TIPS ON AMENDING A RETURN

You may discover you made a mistake on your tax return. You can file an amended return if you need to fix an error. You can also amend your tax return to claim a tax credit or deduction. Here are 10 tips from the IRS on amending your return:

1. When to amend. You should amend your tax return if you need to correct filing status, the number of dependents or total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return
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3. When NOT to amend. In some cases, you don’t need to amend your tax return. The IRS will make corrections, such as math errors, for you. If you didn’t include a required form or schedule, for example, the IRS will mail you a notice about the missing item.
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5. Form 1040X.  Use Form 1040X to amend a federal income tax return that you filed before. You must file it by paper; you cannot file it electronically. Make sure you check the box at the top of the form that shows which year you are amending. Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.
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7. More than one tax year.  If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS. See “Where to File” in the instructions for Form 1040X for the address you should use.
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9. Other forms or schedules. If your changes have to do with other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. If you don’t, this will cause a delay in processing.
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11. Amending to claim an additional refund. If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 16 weeks to process. You will receive any additional refund you are owed.
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13. Amending to pay additional tax. If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.
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15. Reconciling the Premium Tax Credit. You may also want to file an amended return if:
    • You filed and incorrectly claimed a premium tax credit, or
    • If you received a corrected or voided Form 1095-A. For more information, see Corrected, Incorrect or Voided Forms 1095-A for Tax Years 2014 and 2015.
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17. When to file. To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.
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19. Track your return. You can track the status of your amended tax return three weeks after you file with “Where’s My Amended Return?” This tool is available on IRS.gov or by phone at 866-464-2050.

Rules Changes for ITIN and Tax Credits

Individual taxpayer identification numbers (ITINs) are commonly used by undocumented taxpayers who have a tax filing requirement. As a general rule, a taxpayer filing with an ITIN has been able to claim the same exemptions, deductions, and credits as a taxpayer filing with a Social Security number (SSN). A major exception to this rule is the earned income tax credit (EITC). Sec. 32(m) requires the taxpayer and/or a qualifying child to have an SSN, other than an SSN issued to apply to receive benefits from a federally funded program, to claim an EITC.

The Protecting Americans From Tax Hikes (PATH) Act of 2015, passed as part of the Consolidated Appropriations Act, 2016, P.L. 114-113, established new limitations for returns filed after Dec. 18, 2015. Section 204 of the PATH Act amended Sec. 32 to require that an SSN can be used to obtain an EITC only if it was issued on or before the due date of the return involved. In the past, amended returns could be filed for up to three years to claim the EITC if the taxpayer was able to obtain an SSN. Now, retroactive filing of returns to claim the EITC will not be allowed for either amended or original prior-year returns.

Similarly, Sections 205 and 206 of the PATH Act added limitations on claiming the child tax credit, including the additional child tax credit, and the American opportunity tax credit by providing that a taxpayer identification number can be used to claim those credits only if it was issued on or before the return’s due date. The new provisions do not specify whether the due date for these purposes is the original due date or the due date with a timely filed extension. The major impact of this change will be on taxpayers using newly issued ITINs. As is the case with the provision affecting the EITC, retroactive filing of returns to claim the child tax credit or the American opportunity tax credit will not be allowed for either amended or original prior-year returns that were due before issuance of the ITIN.

The issue date requirement presents potential timing issues for the 2017 tax season with regard to returns prepared to accompany Forms W-7, Application for IRS Individual Taxpayer Identification Number, where the child tax credit or American opportunity tax credit is being claimed. However, for 2015 returns only, an exception to the general issue date rule is in place. The issue date requirement for the EITC, the child tax credit, and the American opportunity tax credit is waived for a 2015 return filed on or before the due date. For example, if a Form W-7 was filed with a timely filed return for 2015, the issue date rule does not apply for that return only

Tax Compliance issues for Non Profit

Whether you've just started a nonprofit, recently submitted your organization's first Form 990, or are the executive director, it's important not to lose sight of your obligations under federal and state tax laws. From annual filing and reporting requirements to taxes on business income and payroll compliance, here's a quick look at what nonprofits need to know about tax compliance.

Annual Filing and Reporting Requirements: Form 990

Once you've applied for and received tax-exempt status under (Section 501(c)(3) and filed Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, your organization is officially a nonprofit, and is exempt from federal income tax under section 501(c)(3). Tax exempt status refers to exemption from federal income tax on income related to the organization's mission, as well as the ability to receive tax-deductible contributions from donors.

The next step is to comply with annual filing and reporting requirements, specifically, Form 990, Return of Organization Exempt from Income Tax.

Generally, tax-exempt organizations are required to file annual returns. If an organization does not file a required return or files late, the IRS may assess penalties. In addition, if an organization does not file as required for three consecutive years, it automatically loses its tax-exempt status.

There are four different Forms 990; which form an organization must file generally depends on its gross receipts. Forms 990-EZ or 990 are used for organizations with gross receipts of less than $200,000 and with total assets of less than $500,000. Form 990 is used for nonprofits with gross receipts greater than or equal to $200,000 or total assets greater than or equal to $500,000.

When gross receipts are less than or equal to $50,000, certain small organizations may file an annual electronic notice, the Form 990-N (e-Postcard); however, organizations eligible to file the e-Postcard may choose to file a full return. Private foundations file Form 990-PF regardless of financial status.

Form 990 is submitted to the IRS five and a half months after the end of an organization's calendar year. For example, for nonprofits whose calendar year ends on December 31st, the initial return due date for Form 990 is May 15. If a due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day.

Extended due dates of three and six months are available for Forms 990; however, for Form 990-N the due date is the "initial return due date," e.g. May 15 and extended due dates do not apply.

NOTE: Unlike individual tax returns filed with the IRS, which may be postmarked on April 15, Forms 990 must be received (not postmarked) by the IRS before the May 15 due date.

Revised user fee Non Profit application

Beginning July 1, 2016, the IRS has changed the User Fee for IRS Form 1023-EZ from $400 to $250 for all applicants.  This new fee applies only to those Form 1023-EZ applications prepared and submitted after July 1, 2016.

In addition to lowering the application fee, we also expect the IRS to add several new safeguards to the Form 1023-EZ application process to continue discouraging non-qualified applications.  These new safeguards could include revisions to the actual Form 1023-EZ and increased follow-up correspondence with the IRS to verify appropriate formation documents and tax exempt provisions contained within those formation documents (Articles of Incorporation and Bylaws). 

If you are beginning the 501c3 application process yourself, or have questions about which form (and user fee payment) is appropriate for you to submit, please contact us directly at  9722003189  or you may email us at contact@ruchiguptacpa.com .  

Foreign Account Tax Compliance Act (FATCA)

FBAR/FATCA Compliance

Foreign banks from around the world are sending letters to account holders that they believe have, or had, a U.S. tax nexus (or other U.S. connection) requesting information to determine whether such account holders have disclosed their foreign bank accounts to the Internal Revenue Service (“IRS”). The letters from foreign banks generally require an account holder to disclose whether the account has been declared to the IRS through the filing of a Report of Foreign Bank and Financial Accounts (commonly known as the “FBAR”) form and/or a Form 1040 personal income tax return, participation in the various IRS Offshore Voluntary Disclosure Programs, or otherwise. Sometimes foreign banks request that the account holder submit an IRS Form W-9, which is generally required to be completed by U.S. account holders for tax reporting purposes.

The Foreign Account Tax Compliance Act (“FATCA”), a law enacted by Congress in 2010 and effective beginning July 1, 2014, is intended to identify noncompliance by U.S. taxpayers using offshore accounts. Under FATCA, foreign financial institutions will generally be required to comply with certain due diligence and annual reporting requirements regarding their U.S. account holders and enter into information sharing agreements with the United States. Foreign financial institutions that do not provide such information to the United States will face a stringent penalty—withholding of 30 percent of certain U.S. source payments such as interest and dividends.

Many U.S. taxpayers are receiving these letters because, in advance of the effective date of FATCA, foreign banks are undertaking the process of identifying account holders that have a U.S. tax nexus. A foreign bank may find that a taxpayer has a U.S. tax nexus through indicia such as having a phone number affiliated with an account that appears to be U.S.-based or a U.S. mailing address. If a foreign bank has identified an account as potentially having a U.S. tax nexus, the foreign bank is likely to send a letter to the account holder requesting the information discussed above. 

Discussion of Law:

U.S. citizens, U.S. individual residents, and a very limited number of nonresident individuals

who own certain foreign financial accounts or other offshore assets (specified foreign financial assets) must report those assets on Form 8938 and attach it to their income tax return, if the total asset value exceeds the appropriate reporting threshold.

The reporting requirement for Form 8938 is separate from the reporting requirement for the FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”) (formerly TD F 90-22.1). An individual may have to file both forms and separate penalties may apply for failure to file each form.

Sources:

//www.blankrome.com/index.cfm?contentID=37&itemID=3249

//www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA

Automatic Revocation of IRS Tax-Exempt Status for Nonprofits

Automatic Revocation of IRS Tax-Exempt Status for Nonprofits:

On June 8, 2011, the Internal Revenue Service (IRS) released a list of more than 275,000 nonprofits that had their tax-exempt status automatically revoked due to failure to file annual returns. Check HERE for the status of your tax exempt organization. If you need assistance to reinstate your organization due to automatic revocation by the IRS of your tax exempt status, please contact Ruchi Gupta CPA LLC to learn more.

I have inherited property from my parents in India . What are the tax implication ?

I get this question a lot  “My dad died and left me a piece of real estate in India I’m going to sell it. What happens for U.S. tax purposes when I sell it?”

The capital gain must be reported on the U.S. heir’s personal Form 1040 in the year of sale. So the question is how do we calculate that capital gain? The answer — sale price minus expenses of sale minus the seller’s basis in the property equals capital gain for U.S. tax purposes.

The sale price is whatever it is. Expenses of sale are whatever they are. But basis. A U.S. taxpayer who inherits foreign real estate from a nonresident/noncitizen of the USA — this is interesting. The real estate was never subjected to U.S. estate tax. The deceased person never filed a U.S. income tax return, and the executor never filed a U.S. estate tax return, because they didn’t have to.

Does an asset inherited from a nonresident/noncitizen get a step up in basis even though no estate tax was ever imposed?

Yes, indeed.

Back to our little example. Pretend that Dad bought the land India  for $10,000 way back when. At the time of death the land was worth $100,000. The U.S. son who inherited the property immediately sold it for $100,000. Pretend that sale expenses are zero, because that makes my example a bit easier.

The U.S. son reports the sale on Schedule D. Proceeds of sale of $100,000 minus basis of $100,000 equals capital gain of zero.

REV. RUL. 84-139, 1984-2 C.B. 168

ISSUE

Will a United States citizen who inherits foreign real property from a nonresident alien receive a stepped-up basis in such property under section 1014 of the Internal Revenue Code even though the property is not includible in the value of the decedent’s gross estate?

FACTS

D, who was a citizen and a resident of Z, a foreign country, died in 1982 owning real property located in Z. B, a United States citizen, inherited the real property in accordance with the laws of Z. At the time of D’s death, the real property had a basis of 100 x dollars and a fair market value of 1000x dollars. Because the real property is located outside the United States and D was a nonresident alien, the value of such property is not includible in D’s gross estate under section 2103 of the Code for purposes of the United States federal estate tax. B sold the real property in 1983 for 1050x dollars, claiming a basis of 1000x and a gain of 50x dollars.

LAW AND ANALYSIS

Section 1014(a)(1) of the Code states that the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent’s death by such person, be the fair market value of the property at the date of the decedent’s death.

Section 1014(b)(1) of the Code provides that property acquired by bequest, devise, or inheritance, or by the decedent’s estate from the decedent shall be considered to have been acquired from or to have passed from the decedent for purposes of section 1014(a).

Section 1014(b)(9)(C) of the Code further provides that section 1014(b)(9) shall not apply to property described in other paragraphs of section 1014(b).

Section 1014(b)(9) of the Code provides that, in the case of a decedent dying after December 31, 1953, property acquired from a decedent by reason of death, form of ownership, or other conditions (including property acquired through the exercise or non-exercise of a power of appointment), if by reason thereof the property is required to be included in determining the value of a decedent’s gross estate shall be considered to have been acquired from or to have passed from the decedent for purposes of section 1014(a).

Section 1.1014-2(b)(2) of the Income Tax Regulations provides that section 1014(b)(9) property does not include property that is not includible in the value of a decedent’s gross estate, such as property not situated in the United States acquired from a nonresident who is not a citizen of the United States.

In this case, B inherited the real property from D, and such property is within the description of property acquired from a decedent under section 1014(b)(1) of the Code. Therefore, B will be entitled to a stepped-up basis under section 1014(a). Under section 1014(b)(9)(c), section 1014(b)(9) does not apply to property described in section 1014(b)(1); hence, the requirement of section 1014(b)(9) that property be includible in the value of a decedent’s gross estate does not apply here.

HOLDING

Foreign real property that is inherited by a United States citizen from a nonresident alien will receive a step-up in basis under sections 1014(a)(1) and 1014(b)(1) of the Code. B’s basis in the real property sold is 1000x, the fair market value of the property on the date of D’s death, as determined under sections 1014(a)(1) and 1014(b)(1) of the Code.

How to Get a Copy of Your Prior Year Tax Information

How to Get a Copy of Your Prior Year Tax Information

There are many reasons why you may need a copy of your tax return information from a prior year. Transcripts are free and available for the most current tax year after the IRS has processed the return. You can also get them for the past three tax years. If you don’t have your copy, the IRS can help. Here are the types of transcripts to choose from:

• Tax Return Transcript.  A return transcript shows most line items from your tax return just as you filed it. It also includes any forms and schedules you filed with your return. However, it does not reflect changes made to the return after you filed it. If you are applying for a mortgage, most mortgage companies require a tax return transcript and participate in our Income Verification Express Service program. If you are applying for financial aid, you can use the IRS Data Retrieval Tool on the FAFSA website to import your tax return information to your financial aid application. In both of these cases, you won’t have to request a transcript directly from the IRS.
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• Tax Account Transcript.  This transcript shows any adjustments made by you or the IRS after you filed your return. It shows basic tax return data, like marital status, type of return, adjusted gross income and taxable income, and other transactions such as payments you made.

Here’s how to get a transcript:

• Order Online. The fastest way to get a Tax Return or Account transcript is through the ‘Get Transcript’ tool available on IRS.gov. Although the IRS temporarily stopped the online viewing and printing of transcripts, Get Transcript still allows you to order your transcript online and receive it by mail. Just click the “Get Transcript by Mail” button to have a paper copy sent to your address of record.
• Order by phone. You can also order by phone at 800-908-9946 and follow the prompts.
• Order by mail.  To order your tax return transcript by mail, complete and mail either Form 4506-T or Form 4506T-EZ. Form 4506-T can also be used to request other tax records: tax account transcript, record of account, wage and income and verification of non-filing.

If you need an actual copy of your tax return, they are generally available for the current tax year and as far back as six years. The fee per copy is $50. Complete and mail Form 4506  to request a copy of your tax return. Mail your request to the IRS office listed on the form for your area. If you live in a federally declared disaster area, you can get a free copy of your tax return.

Self Employed ? Check out these Tax Tips

Self Employed? Check Out These IRS Tax Tips

If you are self-employed, you normally carry on a trade or business. Sole proprietors and independent contractors are two types of self-employment. If this applies to you, there are a few basic things you should know about how your income affects your federal tax return. Here are six important tips from the IRS:

• SE Income. Self-employment can include income you received for part-time work. This is in addition to income from your regular job.

• Schedule C or C-EZ. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet certain other conditions. See the form instructions to find out if you can use the form.

• SE Tax. You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. If you owe this tax, attach the schedule to your federal tax return.

• Estimated Tax. You may need to make estimated tax payments. Try IRS Direct Pay. People typically make these payments on income that is not subject to withholding. You usually pay estimated taxes in four annual installments. If you do not pay enough tax throughout the year, you may owe a penalty.

• Allowable Deductions. You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.

• When to Deduct. In most cases, you can deduct expenses in the same year you paid, or incurred them. However, you must ‘capitalize’ some costs. This means you can deduct part of the cost over a number of years.

Six Tips on Whether to File a 2015 Tax Return

Most people file a tax return because they have to, but even if you don’t, there are times when you should. You may be eligible for a tax refund and not know it. Here are six tips to help you find out if you should file a tax return:

1.      General Filing Rules. Whether you need to file a tax return depends on a few factors. In most cases, the amount of your income, your filing status and your age determine if you must file a tax return. For example, if you’re single and under age 65 you must file if your income was at least $10,300. Other rules may apply if you’re self-employed or if you’re a dependent of another person. There are also other cases when you must file. Go to IRS.gov/filing to find out if you need to file.

2.       Premium Tax Credit.  If you enrolled in health insurance through the Health Insurance Marketplace in 2015, you may be eligible for the premium tax credit. You will need to file a return to claim the credit. If you chose to have advance payments of the premium tax credit sent directly to your insurer during 2015 you must file a federal tax return. You will reconcile any advance payments with the allowable premium tax credit. You should receive Form 1095-A, Health Insurance Marketplace Statement, by early February. The form will have information that will help you file your tax return

3.       Tax Withheld or Paid. Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year and have it applied to this year’s tax? If you answered “yes” to any of these questions, you could be due a refund. But you have to file a tax return to get it.

4.       Earned Income Tax Credit. Did you work and earn less than $53,267 last year? You could receive EITC as a tax refund, if you qualify, with or without a qualifying child. You may be eligible for up to $6,242. Use the 2015 EITC Assistant tool on IRS.gov to find out if you qualify. If you do, file a tax return to claim it.

5.       Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don’t get the full credit amount, you may qualify for the Additional Child Tax Credit.

6.       American Opportunity Tax Credit. The AOTC is available for four years of post secondary education and can be up to $2,500 per eligible student. You, your spouse or your dependent must have been a student enrolled at least half time for at least one academic period. Even if you don’t owe any taxes, you still may qualify. You must complete Form 8863, Education Credits, and file it with your return to claim the credit. Use the Interactive Tax Assistant tool on IRS.gov to see if you can claim the credit. Learn more by visiting the IRS’ Education Credits Web page.

The instructions for Forms 1040, 1040A or 1040EZ list income tax filing requirements. You can also use the Interactive Tax Assistant tool on IRS.gov. Look for “Do I need to file a return?” under general topics to see if you need to file. The tool is available 24/7 to answer many tax questions. Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

WHAT IS SELF DIRECTED 401 K / SOLO 401 K PLAN

A Self Directed 401k is a qualified retirement plan approved by the IRS.  It follows the same rules and requirements as any other 401k  plan – these rules being established in 1981.  In 2001 the EGTRRA law was passed.  This is commonly referred to as one of the two “Bush Tax Cuts”.  This act made significant changes to the IRS code lowering taxes for qualified plans such as a personal 401k plan.

The participants of the plan have complete flexibility to invest in anything they wish – as long as they are legal.They simply write a check and make their investments – they are not confined or stifled as most people are with their traditional brokerage retirement accounts.

401(k) Eligibility Requirements

In order to be eligible for opening and making contributions to self directed solo/individual 401(k) plans, you need to meet the following 401k eligibility requirements:

• If you’re a business owner, you need to be the sole proprietor and have no employees other than your spouse. If your business is a partnership, it should have no employees other than self-employed partners and their spouses.
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• You have received taxable compensation in the form of a salary or wages as an individual, during the current financial year. Whether your business is incorporated or incorporated, a sole proprietorship, partnership or corporation, the deadline for establishing a self directed 401(k) is the last day of the tax year.

In addition to the 401k eligibility requirements listed above, you should also note that the individual 401(k) should be the only arrangement maintained by your business if it’s not part of a controlled group under federal tax law.

Investments in Self Directed 401(k)

A Solo 401(k) can invest in almost anything. Examples are: Real Estate – residential or commercial – rentals, foreclosures raw land, Tax Liens, Precious Metals, Private Placements, Foreign Currency, Hard Money Lending etc

Prohibited Transactions

Under IRS rules, a Solo 401k is prohibited from certain types of investments or transactions. Some examples are:

Engaging in a Transaction with a Disqualified Person

– Plan participant buys a condo and lets daughter live there
– Plan participant buys part of business owned by his Father

Direct or Indirect Lending of Money

– Plan participant loans money to his wife or son
– Father signs a loan guarantee for the Solo 401k Plan

Receiving Direct or Indirect Benefits of the Plan

– Plan participant buys property and charges a management fee
– Plan participant “fixes” a property himself rather than paying a 3rd non-disqualified party.
– Plan participant receives a commission for selling a property to the Plan.

Corporate Stock

A Solo 401(k) can invest in shares of a C Corp but the rules of an S Corp prohibit a Solo 401(k) from the purchase of shares.

Pros and Cons of a Self Directed 401k

This is a valid question and one we are asked quite often.  The pros of course are the ability to have total checkbook control of your plan and take immediate action when an investment becomes available.  The con would simply be – the client is now the decision maker.  We are pro-active with our clients – encouraging them to contact us about all facets of their new plan.

Self Directed 401K Benefits

1. Any contributions made to these plans, as well as investment returns and earnings, are tax-deferred until withdrawal, and employers receive tax benefits too.
2. You can opt for voluntary elective contributions from your salary, and your employer can also make contributions on your behalf.
3. You are allowed to defer up to $18,000 or all of your earnings annually (whichever is less), with catch-up contribution limits of $6000 once you’re over the age of 50.
4. You retain greater control over investments, and can choose where your funds will be invested from any of the options offered by the plan.
5. These plans are highly portable and you can roll them over if you change jobs, rather than establishing a new plan for every employer.

Self Directed 401K Drawbacks

1. Any withdrawals made from the plan before the age of 59.5 may incur a 10% penalty, except for employees who retire within the calendar year when they turn 55.
2. The company can set eligibility requirements to some extent, and can restrict employees who’ve worked with them less than a year or work part-time, union members, etc.
3. If you don’t have a range of index funds available as part of your plan’s options, the long-term management of the investment portfolio can be problematic.
4. These plans can be expensive to establish and monitor, especially when it comes to administrative costs associated with loans taken against them, early withdrawals, etc.
5. You may not be able to access a very wide range of investment options for your 401(k) funds, and the ones available might be below average in terms of quality.