Family Finances: Tax Settlement, Innocent Spouse Relief, and Injured Spouse Relief

Posted on October 24, 2013 by Kursti Nakagawa

Family Finances

A recent study by Fidelity Investments revealed that individuals often lack adequate knowledge of family finances. The results of the study showed that a surprising number of marriage partners have insufficient information about important financial matters such as insurance policies, investment accounts, physical assets, beneficiary designations and income taxes, among other things. While this lack of awareness may not be a problem when life is going smoothly, it can have unforeseen consequences there is a bump in the road. In the face of a death, a divorce or a sudden disability, a spouse who does not have a satisfactory understanding of family finances can find themselves at a serious disadvantage.

The results of the recent Fidelity study showed that, while most couples reported that they communicated effectively about financial matters, a much smaller percentage said that they shared daily financial decisions. Less than half of the retired couples surveyed agreed on what type of lifestyle they expected to lead in retirement and only a slightly larger percentage had an acceptable level of information about retirement planning. Moreover, only 28 % of the couples surveyed said that either spouse could single-handedly manage the retirement finances.

Although it is natural to postpone a discussion of family finances when there is no immediate problem, it is important to be prepared for the uncertainty of the future. An unforeseen event can leave either partner with complete financial responsibility. With this in mind, financially responsible couples would be well advised to take the following steps:

Inventory Investment Accounts
Inventory Physical Assets
Prioritize Investments to be Tapped for Retirement
Discuss Income Tax Returns and Related Tax Issues
Prepare Wills with Agreed Upon Financial Conditions

Although the discussion of topics such as those outlined above can be stressful and uncomfortable, not doing so may well leave either spouse in an unfortunate situation. Consider, for example, the spouse who is left with a very aggressive investment portfolio upon his or her mate’s death. If the surviving spouse has no knowledge of the type of investments in the portfolio, they could very well suffer a significant loss if the market suddenly takes a sharp downward turn. Similarly, consider the predicament of a spouse who has no knowledge of his or her mate’s tax obligations. Faced with an unexpected death or divorce, the surviving spouse could be left with a tax debt about which they have no knowledge. Although tax this situation can be handled with a tax settlement agreement in the form of Injured Spouse Relief or Innocent Spouse Relief, it certainly not a situation anyone would chose to face.

If you have questions about Injured Spouse Relief or Innocent Spouse Relief, the CPAs, Enrolled Agents and Tax Attorneys at Professional Tax Resolution can provide you with the answers you are looking for. Visit us today at www.professionaltaxresolution.com for more information about these and other tax settlement options. Complete our online request form or call us at 877.889.6527 to receive a free, no obligation consultation.

Expatriates Renouncing Citizenship

Posted on October 10, 2013 by Kursti Nakagawa

In the face of increasingly strict asset disclosure legislation, more and more United States citizens are renouncing their citizenship in order to avoid potential tax consequences. In the second quarter of this year, the number of expatriates turning in their passports to United States embassies abroad was up almost 500% from that same time period the previous year. Compared to the first half of 2008, the number of renunciations in the first half of 2013 was up over 15 times!

The United States is the only county of the 34 members of the Organization for Economic Development that taxes its citizens no matter where they reside. Although this has been the case for quite some time, the government’s fairly recent crackdown on the reporting of foreign assets and income has made more and more Americans aware of their tax reporting responsibilities. As a result, an increasing number of the 6 million plus individuals residing aboard are apparently deciding that holding their United States citizenship is not worth the financial consequences that come with it.

The campaign to identify and tax the foreign income of United States citizens has slowly gathered force since the terrorist attacks in 2001. Foreign income reporting legislation has been on the books since 1970 when the Bank Secrecy Act of 1970 was passed, requiring the filing if an annual Report of Foreign Bank and Financial Accounts (FBAR). However, the reporting rate has historically been very low and, until recently, little was done to force compliance. All this is has change over the past few years. The government has not only stepped up its efforts to enforce the existing tax laws but has passed new legislation to supplement what was already there.

The most significant development in the area of foreign tax compliance has been the passage of the Foreign Account Tax Compliance Act (FATCA) in March of 2010. This legislation increases the disclosure requirements for United States citizens who have money in overseas accounts and for the banks that hold those accounts. Basically, FATCA requires individuals who have more than $50,000 in foreign assets to report those asserts on Form 8038. It also requires foreign banks to disclose information about their U.S. account holders or face stiff penalties for not doing so. Although the enforcement of FATCA has been postponed until July of 2014, apparently the hassle of increased compliance requirements together with the threat of steeper consequences for noncompliance has caused more and more individuals to think twice about the value of their United States citizenship.

If you have questions about the taxation and reporting of foreign assets or income, the CPAs, Enrolled Agents and Tax Attorneys at Professional Tax Resolution can provide you with the answers you are looking for. Our tax specialists have extensive experience in the area of FBAR reporting and are up to date on the current requirements for FATCA compliance. 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.

How a Government Shutdown Will Affect the Economy

Posted on October 1, 2013 by Kursti Nakagawa

How will the Government Shutdown Affect the Economy?

The major news headlines everywhere are focused on the government shutdown. The government shutdown is the result of the recent vote by House of Representatives opposing funding for Obamacare (Obama’s healthcare law) as part of a bill to pay for government operations after the close of the fiscal year on September 30th. Questions remain as to how this government shutdown will affect the economy.

When the government shuts down, it is estimated that about 800,000 federal employees will be out of work. Obviously the workers’ lost wages are a problem, but these lost wages will also bleed into other related areas. In particular, some businesses will be forced to reduce or even suspend their services until the shutdown is over. This will lead to cut back in spending for everyone involved in the cycle. Depending on the amount of time the government is shut down, this reduction in spending could have huge implications for the economy. Another important factor to keep in mind is the uncertainty factor related to just the mere threat of a potential government shutdown. The financial markets generally react negatively to business uncertainty so there is the potential for unknown damage in this area.

If the government is shut down for even a relatively brief period of time such as a few days it could have a significant impact on the nation’s economy. One analyst estimated that a month’s shutdown could cost the economy about $55 million. Due to the government shutdown, the Small Business Administration has suspended operations, which means that no loans will be processed. Even tourism and air travel will be threatened since travelers will not be issued visas due to the temporary closing of government offices. In short, many businesses and sectors will be touched by the temporary suspension of government services.

A shutdown for any length of time will significantly cut the growth of the US economy. Most importantly, the temporary suspension of government services will result in a dip in the gross domestic product. Some analysts believe that the short term closure of certain government offices could cut the fourth-quarter economic growth by as much as 1.4 percentage points. While the effects of a government shutdown will be just an inconvenience for some, they will affect others more harshly. Some analysts believe that the long term effects could be hazardous to the economy, even to the point of causing a recession.

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

Beanie Babies Creator Admits Tax Evasion

Posted on September 26, 2013 by Kursti Nakagawa

Beanie Babies Creator Admits to Tax Evasion

The creator of Beanie Babies, Ty Warner, has been accused of tax evasion due to the non-reporting of income earned on funds held in a secret Swiss bank account. Mr. Warner failed to report $3.2 million in income on an account which held as much as $93.6 million in assets. He will be assessed over $50 million in penalties for his oversight.

U.S. attorney Gay Shapiro said that Warner, 69, will plead guilty in federal court to dishonestly recording his 2002 income as $49.1 million, overlooking money he made on his UBS account. His plea will take place on October 2^nd. Once his plea is entered, he will be required to pay a civil penalty of $53.6 million for failing to file the required Report of Foreign Bank and Financial Accounts.

In 1996, Warner opened a secret account at UBS. Then, in December of 2002, he transferred $93.6 million to an alternate secret Swiss account. He was able to cover his involvement with this account by holding it under an entity called the Molani Foundation. However, because he failed to report his UBS income of $3.2 million to his outside accountants, the tax return he filed for 2002 was false.

In 2009, Warner tried to avoid prosecution for tax evasion through an amnesty program set up by the Internal Revenue Service known as the Offshore Voluntary Disclosure Program. However, he was denied entry.

Warner founded Ty Incorporated in 1985. The company took off after he created Beanie Baby toys in the 1990’s. Despite the current proceedings, Ty Incorporated is now a $4.5 billion business and Warner has donated almost $140 million in cash to charities and other organizations. Mr. Warner also owns the Four Seasons Hotel in New York, the San Ysidro Ranch in Santa Barbara, and the Las Ventanas al Paraiso in Los Cabos, Mexico.

If you have questions about FBAR reporting, the Offshore Voluntary Disclosure Program or other issues concerning the taxation of foreign income, our tax settlement professionals are happy to answer them free of charge. Visit us today at www.professionaltaxresolution.com or call us at 877.889.6527 for more information about our full range of tax settlement services. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law as it applies to the reporting and taxation of both foreign and domestic income.

Tax Relief: Will Mickelson Stay in CA after British Open Tax Bill?

Posted on September 11, 2013 by Kursti Nakagawa

Is Phil Mickelson's California Tax Bill Too Much?

Phil Mickelson Wins British Open—And California Taxes It

Tax relief is what Phil Mickelson needs after his CA tax bill from the British Open. According to Sports Illustrated, Phil Mickelson made $36 million last year from his sponsors. Companies such as KPMG, Barclays, and Callaway endorse Mickelson. His recent win in the British Open escalates his endorsement and marketing appeal, which will mean even more revenue in the future. However, with more revenue, there will be more taxes.

Although Mickelson currently resides in a high-tax California home, he has become a poster-child for selecting residency based on tax law. Mickelson found himself in the news after he announced that his taxes were high and that he would have to look at all available options. He even withdrew his offer to purchase the San Diego Padres, announcing that high tax rates were the motivating factor for this decision.

“There are going to be some drastic changes for me because I happen to be in that zone that has been targeted both federally and by the state and it doesn’t work for me right now,” Mickelson made this statement after his T37 finish at the Humana Challenge in Palm Springs. Although his tax comments were disciplined by any standard, they still triggered an outcry. He apologized, but even that the apology created a strong reaction from observers who liked the fact that he cited high taxes.

Most states and countries tax entertainers and athletes when they perform or play within their confines. Foreign entertainers and athletes must file U.S. income tax returns and face distinctive withholding rules. Such income usually includes endorsements, merchandise sales, pay for performances, royalties and other income associated with the event. However, as a California resident, California gets a portion of it all.

Tiger Woods has said that California’s high taxes were one of the reasons he moved to Florida in the 1990’s. Since that time, the state’s tax rates have increased even more. California’s Prop 30 which was passed in November of 2012 increased state tax rates for those earning $250,000 to $300,000 a year from 9.3% to 10.3%. For those earning over $1 million, the rate is 13.3%, up from a prior top rate of 10.3%. In comparison, the combined state and local top rate in New York is 12.7%.

One survey shows that jobs, housing costs, family ties and climate are usually more important than tax rates in determining where people choose to reside. Apparently even wealthy taxpayers normally don’t move for tax reasons. However, this may not hold true for a professional athlete who is not tied to a particular team. If Phil Mickelson decides to move, he will not be the only one running from high taxes. Should he stay in California, his tax will probably increase even more. This could make a move to Texas or Florida very appealing.