THE TAX ATTIC with Jerry Coon

May 26, 2011 // 0 Comments

IRS, Congress crack down on assets in foreign institutions Over the past many years, we have seen a concerted effort by Congress and the Internal Revenue Service to force United States citizens to disclose whether they have financial assets in foreign countries. The basis for wanting to know this information is very straightforward: as tax-paying citizens of the USA, according to Section 61 of the Internal Revenue Code, we are responsible for paying taxes on income from all sources “without regard to geographic location or source.” Since the IRS is in the business of not trusting people to report all income from all sources and, therefore to pay all of their tax due, it’s totally understandable why they would want to know who has what assets in which foreign countries. We saw the fruits of their labors in the newspapers last year when UBS, the Swiss bank, turned over the names of thousands of U.S. citizens who had upwards of at least $50,000 in the Swiss bank. It has to be noted that it is not illegal to have $50,000 or $150,000 or $1,500,000-plus in a Swiss bank or in a Canadian bank or in an Australian bank or in a Cayman Island bank. It is illegal, however, not to report the income that is generated by the money in the bank. There might also be a question of just how a taxpayer might have accumulated that $50,000 or $150,000 or $1,500,000 in the first place. The accumulation of that money might have created some taxable income. That’s what happened to Al Capone, the Chicago gangster, back in the depression. He ended up in jail because he didn’t report income earned or how he accumulated income. It didn’t matter how Capone accumulated income. The fact is he accumulated assets and did not report how he accumulated those assets nor did he pay tax on the income from those accumulated assets. To find out about these assets and the income associated with those assets, in 1972, Congress passed the Bank Secrecy Act. The Act requires U.S. persons to disclose if they have accounts in foreign financial institutions in which they have an interest or over which they have signature authority or are owners of a foreign […]

The Tax Attic with Jerry Coon — October 7, 2010

October 7, 2010 // 0 Comments

Three new provisions to help small businesses In a previous article, I stated that our present Congress is not a “do nothing” Congress. They have shown that they are not afraid to pass bills and make laws. Not everyone agrees with the bills they have passed and laws they have instituted, but they do keep trying. For example, just last Thursday Congress passed the Small Business Jobs and Credit Act of 2010. This bill has some provisions that will help many small businesses such as self-employed sole proprietors, partnerships and small corporations. Of course, it also has a myriad of provisions that seem to be written to affect about one person or entity in the entire United States. I will highlight the provisions that affect many of my tax clients. First, and perhaps best, there is a provision that will allow self-employed taxpayers to deduct premiums paid for health insurance for the owner and owner’s family when calculating the taxpayers’ self-employment tax. In light of the cost of health insurance today and where those costs are heading, this is huge. This provision only affects the 2010 tax year, but one year is better than no years. Making this change is perceived as leveling the playing field between employees and self-employed taxpayers. Currently, if a taxpayer works for a company and the company supplies health insurance for the taxpayer, this is a totally tax-free fringe benefit. The company deducts the premiums paid and the taxpayer does not have to claim the premium as a taxable benefit. However, up until now that has not been the case for self-employed taxpayers. The self-employed taxpayer has always been allowed to deduct the premium as an adjustment to income so they don’t pay any regular tax on the premium. But they have never been able to deduct the premium when calculating the amount of Social Security tax due on their profit. Social Security tax is calculated at 15.3% of the taxpayer’s profit. So while the employees of the world don’t tax regular tax or Social Security tax on their tax-free fringe, the self-employed taxpayers of the world have been forced to pay a 15.3% tax on their almost tax-free fringe. That has always been perceived as not being fair and […]