Happy New Year 2014!

Posted on January 3, 2014 by Kursti Nakagawa

Wishing you a Happy New Year from Professional Tax Resolution!

Wishing You a Happy, Healthy & Prosperous 2014 …

Professional Tax Resolution!

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances.

End of the Year Tax Planning for Investors

Posted on December 17, 2013 by Kursti Nakagawa

Year End Investment Planning

Although tax planning is important for investors year round, it is most important as the calendar year draws to a close. While investment decisions are made throughout the year, they are particularly critical at year end because of the potential tax implications. The United States tax code provides many tax planning opportunities for investors but the majority neglect to use what is available to their maximum advantage. The failure of investors to implement end of the year tax planning strategies (summarized below) can have a significant negative impact on overall investment performance.

Realizing Capital Losses

Consider the following points related to selling investments at a loss before the end of the year:

Up to $3000 in capital losses can be used to offset ordinary income.
Capital losses can be strategically paired with capital gains to lighten the tax burden of selling other investments at a profit.
Any capital loss in excess of the $3000 limit that can be used to offset ordinary income that is not used to offset capital gains can be carried forward into the next tax year.
Short term capital losses are paired against short term gains and long term losses against long term gains until either category is used up. Once that happens, leftover losses and gains are paired against each other.
A taxpayer who projects a significant decrease in income for the next calendar year might be wise to realize capital losses in the current year so that the tax benefits of those losses will be applied at the higher tax bracket.

Realizing Capital Gains

Consider the following points related to selling investments for a gain before the end of the year:

Short term capital gains (gains on investments held less than 12 months) are taxed at a taxpayer’s ordinary income tax rate which is anywhere from 0% to 39.6% (the new top rate in 2013). In addition, those taxpayers who have an adjusted gross income of over $200,000 or $250,000 for a married couple have an additional Net Investment Income Tax of 3.8% added to the 39.6% for a total tax rate of 43.4%. With this in mind, investors may want to defer selling assets that would be subject to short term capital gains rates and hold them until the lower long term rates would apply.
Taxpayers who are in the 10% and 15% tax brackets pay 0% tax on long term capital gains and may want to think about realizing any such gains while the 0% rate still applies. On the other hand, those who are in the top tax bracket currently pay 20% on long term gains plus the Net Income Tax surcharge of 3.8% for a total or 23.8%. Taxpayers in this category may want to think twice about realizing long term gains at the end of the year unless they have losses to offset them.
A taxpayer who projects a significant increase in income for the next calendar year might be wise to realize capital gains in the current year so that the tax consequences of those gains will be applied at the lower tax bracket.

In addition to decisions related to realizing capital gains and losses, end of year tax planning for investors may involve such other considerations as gifting of assets, Roth conversions and allocation of assets between dividend and non-dividend paying stocks. While investment decisions are always important, they are most critical as the tax year closes because they determine the final balance sheet that will be carried over into tax season. Proper tax planning, especially at this time of year, can a very important factor in determining what percentage of the yearly investment returns are retained in the portfolio and what percentage must be passed on to the government.

If you have questions relating to capital gains or losses ,asset allocation for tax purposes, Roth conversions, gifting of assets or any other tax related investment topic, our certified tax professionals can provide you with the answers you are looking for. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. We have a thorough understanding of tax law together with the experience to know how to apply it to its maximum advantage for your specific set of circumstances.

Taxpayers Beware – IRS Scams!

Posted on December 2, 2013 by Kursti Nakagawa

IRS Warns of Tax Scams

Taxpayers Beware – IRS Scams! Every year the IRS publishes a list of the most popular tax scams so that taxpayers will be better able to protect themselves against schemes that develop in an around the preparation of tax returns. With the 2014 tax season fast approaching, it is a good time to be reminded of the some of the items that were on the list published by this past March. Although the IRS is aware of these problem areas, it is likely that some of these same issues will surface again once tax season gets underway at the beginning of the year.

Summarized below are three of the culprits that appeared last year’s list of the “Dirty Dozen Tax Scams” published by the IRS:

Identity Theft

Identity theft occurs when someone uses a legitimate taxpayer’s identifying information without their permission to file fraudulent tax returns and claim refunds. Although the IRS has made identity theft a top priority by updating and improving their policies and practices, the identity thieves themselves have become more aggressive in their tactics. For this reason, the IRS encourages all taxpayers to be educated on this practice, including what steps to take should it occur. There is a special identity theft section (https://www.irs.gov/uac/Identity-Protection) on IRS.gov that gives tips on how to protect against this type of taxpayer fraud and instructions on how to contact the Identity Theft Specialized Unit should it occur.

Phishing

Phishing is the practice of sending out unsolicited emails or using a website that resembles a legitimate website to obtain a taxpayer’s personal information, usually for the purpose of committing identity theft. As with identity theft itself, the IRS is well aware of this type of fraudulent behavior and has a special section (https://www.irs.gov/uac/Report-Phishing) dedicated to it on their website. It is important to be aware of the fact that the IRS never solicits identifying information from taxpayers through any type of electronic communication, including text messages and email.

Return Preparer Fraud

Another common type of taxpayer fraud is the preparation of returns by unethical tax preparers. Although most preparers are honest, sharing important tax information with one who is not can have serious consequences including identity theft and lost refund money. In addition, each person is legally responsible for any return submitted under their Social Security number. With these things in mind, it is important for taxpayers to only use preparers who sign the returns and have a valid IRS Tax Preparer Identification Number. The IRS website has a special section (https://www.irs.gov/Tax-Professionals/Choosing-a-Tax-Professional) on selection of a tax professional which gives both preparer qualifications and red flags to look for in the selection process.

Crackdown on Offshore Tax Evasion

Posted on November 26, 2013 by Kursti Nakagawa

Offshore Tax Evasion?

Although the requirement for filing an annual Report of Foreign Bank and Financial Accounts (FBAR) has technically been on the books since 1970, the compliance rate was less that 20% until 2001. Since that time, the United States government has stepped up its efforts to identify and punish those individuals who are guilty of concealing foreign assets and income as well as the foreign banks who have participated in the cover up.

Beginning in 2008, the IRS and the United States Department of Justice stepped up their game in the area of offshore tax evasion. In June of that year, the IRS issued a statement reminding taxpayers of their reporting obligations and the consequences of not meeting them. John DiCicco of the Justice Department’s Tax Division issued a similar statement saying that they would “work hand-in-hand with the IRS to vigorously enforce the tax laws against those taxpayers who use offshore accounts to evade taxes.” Following that, the United States Department of Justice began actively prosecuting criminal cases related to foreign bank accounts.

The actions of 2008 produced some immediate results. Before the end of the year, Bradley Birkenfeld, a UBS banker who was charged with helping United States taxpayers evade income taxes by ignoring FBAR reporting requirements, had entered a guilty plea. Birkenfeld disclosed that UBS was managing assets of over $20 billing for United States citizens trying to avoid taxes. Shortly thereafter, the IRS was granted the authority to request information from UBS about those individuals. This was the beginning of the end of the flagrant use of foreign banks to hide assets for the purpose of avoiding taxes. Since that time:

Over $5.5 billion in back taxes and penalties has been collected from taxpayers trying to avoid prosecution.
More than 38,000 taxpayers have joined the government’s amnesty program.
Fourteen Swiss banks have been placed under investigation.
A total of 103 taxpayers have been prosecuted with 62 guilty pleas and five trial convictions.
Of those prosecuted, 49 have been sentenced with most of those receiving either probation or home confinement. Only 18 of those sentenced have received prison time with only two receiving a sentence of longer than a year and a day.

We are currently in a holding pattern, awaiting the official enforcement of the Foreign Account Tax Compliance Act (FATCA). This legislation, passed in March of 2010, requires individuals who have more than $50,000 in foreign assets to report those asserts on Form 8038 while, at the same time, requiring foreign banks to disclose information about account holders who are United States citizens. Although the enforcement of FATCA has been postponed until July, 2014, recent headlines announcing the prosecution of some fairly prominent individuals have resulted in the majority of taxpayers being acutely aware of the consequences of offshore tax evasion.

The CPAs, Enrolled Agents and Tax Attorneys at Professional Tax Resolution are up to date on the current requirements for FATCA compliance and have extensive experience in the area of FBAR reporting. Contact us today if you are concerned about whether you meet the current reporting requirements for foreign assets and income. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527 to receive a free, no obligation consultation.

The Consequences of FBAR Noncompliance

Posted on November 19, 2013 by Kursti Nakagawa

FBAR Changes…

Things are changing as the consequences of the FBAR Noncompliance are becoming stricter. Up to this point, the sentencing of offshore tax evaders has been fairly lenient. Although judges must attempt to follow sentencing guidelines written to ensure consistent punishment for defendants convicted of similar crimes, they have been given considerable leeway. Within these guidelines, the judges in these cases have been weighing such factors as the amount of financial loss or gain involved, whether the tax evader has assumed responsibility for the crime and whether they have provided information that has helped to build a case against others. They have also taken into account the defendant’s age, health and previous contributions to society. The following high profile cases shed some light on what type of sentences have recently been handed out to individuals who have been found guilty of concealing foreign income and assets:

Richard Werdiger – Seller of Diamonds and Jewelry

The offense: Richard Werdiger concealed more that $7 million in various offshore accounts between 2000 and 2008. During this time, the accounts earned more than . (https://www.leankitchenco.com/) 3 million which left him with a back tax balance of $400,000 by the time he was prosecuted.

The sentence: Because Werdiger failed to qualify for the Limited Amnesty Program offered by the IRS, the judge rejected his leniency plea and sentenced him to a year and a day in prison. He was also assessed a $3.8 million dollar civil penalty and a $50,000 fine.

Michael Canale – Army Surgeon

The offense: Michael Canale inherited a UBS bank account in 2000. By subsequently filing false tax returns and taking unreported cash withdrawals with the assistance of a Swiss financial advisor, he avoided paying over $200,000 in taxes.

The sentence: In April of this year, a judge sentenced Canale to 6 months in prison although he could have been given as much as 30 months.

Michael Reiss – Breast Cancer Researcher

The offense: Michael Reiss failed to declare offshore bank accounts in addition to changing banks and filing false FBAR reprots to hide more than $2.6 million in offshore assets.

The sentence: Although Reiss could have been sentenced to up to 37 months in prison according to sentencing guidelines, he was only required to serve one day. In addition, he was given three years of probation and required to perform 30 hours per week of community service during this time.

At the time of this writing, Ty Warner, Creator of Beanie Babies, is awaiting sentencing on charges similar to those described above. On October 2^nd, Mr. Warner pleaded guilty to offshore tax evasion. The extent of his wrongdoing includes unlawfully sheltering over $100 million in various Swiss bank accounts, filing a false tax return in 2002, underreporting his income by over $24 million between 1999 and 2007 and failing to file a Report of Foreign Bank and Financial Accounts (FBAR). He currently owes over $5.6 million in back taxes together with a civil penalty of $53.6 million. Based on precedent, it will be interesting to see what sentence the judge hands down.

If you need FBAR services, including help with current FBAR reporting or the filing of delinquent FBAR reports, the CPAs, Enrolled Agents and Tax Attorneys at Professional Tax Resolution can provide you with the help you are looking for. Contact us today to ensure that you meet the current requirements for the reporting of your foreign assets and income. For more information about this or other tax settlement services, visit us at www.professionaltaxresolution.com or call us at 877.889.6527 or to receive a free, no obligation consultation.