International Tax – Expatriates – Foreign Nationals

Foreign Bank Accounting Reporting – FBAR – IRS Priority List

IRSIf 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.

To illustrate, the IRS Dirty Dozen tax scam list for 2016 clearly illustrates the emphasis placed upon hiding money or foreign bank accounts (see excerpt below).

The Internal Revenue Service today said avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season.

“Our continued enforcement actions should discourage anyone from trying to illegally hide money and income offshore,” said IRS Commissioner John Koskinen. “We have voluntary options to help taxpayers get their taxes and filing obligations in order.”

Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 54,000 disclosures and we have collected more than $8 billion from this initiative alone. The IRS conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

The IRS continues to beat this drum more aggressively each year. If you would like to discuss this situation, simply call 949-486-2011 and ask for Jerry Morey, CPA.  

 

Morey & Associates CPA is a Southern California CPA Accounting Firm with offices in Newport Beach and San Clemente.  We work with businesses throughout Los Angeles and Orange County.  For additional expertise, we provide boutique services for dentists, doctorsreal estate accounting and high net worth accounting.

Why Foreign Bank Account Violations are Ultra Expensive

Bank AccountIf 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 are tired of overpaying taxes and would like to lower your tax compliance risk, call 949-759-5626 and ask for Jerry Morey.

 

Morey & Associates is a Orange County CPA Accounting Firm with offices in Newport Beach and San Clemente.  We service High Net Worth clients and small businesses.  We also provide additional expertise for real estate accounting, dental practice accounting, and medical practice accounting.

Tax Treatment for Bitcoin Payments

BitcoinIf you’ve paid attention to the news the last few years, you will have heard of Bitcoins. In fact, you may even have considered accepting them as payment for services or product sales. Before you do, you’ll want to make sure you have an understanding of how the IRS treats Bitcoin payments.

First, it’s important to be aware of the fact that the IRS does not consider Bitcoins, which are virtual currency, as a legitimate state-backed currency. Instead, they see Bitcoins as property.

This means that the tax rules that apply to property transactions will also apply to payments received in Bitcoins. When a person, or business acquires property, they are required to record the fair market value of the property. This will become the owner’s basis for the property.

Once the property is sold or exchanged, if the fair market value of the property has increased, then the owner will have a taxable gain. On the other hand, if it has decreased in value, the owner will have a loss.

This means that if a business owner sells a product today and receives Bitcoins worth $100 but then converts them to dollars next week and the value has increased to $120, they will have a gain of $20 that will be taxed as capital gains.

This becomes even more complicated when multiple Bitcoin transactions take place. Each transaction needs to be tracked separately and each will have its own gain or loss depending on the current valuation of Bitcoins when they are converted to dollars.  The amount of paperwork and record-keeping becomes significant.

There are a couple of workarounds for this. First, each transaction can be converted to dollars immediately. Secondly, there are now Bitcoin merchant service providers that will deal with all of the backend record-keeping that is necessary. This allows businesses to accept Bitcoins without ever actually dealing with them.

The IRS ruling treating Bitcoins as property turned the Bitcoin world and those who want to accept them on their heads, but technology and even the IRS will eventually catch up to the new reality of virtual currencies, but it may take awhile.

If you are tired of paying too much in taxes, call 949-759-5626 and ask for Jerry Morey.

 

Morey and Associates is a Southern California CPA Firm with offices in Newport Beach and San Clemente.  We service all types of businesses and high net worth individuals.  We also have additional expertise with real estate accounting, dental accounting and medical practice accounting.

 

Trump Fires Shot at Hedge Funds

Don Trump2If you pay attention to recent headlines, it may seem that being a hedge fund manager is the equivalent of being a punching bag, but while Donald Trump and others may be wagging their fingers and sparring verbally, there may be good reason to do so.

According to Trump, “The hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky. It is the wrong thing. These guys are getting away with murder.”

He goes on to say, “They are energetic. They are very smart. But a lot of them – they are paper-pushers. They make a fortune. They pay no tax. It’s ridiculous, ok?”

While one might argue whether or not hedge fund managers are paper pushers, there is much truth when it comes to using hedge funds to avoid paying taxes. Most hedge funds are limited partnerships with the investors being the partners. There is also a person that manages the fund. This person is paid a certain percent of the profits of the fund.

Due to the fact that the manager is compensated on the profits, the vast majority of the income that is generated by the fund is not taxed as compensation or salary. Instead it is taxed as a return on investment. This means that the income this person receives is taxed as capital gains instead of regular income.

The bottom line is that the fund manager is paying 20% income tax, (capital gains), instead of the typical 39.6% tax rate for those in this tax bracket. It is this loop hole of claiming regular income as capital gains and paying a much lower rate of tax instead of paying ordinary income tax rates that rightfully causes concern and scorn from some politicians and others such as Donald Trump. It is the typical argument of one set of rules for the rich and another set for the middle class.

Why Taxes for Professional Athletes Are Complicated

The only two things in life that are certain, as they saying goes, are death and taxes. The problem is, taxes have become quite complex, especially for pro athletes and other professionals who travel to certain cities, states, and even foreign countries for the purpose of business.
Pro SportsIn the case of professional athletes, the business is the sport in question. Football teams travel for at least eight games in a typical season. NBA teams play more often and travel to other states more frequently during their seasons, as do NHL players who have the added burden of traveling to Canada for several games during their season too.
What this all means for taxes, is that it’s really complicated! Here’s why.
State and City Taxes
Many cities, especially those hosting facilities that bring in professional sports games, have adopted special city taxes to impose on professional athletes in order to help offset the costs of their sports facilities. It’s an ingenious method, on behalf of the cities, to bring in tax revenue, without involving their constituents.

State income taxes are a given in most states, and is something players are expected to pay in every state in which they play in a given year and for every game they play in each state.
Complicated Formulas
Face it, few athletes are mathematical geniuses. They may have more than a little skill when it comes to reciting states, but complicated accounting formulas are often a little outside their wheelhouses. They have better things to do with their brain power, after all, like devoting themselves to improving their games.
Unfortunately, the formulas are so complex that only an accountant could possibly love them, oh and city and state bean counters who can’t wait from the dollars to roll on in from the 53 players on the rosters of at least eight different NFL teams each year.
Don’t forget the tax revenue for trainers, coaches, equipment managers, officials, and more that travel with these teams as they take their games on the road. Other sports have even more games in other cities throughout the season raising the stakes even higher for host cities and states.
Mitigating the Costs of Doing Business Across State Lines
There are things players can do to help relieve some of their excessive tax burdens, otherwise known as the “jock tax.” They aren’t big bold moves, but they can save a great deal of money in taxes each year for players that take advantage of them.
Establish Permanent Residence in States that do not Tax Income
This will not eliminate all your tax burden, but it will go a long way towards relieving some of the burden to give athletes extra breathing room. Popular states for consideration are Florida, Texas, Nevada, and Wyoming.
Take Advantage of Available Deductions
They exist to help relieve tax burdens. Use them for that purpose. This is especially true of expenses related to training camp, like the following:
• Hotels
• Apartments
• Meals
• Rental Cars
Finally, and perhaps most importantly, seek tax help from qualified professionals. Rules and exceptions get trickier by the year. Tax professionals are trained to deal with tricky situations. Let them do the heavy lifting for you so you can focus your attention on pursuits that are far more profitable for you.

If you are looking for a CPA Firm to lower your tax liability legally, call 949-759-5626 and ask for Jerry Morey.

Our firm services businesses and high net worth individuals throughout Orange County.  We have offices in Newport Beach and San Clemente.

Corporate Inversions – Why this Loophole Needs to be Fixed

A corporate inversion, simply put, is a method corporations use to reduce their tax responsibilities. While this loophole may present a sound tax solution for the corporation in question, it has a direct impact on tax revenue collected by the United States government, as well as on competition between companies.

A corporate inversion takes place when a U.S. corporation renounces it’s citizenship by merging with a smaller company in a foreign country. This country typically has a more favorable corporate tax structure as well as tax rules that allow the U.S. corporation to reduce its tax burden.

Once the corporation merges with the foreign entity, it declares the new country as its place of residency. At that point, the United States can no longer impose or collect taxes on the corporation for future or past income. While this may be a positive situation for the company, it does has a negative effect as it reduces tax revenue for the U.S. as well as creates an atmosphere of unbalanced competition between corporations that have transacted an inversion and those that have not.

Over the last decade, corporate migration has increased to the point that now only one-tenth of total tax revenues collected come from corporations. That’s down from one-third in the 1950s. In fact, in the past ten years, a total of 47 U.S. corporations have performed corporate inversions and changed their legal residences to countries outside of the United States.

While it stands to reason that a corporation should do all it can to reduce its tax burden, and it could even argue that doing so is its fiduciary responsibility to its shareholders, this particular tax loophole is stripping tax revenues from the U.S. government at an unsustainable rate.

In addition it is also pitting the corporations that have made an inversion against the corporations that have not creating a toxic business environment which is why this is one loophole that needs to be fixed.

 

Morey and Associates is a Newport Beach CPA Accounting firm.  As your accountant, our goal is to minimize your tax obligations legally and help you remain compliant.  We work with all kinds of small and medium sized businesses.  We have additional expertise working with medical and dental practices, real estate accounting, and high net worth individuals.

FATCA Penalties – Why United States Expats Worry

For one reason or another, thousands of American citizens are living outside the United States at any given time. Many retirees are taking advantage of the lower cost of living and temperate climate offered south of the border while younger individuals and families are abroad for school, business, or simply for the adventure. While living abroad certainly has its advantages, there are also disadvantages. Living abroad has always come with challenges. Learning a new language, adapting to a new culture, and adjusting to a different pace of life have always been among those challenges. Recently, Americans living abroad have faced a new challenge. This one, however, does not come from their adopted country but from their homeland. With the passage of the Foreign Account Tax Compliance Act, or FATCA, many expatriates are worried about the penalties they face from the Internal Revenue Service for failing to comply with complex provisions of FATCA.
Wealthy Americans have historically taken advantage of foreign tax havens. Everyone knows what a “Swiss bank account” means. Because these countries have traditionally maintained a policy of confidentiality with regard to the identity of account holders, wealthy Americans have been able to hide large sums of money in these offshore accounts and allow the funds to earn interest tax-free. As a result, experts estimate that the U.S. government loses as much as $100 billion dollars each year in revenue. FATCA was passed in 2010 in an attempt to tighten up the reporting requirements for foreign financial accounts which will, in turn, result in a dramatic increase in tax revenue for the U.S. government each year. Unfortunately, FATCA applies to everyone living outside the United States and/or everyone who has a financial account located outside the U.S., and the potential penalties for non-compliance are steep.
FACTA has two main provisions. The first requires foreign financial institutions to enter into an agreement with the IRS. The agreement obligates the financial institution to provide names, TINs, addresses, and transactional information regarding accounts held by U.S persons. The second provision requires most U.S. persons who have foreign accounts or certain types of assets to complete and file IRS Form 8938 “Statement of Specified Foreign Financial Assets” with their tax return each year. As a general rule, Form 8938 is only required if the value of the assets exceeds $50,000; however, there are exceptions to that general rule. In addition to Form 8938, financial accounts that total more than $10,000 must be disclosed using a “Foreign Bank Account Report”, or FBAR. To complicate matters, not only to account holders need to file a FBAR, but so do beneficiaries, signatories, and anyone with a power of attorney over the account.
If you are an American living abroad and/or you own assets or financial accounts outside the United States you are likely subject to the provisions of FATCA. To ensure that you comply with all the FATCA requirements, contact us and we can discuss your options.

Last Minute Tax Returns – Federal and State Taxes

ProcrastinationWhat percent of filers wait until the last week? 

Statistically, about a quarter of all tax returns (nearly 25%) are mailed in the last week of the tax season.  Yes, it’s pretty high given the amount of time provided.

For those that are not prepared, many will file for an extension.  If you would like to go on extension, simply call our office and we will file a return on extension on your behalf.

Yes, we will need some documentation and authorization but it will protect both of us so we can put the proper time into preparing your return. Simply call 949-485-2011 and explain that you need to be placed on extension. Morey & Associates is a certified public accountant servicing clients throughout Orange County.

Orange County California CPA Tax Accountants

Complicated Tax Returns – We Can Help

Each year, our tax code gets longer and more complicated.

The filing season for 2014 is rapidly coming to a close and the Health Care Law (Affordable Care Act) is a totally new wrinkle that will make your tax return even longer.  In addition to more forms and questions, the issues with TurboTax is another reason that many people are flocking back to a local CPA Firm.

Tax Code in PagesThe reality is that more complicated returns require more expertise, whether it’s filing in multiple states, multiple countries, you have a business, you have a trust account or you had a great year in 2014.  These are all great reasons to reach out to an tax accountant that is certified with the state of California and has the expertise to handle your specific situation.

Morey & Associates, Inc is a Orange County CPA Firm servicing small businesses, individuals, non-profits and expatriates. We have developed several areas of additional expertise to handle more complicated tax returns and special circumstances.  Below are some examples:

  • Expatriate Tax Preparation and Non-Resident Taxes – We have developed a team to help United States citizens living abroad and non-residents living within the U.S.
  • High Net Worth Tax Preparation – As our range of clients has expanded, we have developed a group to support the needs of high net worth individuals who want to minimize their tax obligation legally.
  • Real Estate Accounting – As the Orange County real estate markets have rebounded, our real estate accounting expertise has expanded considerably so we can service REITs, developers, investor groups, and property management companies.
  • Small and Medium Sized Businesses – Many of our business clients have evolved from local to into multi-national businesses.

If you would like some help with your complicated tax issues, call us at 949-485-2011 and ask for our Jerry Morey.  We have offices in San Clemente and will open another office soon.