors can enjoy a 0% tax on dividends and interest as well as a 0 to 10% tax on long-term capital gains. When compared to tax rates of up to 20% in the United States, it can be quite the incentive for rich investors.
For example, hedge fund owner John Paulson is currently investing $1.5 billion dollars in real estate on the island in the form of luxury resorts and hotels such as the Condado Vanderbilt Hotel and the St Regis Bahia Beach Resort.
While Puerto Rico’s debt crisis continues to worsen, and about 200,000 residents are leaving each year, you can expect the influx of American investment money to continue for the foreseeable future.
If you are looking for ways to lower your tax liability, call 510-222-5800 and ask for Navjeet. We help small business owners and high net worth individuals lower their taxes legally.
Chahal & Associates is a California accounting firm with three offices in the Bay area of Northern California, Emeryville, San Rafael and Pinole. Our firm provides small business accounting services, payroll and a variety of tax services ranging from international tax to IRS Problem Resolution to simple tax preparation. For business owners seeking to establish a business within the United States, we also provide establishing United States Operations, High Net Worth Immigration Planning, Expatriate Taxes, and Resident and Non-Resident Alien Tax Services.