Get IT (Your Taxes) IN with the ITIN – Individual Taxpayer Identification Number

Get IT (Your Taxes) IN with the ITIN – Individual Taxpayer Identification Number

by | Sep 10, 2019 | Expat Tax, Individual Tax

A complex, globally-interdependent economy like what we have in the United States can sometimes yield complicated situations for its taxpayers. How can non-citizens, such as resident aliens, comply with US laws and pay their taxes when the Form 1040 and other filings require a social security number (SSN)? The solution to that is the “Individual Taxpayer Identification Number” (ITIN) issued by the IRS.

What’s the ITIN?

An ITIN helps individuals who are not eligible to obtain SSNs comply with federal tax filing requirements. They can’t be used for things such as claiming social security benefits or the earned income credit. ITINs are issued regardless of immigration status due to the fact that resident and nonresident aliens may have a requirement to file for US tax purposes.

For example, Fredo, a citizen of Italy, inherits property from a deceased sister in New York City. The property turns out to be a high-rise apartment generating rental income. Fredo now is on the hook for any US taxes related to that rental income! By obtaining an ITIN, Fredo can meet his tax obligations without having set foot in the USA.

Obtaining an ITIN

To obtain an ITIN, applicants must complete the W-7 form and submit it to the IRS by mail. The form asks for things such as name, foreign address, and original documents such as a passport. Processing time typically takes 4-6 weeks. Within that time frame, a mailed notice gets sent out to the applicant notifying that their ITIN has been assigned, OR their application was rejected and a notification why it was rejected.

The IRS authorizes “Certifying Acceptance Agents” (CAAs) to assist with the processing of ITINs. Utilizing a CAA can help applicants navigate the sometimes-complicated ITIN process and also avoid mailing sensitive identifying documents, such as passports. Interested in learning more about CAA services? Look no further. MiklosCPA, an IRS Certifying Acceptance Agent, has helped applicants obtain their ITIN number and also assist with any tax-related questions for their US tax filings. Contact us and learn how we can assist you, and follow us on our social media pages for future informative tax write-ups.

Show Some Interest – Reporting Interest & Ordinary Dividend Income on Schedule B

Show Some Interest – Reporting Interest & Ordinary Dividend Income on Schedule B

by | Aug 27, 2019 | Individual Tax

Having an additional source of income is a fairly common practice for taxpayers. Often, it may be income earned from interest accrued on savings accounts or dividends paid out from owning stocks or mutual funds. As you may expect, it needs to be reported on your annual income tax filing as well. Depending on certain conditions, that means filing the Schedule B in addition to your regular Form 1040.

Do I need to file the Schedule B?

Individuals will be required to file Schedule B if they meet certain conditions. Some common ones include:

  • Having more than $1,500 in taxable interest or ordinary dividends.
  • Accruing interest from a bond.
  • Claiming the exclusion of interest from series EE or I US savings bonds after 1989.
  • Financial interest in a financial account in a foreign country or receiving distributions from a foreign trust.

Schedule B in Part

There are three major parts to the form: Interests, Dividends, and “Foreign Accounts & Trusts.”

  • Part I – Interest – Report all taxable interest income in this section, such as interest income from savings accounts, bonds, and certificates of deposits (CDs).
  • Part II – Ordinary Dividends – Put all income from ordinary dividends and securities in this section. Examples include stock dividends, employee stock purchasing plans, and mutual funds.
  • Part III – Foreign Account Reporting – This section is a bit unique. Indicate yes or no if the questions asked in regards to foreign accounts and trusts apply to you. You may need to file additional forms such as FBAR (for FinCEN), Form 8938, and Form 3520 if these questions apply to you.

For more information about FBAR, check our article here. Schedule B is important for taxpayers with interest income, but it can potentially get complicated for those with complex sources of interest income. Sometimes business owners may not have the time to gather the needed documents to report interest income, because their main priority is growing their business. We at MiklosCPA understand that need and are here to help. We have helped various small to medium-sized businesses of assorted industries with their tax and accounting needs. Let us know how we can help out by reaching out. Please also check out our social media pages for future tax blog articles like this one and other “good-to-know” tax tidbits we share regularly.

What’s your (filing) status? – Finding the Right Status for Your Tax Filing

What’s your (filing) status? – Finding the Right Status for Your Tax Filing

by | Aug 5, 2019 | Individual Tax

The starting point to filing taxes is figuring out your filing status. It can determine the tax bracket you may fall under, what deductions and credits may be available to you, and ultimately what you may end up owing in taxes.

Status Update

Generally, your filing status hinges upon the last day of the tax year. So for example, despite being single for the majority of the tax year, if you get married on December 31st, you can file as a married couple for that tax year. There are 5 filing status types available to use for your tax filing: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow/Widower.

  • Single – Perhaps the most straightforward. Generally you are considered this if you do not meet any of the other statuses such as married or qualifying widower.
  • Married Filing Jointly (MFJ) – You and your spouse agree to file jointly, which has the advantages of combining income and other benefits like a higher standard deduction and different tax brackets.
  • Married Filing Separately (MFS) – Spouses also have the option to file separately, which means your income and any connected deductions or credits are handled separately. The standard deduction is also lower. It may be advantageous in certain taxpayer situations though.
  • Head of Household (HOH) – To qualify for this, you must be considered unmarried (single) on the last day of the year, pay more than half of the cost of upkeep for a home for the year, and a qualified dependent lives with you for at least more than half of the year. Allows access to a slightly higher standard deduction and different tax brackets than single.
  • Qualifying Widow/Widower – If your spouse dies within the tax year, you are allowed to file MFJ for that year, otherwise you may be a qualifying widow/widower. This status can be claimed for two years following the spouse’s death. You must also have a qualified dependent under you. Qualifying Widow/Widower has benefits similar to MFJ, such as access to the higher standard deduction.

In some cases, you may qualify for more than one status. Generally, you want to select the one that provides the best tax benefit available, such as opting to file as a qualifying widow/widower rather than head of household (assume you meet both statuses).

Determining which filing status benefits you can get complicated, especially if you happen to be running a business as well. A trusted back-office team to handle tax questions like this and the accounting can free you up to run your business properly. MiklosCPA, a California-based tax and accounting firm, has helped many small businesses of assorted industries with their tax and accounting needs. If you want to learn more of our services, drop us a line! Also, follow our social media pages to stay updated on future “good-to-know” posts.

Rising from the Ashes – Casualty, Disaster, and Theft Losses

Rising from the Ashes – Casualty, Disaster, and Theft Losses

by | Jul 15, 2019 | Individual Tax

Disasters are never easy to handle. They come by surprise and the personal feelings that follow it are immeasurable. Fortunately, there are tax provisions that allow individuals to ease the painful costs that follow experiencing disasters like floods and wildfires. By claiming disaster losses on Form 4684, then reporting them as a deduction on your Schedule A for your individual 1040 filing, you can potentially lower what you owe in taxes.

Call it a Disaster

The Tax Cuts and Jobs Act of 2017 upended a lot of what everyone knew about the tax code. Casualty, disaster, and theft losses were no exception. Starting from 2018 through 2025, in order to be able to claim the casualty loss deduction, the President of the United States must officially declare a “federal disaster” in order for casualty losses to qualify. This is usually applied to large-scale natural disasters like wildfires and hurricanes that periodically hit states and regions.

Figuring the Loss

Once an official federal disaster is declared, you are now able to claim any related casualty losses, such as a damaged or lost car. Here’s a sample scenario:

Paul lives in Red Creek, CA, which was recently declared a federal disaster zone due to wildfires. His car, valued at $5000, was destroyed but fortunately firefighters were able to save his home. He also noticed his entire Knight Rider VHS collection was stolen by looters while the fire was raging. Insurance paid out to him $2000 for his lost vehicle, but did not cover his loss of his VHS collection.

He can only deduct for casualty losses the remainder of what is not covered by insurance. So Paul can claim up to $3000 in casualty losses. Theft-related losses are limited to the adjusted basis (aka the original cost) and not the fair market value (FMV) of the lost item. So even if his Knight Rider VHS collection may have commanded a high FMV from collectors, Paul can claim no more than what he paid for the tapes, which in this case was probably a paltry few bucks from a garage sale.

Loss Limitations

Of course there are limits to claiming casualty, disaster, and theft losses. A “$100 rule” applies for each casualty loss incident claimed which reduces the loss claim by $100. The total loss deduction is then subtracted against 10% adjusted gross income (AGI) of the individual. However, these rules do not apply to business property losses.

So, going back to the previous example, Paul’s wildfire and all losses related to it are considered one incident ($100 rule). After insurance reimbursement, his loss is $3000. Paul has an AGI of $32,000 for the year. Applying loss limitation rules, unfortunately we find out Paul cannot claim a casualty loss deduction because his loss is less than 10% of his AGI ($3,000 – 100 = $2,900, 10% of his AGI is $3,200, $2,900 – $3,200 = (300)).

 

Calculating casualty losses can get complicated. Busy owners may not have the time. Having a tax-savvy accounting support staff like us at MiklosCPA can ease that burden.  We are a California-based accounting firm that helps small business clients of assorted industries with their accounting and tax needs. Reach out to us if you want to learn more of our services, and also follow us on our social media pages for more future “good to know” articles like this one.

Take that L, and Carry It Forward – Net Operating Losses

Take that L, and Carry It Forward – Net Operating Losses

by | Jul 1, 2019 | Business Tax, Individual Tax

Owning and running a business comes with unlimited potential for growth and lofty dreams. It also comes with the risk of failure and defeat. Losses are just as much a part of life as success, and luckily the law give us the opportunity to leverage some of those losses towards potentially paying less taxes.

Net Operating Losses (NOL)

Let’s say that you are preparing your small business taxes on your Schedule C. You notice that your deductions are more than your income. Your business may have a net operating loss (NOL). Don’t fret. NOL can be used as a deduction for your individual taxes to reduce your taxable income and ultimately lower what you owe in taxes. However, there are some limits. Spending money on a bad date unfortunately won’t count as NOL.

For the most part, NOL comes from running a business. Expenses associated with starting and maintaining a business often qualify for business deductions. Sometimes your profits won’t match what you’ve spent to keep the business going and you’ll have a qualifying NOL. Only in narrowly defined circumstances, such as qualified casualty losses, can personal losses qualify. There are also limits to NOL for individuals, such as the NOL cannot exceed 80% of the individual’s taxable income. Capital losses, such as stocks losing value, cannot exceed capital gains.

Carry on, my wayward NOL

Once you’ve correctly calculated your NOL, you can use it as a deduction for your taxes. Of course, there are rules to it though. The Tax Cuts and Jobs act made it so NOL after 2018 cannot be “carried back” to previous tax years, with some specific exceptions in industries like farming. If your NOL hits the “80% of your taxable income” limit, the excess NOL will be carried over to the next tax year and onward until that NOL is depleted.

By using NOL effectively, you can mitigate the costs associated with starting up a business. Learning the ins and outs of NOL while starting up that business may be too time consuming and costly. Having a back-room team manage those details can help your start-up get on the right foot. Our firm, MiklosCPA, has supported many small business clients with their tax and accounting concerns so they can focus on their ambitions to grow their business. Get in touch with us to learn more about how we can help your business, and follow us on our social media pages for future “good-to-know” articles and other interesting tax tips.

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