Make Your Voice Heard – The IRS Taxpayer Advocate Service

Make Your Voice Heard – The IRS Taxpayer Advocate Service

by | Apr 27, 2022 | Business Tax, Expat Tax, Individual Tax

Working with the IRS on a complicated tax issue may not be the easiest thing in the world. Fortunately, some help within the organization is available to the public. The IRS Taxpayer Advocate Service (TAS) is an independent organization within the IRS that works as the “voice of the taxpayer” in the IRS. Generally, they ensure taxpayers are treated fairly and that all of their rights are understood when dealing with the IRS. Additionally, TAS recommends larger process changes to the IRS and Congress to help the IRS better serve taxpayers and improve efficiency.

Taxpayer Bill of Rights

The Taxpayer Bill of Rights sets the bar in how the IRS and its employees must work with taxpayers. Not technically new, the Taxpayer Bill of Rights as it currently stands is codified from a mix of the Internal Revenue Code, IRS administrative policies, and other laws & regulations. They are:

  • The right to be informed
  • The right to quality service
  • The right to pay no more than the correct amount of tax
  • The right to challenge the IRS’s position and be heard
  • The right to appeal to an IRS decision in an independent forum
  • The right to finality
  • The right to privacy
  • The right to confidentiality
  • The right to retain representation
  • The right to a fair and just tax system

Check out our article that goes into more depth about these rights.

TAS At Your Service

Individual taxpayers experiencing issues with the IRS or feel they have been treated unfairly are able to reach out the Taxpayer Advocate Service for help. A taxpayer advocate will work with the taxpayer to resolve their issues with the IRS. Additionally, TAS provides various resources on their website to help taxpayers understand their rights and how TAS can assist them.

Quality service to taxpayers/clients is a priority all tax and accounting professionals strive towards. Spotlighting available services such as TAS for those who may need assistance is something we at MiklosCPA believe is part of our goal to demonstrate that #AccountingIsAwesome for our clients and readers. We help our clients meet their accounting and tax needs so that they can achieve their business dreams and ambitions. Want to learn how our services can help your business? Let’s chat. Also, please check out our social media pages for additional tax tidbits and other useful good-to-know pieces.

Some Useful Exclusions from Gross Income

Some Useful Exclusions from Gross Income

by | Jun 16, 2021 | Business Tax, Expat Tax, Individual Tax

Gross income, at the start of the federal income tax formula, includes many types of income. A whole assortment of income is considered taxable by the federal government, such as wages, gains made on property sold, interest income, and alimony received. Fortunately, some income items may be excluded from the gross income calculation. It’s safer to say the list of gross income exclusions is shorter than what is taxable. Utilizing exclusions properly may help in your income taxes. Below is a list of several notable exclusions from gross income.

Principal Home Sale Exclusion – The capital gains made on the sale of a residence may be excludable up to $500,000 (married filing, jointly). However, several criteria must be met to be excludable, such as the property must be the principal residence of the taxpayer and certain occupancy timeframes must be met (check our article for more info).

Foreign Earned Income Exclusion – Income earned while working abroad may be excludable from gross income, but it must meet either the bona fide residence test or the physical presence test for earnings and other income made overseas to be excludable.

Gifts & Inheritances – Gifts received are generally considered excludable from gross income. However, if the gifted item is later used to produce income, the gift may be considered taxable. Donors of gifts may be required to pay a gift tax if the value of the gifted item passes a certain threshold.

Life Insurance Proceeds – Proceeds received by a beneficiary are generally not included in gross income if the amounts are paid due to the death of the insured person.

Retirement Income (such as social security) – A portion of retirement income may be excluded from gross income, but the amounts may depend on your filing status and sources of income. For social security benefits, up to 85% of it may be taxable.

The option to exclude certain kinds of income can help lower your gross income, and ultimately what you may owe on your tax bill. Utilizing exclusions and tax credits can help both individuals and businesses keep their tax bills reasonable. As a CPA firm focused on helping clients with their accounting & tax needs, MiklosCPA also enjoys sharing these “good-to-know” articles for our visitors and those wanting to learn more of our services. Follow our social media pages for future articles like this one and other interesting tax tidbits.

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.

Taxpayer Rights – Your Foundation When Dealing With The IRS

Taxpayer Rights – Your Foundation When Dealing With The IRS

by | Jun 21, 2018 | Business Tax, Expat Tax, Individual Tax

Much like the often-invoked “Bill of Rights” in the United States Constitution conveying the rights of its citizens, the IRS conveys to taxpayers a “Taxpayer Bill of Rights” that sets across the unalienable rights taxpayers have when dealing with the IRS.

“The Right to Be Informed”

The IRS makes available volumes of publications that are intended to inform taxpayers about tax rules and what they need to do to be in compliance with the law. Filing Instructions are attached to all IRS forms. However, sometimes a person’s particular tax situation may require more research.

“The Right to Quality Service”

The IRS serves taxpayers with the utmost in professional, prompt, and courteous service. Separate from any opinions and anecdotal experiences, this is something all government agencies strive for.

“The Right to Pay No More than the Correct Amount of Tax”

Taxpayers have a right to pay only the correct amount of tax that is legally due, once all factors surrounding a taxpayer’s situation has been properly assessed.

“The Right to Challenge the IRS’s position and Be Heard”

Taxpayers have a right to object to IRS rulings on their tax circumstances. For example, the IRS determining after an audit that an independent contractor working closely with a business is actually an employee and should be taxed as such. The business owner has the right to challenge such a determination.

“The Right to Appeal to an IRS Decision in an Independent Forum”

Related to the previously mentioned right, taxpayers have a right to appeal any determination made by the IRS in an independent forum. Basically, the taxpayer has the option to go as far as taking their cases to court.

“The Right to Finality”

Taxpayers are entitled a certain amount of time to challenge the IRS on its determinations of taxpayer situations. For example, going back to the previous example of an independent contractor/employee, the business has up to 90 days to file a petition for Tax court.

“The Right to Privacy”

Taxpayers have a right to privacy that basically means that the IRS cannot be more intrusive than necessary for their investigations within their jurisdiction.

“The Right to Confidentiality”

Taxpayers have a right to confidentiality with their information. The IRS is expected to not disclose information unless authorized by the taxpayer or by law. This right also extends to any third parties that may wrongfully disclose confidential information.

“The Right to Retain Representation”

Taxpayers have a right to designate an authorized representative of their choice when dealing with the IRS. Taxpayers who cannot afford representation have the right to seek assistance from the Low Income Taxpayer Clinic.

“The Right to a Fair and Just Tax System”

Taxpayers have a right to expect a tax system that considers all facts and circumstances that affect taxpayer’s ability to pay and provide information in a timely manner. For example, the IRS makes filing extensions available to taxpayers who may have trouble paying, however there is an expectation that the taxpayer files the proper paperwork.

 

While the IRS spells outs the rights of taxpayers, sometimes a particular business tax issue may not be immediately clear. Having a team, like us here at MiklosCPA, clarify such ambiguities in light of changing IRS tax rules can save a business owner from much headache and save some money from any penalties. Contact us if you would like to learn more of our services. Also, if you enjoyed this article, follow us on our social media pages for future updates.

Am I a Resident or Nonresident Alien for US Tax Purposes?

Am I a Resident or Nonresident Alien for US Tax Purposes?

by | Nov 22, 2017 | Expat Tax, Individual Tax

In the United States, both citizens and non citizens who earn income are taxed. Resident aliens refer to people who have established permanent residency status in the United States.  Nonresident aliens are people who have entered the country to live, work, or do business.  Each category has significantly different tax consequences, so it’s important to file with the correct status. Our California-area CPA firm offers a brief outline to help you make the most sense out of these differences.

 

Resident Alien Tax Status:

 The IRS treats a resident alien in essentially the same way as a U.S. citizen if the person meets either the “Green Card Test” or the “Substantial Presence Test.” Qualified resident aliens are taxed by the same income tax rates as a U.S. citizen. They also have access to the same tax deductions and credits, such as education credits and foreign tax credits (for taxes paid to another country).

Green Card Test:

If you have an alien registration card, also known as a “green card”, you are deemed to be a resident alien for US tax purposes. As a lawful permanent resident of the United States of America, you must file your annual tax return with the IRS (Form 1040). As long as you do not abandon your status or your status is not taken away by USCIS, you must pay taxes on your worldwide income.

Example: Hanna, who is a German citizen, received her green card on January 14th. She is now subject to US taxes and filing requirements on any income she earns in the US and in Germany.

Substantial Presence Test:

If you are physically present in the US for:

  1. 31 days during the year, AND
  2. more than 183 days within the past three years

You are deemed to be a resident alien for US tax purposes.

Example: Luis, a Portuguese citizen has been working seasonally in the U.S. for the last three years. In 2016, he was in the U.S. for five months. In 2015, he was present for three months and in 2014 he was present for two months. He is determined to have 190 eligible days for the substantial presence test. 

Here’s how it’s calculated: if an individual is present in the U.S. for more than 31 days in the current year, add all the days from the current year plus a third of the days from the prior year and a sixth of the days from the year before that. If the total is 183 days or more, the person is deemed to be a resident alien. Important exception to this rule: if the individual holds a “J”, “Q”, or “F” visa while physically present in the country.

If you want to exclude certain number of days from the “Substantial Presence Test” you must file Form 8843 which may help you to avoid being classified as a tax resident in the eyes of the IRS.  This leads us to the nonresident alien tax status.

 

Nonresident Alien Tax Status:

Not meeting the above tests deems you a nonresident alien. In this status, only U.S.-sourced income is usually subject to tax. Income other than wages is usually taxed at 30% and is not eligible for deductions. However, payment for personal services is generally considered to be connected with a U.S. trade or business, and is eligible for deductions, most credits, and the graduated tax rates used by U.S. citizens.

Dual-status aliens that can demonstrate a closer connection to a foreign country may take advantage of classifying their tax home in the foreign country. This can be valuable if taxes are lower in the foreign country. However, granting the nonresident status is not automatic and everyone must file Form 8840 with their IRS Form 1040NR.

We all can agree that these tax rules and exemptions are very complicated! That is why we encourage everyone to seek out the guidance of a tax professional such as MiklosCPA. We can explain these complicated regulations like these and ensure that you file correctly. MiklosCPA has helped businesses and individuals over the years handle their accounting needs and address tax questions such as resident alien statuses.

Enjoyed reading this tax tip? We welcome your comments and feedback! Please share your thoughts with us on our social media pages. Or if you want to know more about our services, contact us.

Foreign Bank Account Reports – Overseas Accounts

Foreign Bank Account Reports – Overseas Accounts

by | Nov 20, 2017 | Business Tax, Expat Tax, Individual Tax

In today’s interconnected global economy, it is not uncommon for individuals or businesses to maintain foreign financial interests such as bank accounts and other overseas assets. However, you may be required by US laws to report these interests through the Foreign Bank Account Report (FBAR) when filing taxes.

Who needs to file FBAR?
  • Any United States person that has a financial interest in at least one financial account outside the United States.
  • AND the total value of all foreign financial accounts exceeds $10,000.

“United States person” also includes any business entities, such as corporations, Limited Partnerships, and LLCs formed in the United States that have foreign financial accounts. It also entails any resident in the United states, whether a citizen of the US or resident alien.

Some Exceptions to FBAR
  • Owner or beneficiary of an IRA
  • Account with a US Military banking facility
  • Certain joint accounts by spouses

FinCEN provides a detailed list here.

Filing FBAR

Individuals that need to file FBAR must answer the FBAR related questions on Schedule B of the individual 1040 form. FBAR itself can be E-filed for individuals and businesses. The due date to file FBAR is April 15th, just like with the individual tax filing due date.

FBAR is one of many things an individual or business should be aware of when filing taxes. Businesses especially may need the additional info due to their specific circumstances. Having a knowledgeable support team like us at MiklosCPA to anticipate those needs and other future requirements can save a business time and money from incorrectly rushed tax filings. We are a California-based tax and accounting firm that supports businesses with their tax and accounting needs through a “virtual office” service. This allows businesses to charge ahead with what’s most important, growing the business. If you would like to learn more about us, please contact us.

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