Monthly Archives: September 2015

Why United States Expatriates Worry About FATCA Penalties

5zM3PffMoL3RvIP-g9SXRIjL1p4YMoZ4yTFi7qjyiR0,BsmQJEDn9qRy9JL-JSBaheOfRXcXo0ZjDWdr1WVgsj8For 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. Most likely everyone knows what a “Swiss bank account” means. Several countries in Central America as well as the Caribbean have also been popular options for off-shore accounts. 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. Additionally, not only do account holders need to file a FBAR, but  beneficiaries, signatories and anyone with a power of attorney over the account need to as well.

Making a mistake on Form 8938 or failing to comply with the FATCA requirements for any other reason can incur a hefty penalty. The civil penalty for failing to disclose assets or accounts on Form 8938 can be as high as $10,000 plus an additional $10,000 for every 30 days of non-disclosure after the IRS officially provides notice of a failure to disclose. The maximum civil fine is $60,000 for a FATCA violation. The penalty for failing to file a FBAR is also up to $10,000 for a non-willful violation. For a willful violation, however, the penalty is the greater of $100,000 or 50 percent of account balances.

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 be sure to retain the assistance of a reputable accounting professional when you prepare your tax return this year and in subsequent years. For more information, please don’t hesitate to contact us.

What is a Defined Benefit Plan?

3py0fx3Z8TBis3WM9ENJfsma91FipMRX1zlsPdDnG2E,lztd4L9LGyjcfCQiD5c9TJfJVfKfTlV1Nb_sSW2wJP4Simply put, a defined benefit plan is a pension plan that uses a formula to promise a predetermined monthly benefit to an employee at their retirement. However, the specifics that go into a defined benefit plan are less simple, and it is important for all involved to understand the ramifications of the plan before it is entered into.

The Formula for Defined Benefit Plans
Most plans use a formula that includes the employee’s earnings, years of employment and age at retirement. As of 2014, the IRS caps this type of retirement benefit at $210,000.

The final salary plan takes into consideration the employee’s number of years worked and then multiplies that by the current salary at the time of retirement, and then finally, multiplies it by an accrual rate. The accrued amount is then available to the employee as either monthly payments or a lump sum.

Types of Defined Benefit Plans
Defined benefit plans can be either funded or unfunded. An unfunded plan means that the company does not set aside any assets to ensure benefits can be paid when the plan goes into effect. This is known as a Pay-as-you-go plan. In the United States, these plans are only allowed in the public sector.

The second type of plan is a funded plan. In this case, the employer, and sometimes the employee make contributions to the plan, so future benefit obligations can be met. These contributions are then examined by an actuary at certain intervals to ensure that the contribution level, as well as the investment of the contributions, will equal or surpass the benefit obligations.

Disadvantage and Advantages of Defined Benefit Plans
The disadvantage of the defined benefit plan is that it is less portable than other pension plans. The advantage, however, is that most plans will pay the benefit to the employee as an annuity, so there is less chance that the employee will out live their retirement benefits.

For more information about defined benefit plans for your dental practice, please contact us!

What are Tax Extenders for Small Businesses?

hplPH6adK4C_VNiKofWgAb50SbVde0upgRcWgP0mc3M,9AaqB3hIXVeiw6Lcndepec6FCEoDKEzFYl-d2Na_StoTax extenders are a group of fifty tax breaks that apply not only to small businesses, but teachers and individuals as well. What you need to be concerned with are those that apply directly to small businesses, especially dental practices. While these tax breaks are temporary in nature, they can have a serious impact on how you conduct your business for the next year.

In 2013, these tax breaks actually expired on December 31st, but the United States Congress retroactively extended the tax breaks into 2014. They typically do this at the last moment of the year or right after the first of the new year, making it difficult for small businesses to plan ahead. These tax breaks are also only renewed for one year meaning they will have need to extend them again before the end of 2014, so they can carry over into 2015.

Currently, the tax extenders for small businesses include such items as a work opportunity tax credit of $1,375, a 15-year straight line cost recovery for qualified leasehold improvements for restaurant and retail establishments of $2,382, and bonus depreciation of $1,492.

Additional tax extenders include:

  • Exclusion of 100 percent of gain on certain types of small business stocks
  • A reduction in the S Corporation recognition period for built-in gains tax
  • Qualified zone academy bonds
  • An employer wage credit for activated military reservists
  • A new market tax credit

While not all tax extenders are good policy for the government or businesses, some of the tax breaks do help level the playing field and provide companies, including dental practices, a way to define actual business expenses with less effort.

For more information on tax extenders, please contact us!