Nonresident Aliens – How to Determine Source of Income

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A nonresident alien (NRA) usually is subject to U.S. income tax only on U.S. source income. The general rules for determining U.S. source income that apply to most nonresident aliens are shown below:

Summary of Source Rules for Income of Nonresident Aliens
Item of Income Factor Determining Source

Salaries, wages, other compensation

Where services performed
Business income:
Personal services		 Where services performed
Business income:
Sale of inventory -purchased		 Where sold

Business income:
Sale of inventory -produced

Where produced (Allocation may be necessary)

Interest

Residence of payer

Dividends

Whether a U.S. or foreign corporation*

Rents

Location of property
Royalties:
Natural resources		 Location of property

Royalties:
Patents, copyrights, etc.

Where property is used

Sale of real property

Location of property

Sale of personal property

Seller’s tax home (but see Personal Property, in Chapter 2 of Publication 519, for exceptions)

Pensions

Where services were performed that earned the pension
Scholarships – Fellowships Generally, the residence of the payer

Sale of natural resources

Allocation based on fair market value of product at export terminal. For more information, see IRC section 1.863–1(b) of the regulations.

*Exceptions include:
a) Dividends paid by a U.S. corporation are foreign source if the corporation elects the Puerto Rico economic activity credit or possessions tax credit.
b) Part of a dividend paid by a foreign corporation is U.S. source if at least 25% of the corporation’s gross income is effectively connected with a U.S. trade or business for the 3 tax years before the year in which the dividends are declared.

 

Please feel free to contact us, if you have any tax questions.

Manen,
Manendra Kothari, CPA
MKothari@SKTaxes.com
127 S. Roselle Rd Ste # 200  Schaumburg, IL 60193
Ph: 847.524.0001
SK Tax Associates,  CPAs

Blog: IndianCPA.US

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Reserve Bank of India allows NRIs to transfer funds from NRO to NRE account

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The Reserve Bank allowed non-resident Indians (NRIs) to transfer funds from non-resident ordinary (NRO) account to Non-Resident External (NRE) account subject to a ceiling of $1 million in a financial year.

“On a review, it has been decided that henceforth NRI shall be eligible to transfer funds from NRO account to NRE account from within the overall ceiling of $1 million per financial year subject to payment of tax,” RBI said in a notification.

As per the existing regulation, fund transfer from NRE account to NRO was allowed, but not the other way round.

“At present transfer of funds from NRO to NRE account is not permissible,” the RBI notification said.

While, an NRE account is for depositing income from abroad, NRO account is mainly for putting Indian incomes.

In case of NRE account, only NRIs can become joint account holders but for NRO account both resident and non-resident can become joint account holders.

The decision was taken based on recommendations of K J Udeshi Committee which reviewed the facilities for persons under Foreign Exchange Management Act, 1999.

We believe this is the step in right direction and it is in the interest of NRIs were able to claim only portion of taxes paid in India as foreign tax credit on US returns. NRIs can now transfer NRO to NRE accounts which is paying the same interest as NRO account, it make sense to keep balance in NRE account. Income from NRE account is not subject to Indian tax but must be reported on US tax return. Also, keep in mind that depending upon the aggregate balances of all foreign accounts, one might be required to file FBAR form or form 8938s. NRE account is in rupees so one will have currency risk but with hedging you can cover your position.

Please feel free to contact us, if you have any tax questions.

Manen,
Manendra Kothari, CPA
MKothari@SKTaxes.com
127 S. Roselle Rd Ste # 200  Schaumburg, IL 60193
Ph: 847.524.0001
SK Tax Associates,  CPAs

Blog: IndianCPA.US

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Do I need to file FBAR?

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FBAR (Foreign Bank Account Reporting) Filing Criteria:

  1. In order to determine whether or not the FBAR is required, all of the following must apply:
    1. The filer is a U.S. person;
    2. The U.S. person has a financial account(s);
    3. The financial account is in a foreign country;
    4. The U.S. person has a financial interest in the account or signature or other authority over the foreign financial account; and,
    5. The aggregate amount(s) in the account(s) valued in dollars exceed $10,000 at any time during the calendar year.

U.S. Person

  1. A U.S. person is defined by reference to three sources. 31 U.S.C. 5314 and 31 C.F.R. 103.24 identify persons who may be subject to the FBAR reporting requirement. The FBAR instructions identify a smaller group of persons who must file FBARs than could have been required, under the statute and regulations, to file.
    1. “The Secretary of the Treasury shall require a resident or citizen of the United States or a person in, and doing business in, the United States, to keep records, file reports…” and that ” The Secretary may prescribe a reasonable classification of persons subject to or exempt from a requirement under this section or a regulation under this section” . 31 U.S.C. § 5314
    2. Each person subject to the jurisdiction of the United States (except a foreign subsidiary of a U.S. person)…shall provide information specified in a reporting form prescribed by the Secretary. 31 C.F.R. § 103.24
    3. The instructions to the July 2000 FBAR (the current version) define “United States person” as “a citizen or resident of the United States, a domestic partnership, a domestic corporation or a domestic estate or trust.”
    4. “United States” includes the states, territories, and possessions of the United States. 31 C.F.R. 133.11(nn)
    5. Examiners should use the definition of “United States person ” found in the FBAR instructions when determining whether a person has an obligation to file the FBAR.

U.S. Person: Definition

  1. A citizen of the United States has a U.S. birth certificate or naturalization papers. Documents to substantiate citizenship, however, would not normally be requested as part of the FBAR examination.
  2. A “resident” of the United States is a permanent resident. “Permanent resident” is not defined in the FBAR instructions, regulations, or statute. The definition of “resident alien” found in IRC § 7701(b) is not applicable for FBAR purposes. The plain meaning of the term ” resident” (in this context, someone who is living in the U.S. and not planning to permanently leave the U.S.) should be used for FBAR examination purposes. Although IRC § 7701(b) is not applicable, an individual can establish that he is not a resident for FBAR purposes if he can show that none of the following three criteria apply:
    1. The green-card test – Individuals who at any time during the calendar year have been lawfully granted the privilege of residing permanently in the U.S. under the immigration laws automatically meet the definition of resident alien under the green-card test; or
    2. Individuals who are not lawful permanent residents are defined as resident aliens under the substantial-presence test if they are physically present in the U.S. for at least 183 days during the current year, or they are physically present in the U.S. for at least 31 days during the current year and meet the specifications contained in IRC § 7701(b) (3) ; or
    3. The person files a first year election on his income tax return to be treated as a resident alien under IRC § 7701(b) (4).

     

    Therefore, if none of the three criteria listed above apply, then the person is not a resident for FBAR purposes.

     

  3. For FBAR purposes, the definition of “person” also includes a corporation, trust, or partnership.
    1. A certificate of incorporation from a state of the United States establishes that the corporation is a U.S. person.
    2. A foreign subsidiary (a subsidiary that is not incorporated in the United States) of a U.S. person is not subject to the FBAR filing requirements under 31 C.F.R. § 103.24. The U.S. parent is, however, considered to have a financial interest in any foreign financial account owned by its subsidiary and will file the FBAR on such an account.

     

  4. A corporation that owns directly or indirectly more than a 50 percent interest in one or more other entities is permitted to file a consolidated FBAR, on behalf of itself and the other entities. The consolidated report must include a list of the entities. An authorized official of the parent corporation should sign the consolidated report.

Financial Account

  1. A financial account includes a:
    1. Bank account, such as a savings, demand, checking, deposit, time deposit, or any other account maintained with a financial institution or other person engaged in the business of a financial institution. A bank account set up to secure a credit card account is an example of a financial account. An insurance policy having a cash surrender value is an example of a financial account.
    2. Securities, securities derivatives, or other financial instruments account.
    3. Other financial accounts generally encompass any accounts in which the assets are held in a commingled fund and the account owner holds an equity interest in the fund. A mutual fund account is an example of such an account.
    4. Individual bonds, notes, or stock certificates held by the filer are not a financial account.

Foreign Financial Account

  1. Generally, an account in a foreign country includes all geographical areas located outside the United States.
  2. The location of an account, not the nationality of the financial institution with which the account is held, determines whether the account is in a foreign country. Any financial account (except accounts maintained with a U.S. military banking facility) that is located in a foreign country should be reported, even if the account is held with a branch of a United States financial institution located abroad.
    1. The FBAR is not required for an account maintained with a branch, agency, or other office that is located in the United States even though the financial institution itself may be foreign.
    2. The United States includes the states of the United States, the District of Columbia, the Indian lands (as defined in the Indian Gaming Regulatory Act), and the territories and insular possessions of the United States. Examples include the Commonwealth of Puerto Rico, the United States Virgin Islands, Guam, American Samoa and the Commonwealth of the Northern Marianna Islands.
    3. An account is not considered foreign if held in an institution known as a “United States military banking facility” (or “United States military finance facility” ) operated by a United States financial institution designated by the United States Government to serve U.S. Government installations abroad, even if the United States military banking facility is located in a foreign country .

     

  3. The existence of a foreign financial account may be discovered during an income tax or Bank Secrecy Act (BSA) examination. Examples of such occurrences include:
    1. When inspecting a tax return as a part of pre-contact analysis (for example, Form 1040 Schedule B Part III has questions pertaining to foreign accounts).
    2. When conducting an income probe performed during an income tax examination.
    3. When interviewing a taxpayer.
    4. When conducting a BSA examination of a business, such as a money transmitter, that may routinely transmit funds overseas. Note that such businesses may or may not have a financial interest in, or authority over, a financial account located in a foreign country even though they transmit funds to an account overseas

    .

Financial Interest

  1. A United States person has a financial interest in each account for which such person is the owner of record or has legal title, whether the account is maintained for his own benefit or for the benefit of others including non-United States persons. If an account is maintained in the name of two persons jointly, or if several persons each own a partial interest in an account, each of those United States persons has a financial interest in that account and, generally, each person must file the FBAR. Under the individual reporting requirement, persons who file a joint tax return must file separate FBARs. In the past however, FinCEN has accepted a single FBAR for an account jointly held by husband and wife. IRS is continuing this practice.
  2. A United States person also has a financial interest in each bank, securities, or other financial account in a foreign country for which the owner of record or holder of legal title is:
    1. a person acting as an agent, nominee, attorney, or in some other capacity on behalf of the U.S. person; or
    2. a corporation, whether foreign or domestic, in which the United States person owns directly or indirectly more than 50 percent of the total value of shares of stock; or
    3. a partnership, whether foreign or domestic, in which the United States person owns an interest in more than 50 percent of the profits (distributive share of income); or,
    4. a trust, whether foreign or domestic, in which the United States person either has a present beneficial interest in more than 50 percent of the assets or from which such person receives more than 50 percent of the current income. :

     

  3. A bank is not required to file the FBAR to report a financial interest in an international interbank transfer account (commonly called a ” nostro” account). This exception appears in 52 Fed. Reg. 11436, 11438 (April 8, 1987).

Signature or Other Authority Over an Account

  1. A person having signature or other authority over a foreign financial account must file the FBAR even if the person has no financial interest in the account.
  2. A person has signature authority over an account if that person can control the disposition of money or other property in it by delivery of a document containing his signature (or his signature and that of one or more other persons) to the financial institution where the account is maintained. A person has other authority if the person can exercise power comparable to signature authority over an account by communication to the financial institution where the account is maintained, either orally or by some other means.
  3. The following are exceptions to the FBAR reporting requirement:
    1. An officer or employee of a bank that is subject to the supervision of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, or the Federal Deposit Insurance Corporation need not file the FBAR reporting that he has signature or other authority over a foreign bank, securities, or other financial account maintained by the bank, if the officer or employee has NO personal financial interest in the account.
    2. An officer or employee of a domestic corporation whose equity securities are listed on a national securities exchange or which has assets exceeding $10 million and 500 or more shareholders of record need not file the FBAR concerning his signature or other authority over a foreign financial account of the corporation, if he has NO personal financial interest in the account and he has been advised in writing by the chief financial officer of the corporation that the corporation has filed a current FBAR, which includes that account.
    3. An officer or employee of either a domestic subsidiary of a domestic corporation or a foreign subsidiary that is more than 50% owned by a domestic corporation which has securities listed on a national securities exchange or which has assets exceeding $10 million and 500 or more shareholders of record, need not report that he has signature or other authority over a foreign financial account of the subsidiary if he has NO personal financial interest in the account and has been advised in writing by the chief financial officer of the parent corporation that the corporation has filed a current FBAR which includes that account.
    4. An employee or officer of a wholly owned domestic subsidiary of a domestic parent corporation whose equity securities are listed on a national securities exchange or which has assets exceeding $10 million and 500 or more shareholders of record, need not file the FBAR concerning his signature or other authority over a foreign financial account of another domestic or foreign subsidiary of the same domestic parent if he has NO personal financial interest in the account and has been advised in writing by the chief financial officer of the parent corporation that the corporation has filed a current FBAR which includes that account.

Account Valuation

  1. The FBAR is required for each calendar year during which the aggregate amount(s) in the account(s) exceeded $10,000 valued in U.S. dollars at any time during the calendar year. The maximum value of an account is the largest amount of currency and non-monetary assets that appear on any quarterly or more frequent account statement issued for the applicable year. For example, if the statement closing balance is $9,000 but at any time during the year a balance of $15,000 appears on a statement, the maximum value is $15,000.
  2. If periodic account statements are not issued, the maximum account asset value is the largest amount of currency and non-monetary assets in the account at any time during the year.
  3. Convert foreign currency by using the official exchange rate in effect at the end of the year in question for converting the foreign currency into U. S. dollars. In valuing currency of a country that uses multiple exchange rates, use the rate that would apply if the currency in the account were converted into U. S. dollars at the close of the calendar year. The official Treasury Reporting Rates of Exchange for the previous quarter year can be obtained at http://fms.treas.gov/intn.html#rates or by calling the Department of the Treasury, Financial Management Service International Funds Team at (202) 874-7994. As these rates are published quarterly, the rates should be accessed during the first quarter of the following year to obtain the previous December 31 valuation. The rates posted on the FMS website are the current exchange rates. Historical exchange rates will be needed to determine the value in a foreign account in prior years. For historical exchange rates, call FMS at (202) 874-8001 or (202) 874-8004. These phone numbers may be subject to change. Check the FMS website ( http://www.fms.treas.gov) for the most current information.
  4. The value of stock, other securities, or other non-monetary assets in an account reported on the FBAR is the fair market value at the end of the calendar year, or if withdrawn from the account earlier in the year, at the time of the withdrawal.
  5. If the filer had a financial interest in more than one account, each account is valued separately in accordance with the previous paragraphs.
  6. If a person had a financial interest in one or more but fewer than 25 accounts and is unable to determine whether the maximum value of these accounts exceeded $10,000 at any time during the year, the FBAR instructions state that the person is to complete Part II of the FBAR and if needed, the continuation page(s) for each of these accounts. If the maximum aggregate value of the accounts was not in excess of $10,000, then there would be no FBAR violation if the person did not file the FBAR, whether or not the person knew the value of the accounts at the time the FBAR was due. This is because section 103.27(c) of the Title 31 regulations only requires FBARs to be filed when the value of the accounts exceeds $10,000 during a calendar year. For rules regarding a person with a financial interest in 25 or more accounts, see IRM 4.26.16.3.9.


Filing

  1. The determination to file the FBAR is made annually. For example, the FBAR may be required to report an account for one year but not for the subsequent years if the aggregate account balances in the subsequent years do not exceed $10,000.
  2. The FBAR must be filed for each year that the person has a financial interest in or authority over the foreign financial account when the balance exceeds the $10,000 threshold.
  3. The FBAR must be filed on or before June 30 each calendar year.
  4. The FBAR is filed by mailing it to the U.S. Department of the Treasury, Post Office Box 32621, Detroit, MI 48232-0621.
  5. The FBAR should not be filed with the filer’s federal income tax return.
  6. The FBAR is considered filed when it is received in Detroit, not when it is postmarked.


Filing Extension

  1. Extensions of time to file federal income tax returns do not extend the time for filing FBARs. There is no statutory or regulatory provision specifically granting an extension of time for filing FBARs.
  2. IRC section 7508 Time for performing certain acts postponed by reason of service in combat zone or contingency operation does not grant U.S. persons that are U.S. Armed Forces members any extension to file the FBAR.

Manen,
Manendra Kothari, CPA
MKothari@SKTaxes.com
127 S. Roselle Rd Ste # 200  Schaumburg, IL 60193
Ph: 847.524.0001
SK Tax Associates,  CPAs

Blog: IndianCPA.US
Circular 230 Disclaimer:

To ensure compliance with the requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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My OVDI case is ready to be closed – should I opt out?

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For most FBAR cases, the Service has determined that if a person meets four threshold conditions then the person may be subject to less than the maximum FBAR penalty depending on the amounts in the person’s accounts. There are four threshold conditions which vary slightly depending on the date of the violation.

  1. For violations occurring prior to October 23, 2004, the four threshold conditions are:
    1. The person has no history of past FBAR penalty assessments;
    2. No money passing through any of the foreign accounts associated with the person was from an illegal source or used to further a criminal purpose;
    3. The person cooperated during the examination (i.e., the Service did not have to resort to a summons to obtain non-privileged information; the taxpayer responded to reasonable requests for documents; meetings, and interviews; or the taxpayer back-filed correct reports); and,
    4. The Service did not sustain a civil fraud penalty against the person for an underpayment for the year in question due to the failure to report income related to any amount in a foreign account.

     

  2. For violations occurring after October 22, 2004, the first condition was expanded to add no history of criminal tax or BSA convictions for the preceding ten years as well as no history of past FBAR penalty assessments. Otherwise, the four conditions are the same.

IRS has developed penalty mitigation guidelines for the computation of the non-willfulness penalty regarding FBAR violations occurring after October 22, 2004. See Exhibit 4.26.16-2. There are three penalty levels depending on the highest amount in the account during the period for which the FBAR should have been filed.

Level 1 Penalty: Taxpayers with aggregate balance less than $50,000:

For those years taxpayer had aggregate balance of all FBAR reportable accounts less than $50,000, he will be charged penalty of $500 for each violation not to exceed an aggregate penalty $5000 for all accounts.

Level 2 Penalty: Taxpayers having aggregate balance more than $50,000 but less than $250,000:

For those years, taxpayer had aggregate balance of all FBAR reportable accounts more than $50,000 but less than $250,000 – $5000 per year per account but SUBJECT to 10% of maximum balance. Therefore, if you have maximum balance for any year for 10 accounts is $200,000, one account has $191K balance while all other nine accounts have $1K each. The penalty for that year will be $5,900 (i.e. $ 5000 for the account with balance of $191K and $100 penalty for each of nine accounts).

Level 3 Penalty: Taxpayers having aggregate balance more than $250,000:

Level 3 penalties will be the same as level 2 penalty except it is $10K per year per account instead of $5K. Cap will be the same 10% of the maximum balance.

Please note that it is not automatic that above three level of penalty will apply to all opting out OVDI participants. It is very important to get opinion from your examiner at the end of process on how s/he feels about the case before you opt out. Non-willful penalty levels discussed above will apply on per person per year basis – so it is possible that one might be assessed level 1 penalty for 2005 and 2006 while level 2 penalty for 2007 and 2008 while level 3 penalty for the remaining years.

Opt out is very difficult decision and must be made after consulting OVDI expert CPA / attorney. Consult us before making any decision on opting out. There are several other factors to be determined and calculated before one can take calculated decision on whether or not to opt out.

Manen,
Manendra Kothari, CPA
MKothari@SKTaxes.com
127 S. Roselle Rd Ste # 200  Schaumburg, IL 60193
Ph: 847.524.0001
SK Tax Associates,  CPAs

Blog: IndianCPA.US

With experience of handling more than 70 OVDI cases, we make sure that each OVDI case is professionally evaluated, prepared, represented and interest of our client is protected.

Circular 230 Disclaimer:
To ensure compliance with the requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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Comparison of Form 8938 and FBAR Requirements

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The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts). Individuals must file each form for which they meet the relevant reporting threshold.

Form 8938, Statement of Specified Foreign Financial Assets Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR)
Who Must File? Specified individuals, which include U.S citizens, resident aliens, and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Does the United States include U.S. territories? No Yes, resident aliens of U.S territories and U.S. territory entities are subject to FBAR reporting
Reporting Threshold (Total Value of Assets) $50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad) $10,000 at any time during the calendar year
When do you have an interest in an account or asset? If any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return Financial interest: you are the owner of record or holder of legal title; the owner of record or holder of legal title is your agent or representative; you have a sufficient interest in the entity that is the owner of record or holder of legal title.Signature authority: you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.See instructions for further details.
What is Reported? Maximum value of specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported? Fair market value in U.S. dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to U.S. dollars using the end of the taxable year exchange rate and report in U.S. dollars. Use periodic account statements to determine the maximum value in the currency of the account.Convert to U.S. dollars using the end of the calendar year exchange rate and report in U.S. dollars.
When Due? By due date, including extension, if any, for income tax return Received by June 30 (no extensions of time granted)
Where to File? File with income tax return pursuant to instructions for filing the return Mail to:Department of the Treasury
Post Office Box 32621
Detroit, MI 48232-0621For express mail to:IRS Enterprise Computing Center
ATTN: CTR Operations
Mailroom, 4th Floor
985 Michigan Avenue
Detroit, MI 48226Certain individuals may file electronically at BSA E-Filing System
Penalties Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply If non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply

Types of Foreign Assets and Whether They are Reportable
Financial (deposit and custodial) accounts held at foreign financial institutions Yes Yes
Financial account held at a foreign branch of a U.S. financial institution No Yes
Financial account held at a U.S. branch of a foreign financial institution No No
Foreign financial account for which you have signature authority No, unless you otherwise have an interest in the account as described above Yes, subject to exceptions
Foreign stock or securities held in a financial account at a foreign financial institution The account itself is subject to reporting, but the contents of the account do not have to be separately reported The account itself is subject to reporting, but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account Yes No
Foreign partnership interests Yes No
Indirect interests in foreign financial assets through an entity No Yes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity. See instructions for further detail.
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities No No
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor Yes, as to both foreign accounts and foreign non-account investment assets Yes, as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value Yes Yes
Foreign hedge funds and foreign private equity funds Yes No
Foreign real estate held directly No No
Foreign real estate held through a foreign entity No, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate No
Foreign currency held directly No No
Precious Metals held directly No No
Personal property, held directly, such as art, antiques, jewelry, cars and other collectibles No No
‘Social Security’- type program benefits provided by a foreign government

 

Manen,
Manendra Kothari, CPA
MKothari@SKTaxes.com
127 S. Roselle Rd Ste # 200  Schaumburg, IL 60193
Ph: 847.524.0001
SK Tax Associates,  CPAs

Blog: IndianCPA.US

 No No

 

 

 

 
 

 

 
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Education Tax Credits Help Pay Higher Education Costs

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Two federal tax credits may help you offset the costs of higher education for yourself or your dependents. These are the American Opportunity Credit and the Lifetime Learning Credit.

To qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by either the parent or the student, but not both. If the student was claimed as a dependent, the student cannot file for the credit.

For each student, you may claim only one of the credits in a single tax year. You cannot claim the American Opportunity Credit to pay for part of your daughter’s tuition charges and then claim the Lifetime Learning Credit for $2,000 more of her school costs.

However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your spouse’s graduate school tuition.

Here are some key facts you should know about these valuable education credits:

1. The American Opportunity Credit
• The credit can be up to $2,500 per eligible student.
• It is available for the first four years of postsecondary education.
• Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
• The student must be pursuing an undergraduate degree or other recognized educational credential.
• The student must be enrolled at least half time for at least one academic period.
• Qualified expenses include tuition and fees, coursed related books supplies and equipment.
• The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $80,000 or $160,000 for married couples filing a joint return.

2. Lifetime Learning Credit
• The credit can be up to $2,000 per eligible student.
• It is available for all years of postsecondary education and for courses to acquire or improve job skills.
• The maximum credited is limited to the amount of tax you must pay on your return.
• The student does not need to be pursuing a degree or other recognized education credential.
• Qualified expenses include tuition and fees, course related books, supplies and equipment.
• The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $60,000 or $120,000 for married couples filing a joint return.

If you don’t qualify for these education credits, you may qualify for the tuition and fees deduction, which can reduce the amount of your income subject to tax by up to $4,000. However, you cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

Manen,
Manendra Kothari, CPA
MKothari@SKTaxes.com
127 S. Roselle Rd Ste # 200  Schaumburg, IL 60193
Ph: 847.524.0001
SK Tax Associates,  CPAs

Blog: IndianCPA.US

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2012 OVDI – Can we keep 2003 out?

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February 9, 2012.

Many taxpayers who learned late about 2011 OVDI (Offshore Voluntary Disclosure Initiative) now have an opportunity to participate in 2012 OVDI. IRS recently opened OVDI keeping the same terms as 2011 OVDI except for two changes:

1) The highest OVDI penalty rate increased from 25 % to 27.5 % and

2) There is no set deadline to file the package.

Number of taxpayers, who missed 2011 deadlines are now coming forward to file for 2012 OVDI. IRS will be updating FAQ on IRS website soon. There is a possibility that IRS might change OVDI period from 2004 to 2011 for taxpayers coming forward after April 15, 2012. We are expecting to get an official announcement and updated FAQ soon. If that happens, taxpayers with unreported income in 2003 or having maximum balance in 2003 can completely keep 2003 out. It will also help taxpayers who can not secure 2003 information from foreign banks or financial institutions.

Once FAQ are updated, it will help deciding any direction for most taxpayers.Please consult us if you have any questions.

Manen,
Manendra Kothari, CPA
MKothari@SKTaxes.com
127 S. Roselle Rd Ste # 200  Schaumburg, IL 60193
Ph: 847.524.0001
SK Tax Associates,  CPAs

Blog: IndianCPA.US

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