Report of Foreign Bank and Financial Accounts (FBAR)

Do you have a bank account in a foreign country. If your answer is yes. Go on reading.In case you have a brokerage account, mutual fund account or any other type of financial account outside the US, be prepared to disclose the details of your financial account to the IRS.

If the total amount in foreign accounts exceeds $10,000 at any time during the year, reporting to IRS  is mandatory. This can be done using Form TD F 90-22.1.

This form is required to be submitted by June 30 every year. However there is no embargo on US persons owning foreign accounts.The information may be used by the Govt. for law enforcement  and tax compliance.

The  US person, here includes  a citizen or resident of the United States, or a person in and doing business in the United States.  Artists, athletes, and entertainers who are not citizens or residents of the United States and who only occasionally come to the United States to participate in exhibits, sporting events, or performances, do not have to file FBARs.

A person who is not a United States citizen or resident and who visits the United States to manage his personal investments, such as rental property, and conducts no other business, is not considered to be in, and doing business in, the United States. He  does not have to file FBARs.

For more details read : FAQ

Middle class is the back bone of society. A financially strong middle class can give  impetus  to the economy. Raising their living standards, can result in giving boost to  the  sale volumes  in the Fast Moving Consumers Goods (FMCG) sector.

Secret behind the financial strength of middle class is  affordable, quality education. Therefore it is quite pertinent that initiative be taken to make higher education within the reach of  common man.

President   announced the creation of a White House Task Force on Middle Class Working Families, which is chaired by Vice President . The Task Force is a major initiative targeted at raising the living standards of middle-class, working families in America.

The Task Force is comprised of top-level administration policy makers, and in addition to regular meetings, it will conduct outreach sessions with representatives of labor, business, and the advocacy communities.

The  following  goals  have been  set  for the Task Force:

Expanding education and lifelong training opportunities
Improving work and family balance
Restoring labor standards, including workplace safety
Helping to protect middle-class and working-family incomes
Protecting retirement security

As part of the ongoing  process , Task Force has taken initiative to reduce  high repayments on college loans. College tuition has risen ten times faster  than the household incomes over the past few decades. Two thirds of Graduates take out loans to pay for their college expenses. Average debt is over $23000.00.

Presently  the  monthly payment for a single borrower earning $30,000 who owes $20,000 in loans  is  $228 a month under the standard 10-year repayment plan. According to the initiative taken by the  Task force, the  monthly payments have been projected to be reduced to $115.00 every month.

In addition to lowering monthly payments, The Task force is  proposing to keep the total cost of loan repayment manageable by forgiving all remaining debt after 20 years of payments, or 10 years of payments, for those in public service.

These changes build on the Income-Based Repayment (IBR) plan for student loans, was implemented in 2009. Aim of these initiatives was to make  college more affordable and accessible.

For more details :IBRinfo.org

THE FUTURE OF HOUSING MARKET

The housing market  peaked in 2005.Thereafter, until the beginning of 2009, there was a dramatic fall, as the housing bubble burst.The home ownership rate reversed and went back to 2000 level.

Just as the high level of activity in  construction and housing market  were not sustainable, the recent extremely low levels of  construction will not persist indefinitely. As the population grows and the value of housing stock goes down, the demand for housing grows.

However in future, the underwriting standards will dictate more would be homeowners, to save for a down payment, before they will be able to close the deal.

From 2010  onwards the growth in demand  for housing is expected  to be between 1.1 million and 1.3 million new single family housing units per year, more than double the pace of single-family housing starts in November 2009.

This  trend of upward  activity in housing construction has been noticed due to a little spurt from the middle of 2009 onwards.The stocks of new homes, existing  homes for sale, vacant homes that are not currently on the market, homes that are in the process of foreclosure and those are likely to be put on the market  for sale  remain high.

As a result, construction demand is  likely to rise to its long-run level only gradually, while some demand is met  by the stock of existing units. A slower demand activity is always more stable, as it is able to discount more factors.This is more true of the housing market.

In the past the housing demand, it is  suspected was artificially driven by the market players and not by the actual users. The house prices were raised( to benefit the vested interests) to unsustainable  high levels. The would be home owners were enticed to purchase homes, not on competitive prices, but due to the fact that housing loans were freely made available.

As the economic  growth stabilizes, demand for housing will pick up.It definitely is going to contribute towards the economic recovery but may not be a leader for the economic growth.

COMMERCIAL REAL ESTATE

The problem of  demand growth  in housing market is compounded by over building, sudden drop in prices of houses that were sold at high levels and inability of home owners to pay the mortgage due to loss of family income.

The demand for commercial property has dropped due to sharp decline in the economy.The decline in business revenue due to economic reasons has hurt the  industry. The office, apartment, industrial, and retail buildings, commercial real estate prices fell 43 percent from their peak in October 2007 to September 2009.

However  less volatility has been observed in the non residential  construction activity. Commercial real estate  prices have declined since 2007.

Several banks have reported that they continued to tighten standards on commercial real estate loans.Where as none reported easing the loans.   Since commercial real estate loans typically are relatively short term, an inability  to refinance debt has led to a sharp rise in delinquencies and foreclosures.

Private sources of funding have shrunk, the Federal Reserve  has helped fill the gap through the Term Asset-Backed Securities Loan Facility (TALF). In June 2009, the TALF made lending available to private financial market participants against their holdings of existing commercial  mortgage-backed securities (CMBS), thereby increasing liquidity in the CMBS market.

Experience in previous business cycles  suggests that recovery of the sector will lag the economy as a whole.

You think the  housing mortgage  securities being  traded in the market, was used  to pass  the risk to new buyer of the security  Freddy Mac /Fennie May  in lot of cases. Do you think the Federal needs a tool to check this in future.

TAX RETURN: FILING IN TIME, PAY TAXES IN TIME

I am privately a very prudent guy, in matters financial. I would always endeavor to file my tax return in time and pay all the taxes i owe, in time. Well, someone may say it is an ideal situation. Yes it is so.The benefits for doing this are numerous. I would like to enumerate below.

When you plan to buy a home, refinance your home, purchase a new business or to start a new business, you may have to depend on borrowed capital.A lot of times the lenders ask for a copy of your  last 2-3 years,tax returns.

In such situations, whether you are in service or if  you are already in business or are self employed, the lenders  look at your tax returns, to see if you have been incurring profits in your previous business endeavors.

In case you file your tax return, pay all your taxes in time, you definitely  are not going to pay any penalty or interest to the IRS.In case it is possible, follow this,Every dollar saved go to your equity.Money makes money.

PAY YOUR TAXES IN FULL

In case the taxes are not paid in full,IRS can ask the tax payer to sell or mortgage the assets.Otherwise obtain a loan to pay uncle sam your tax bill. If the matter is not resolved, IRS may even resort to enforced collection action, such as levying bank accounts, wages, or other income, or taking other assets.

Remember the penalties are always heavy in most of the situations. This is definitely going to hurt your credit standing in the market.You do have an option of back payments in installments.But these come with a price. Good to avoid this.

TAX RETURN NOT FILED

File your tax return voluntarily ASAP.This could impact your status with the immigration authorities, in case you are a resident alien or a worker on H1B program.For all tax payers,earlier you file, more you save on additional penalties and interest.

Advantages are, in case you owe refund for withholding or estimated taxes paid,these must be claimed within 3 years. Self employed persons  who do not file a return,will not get the benefits for social security, retirement or disability benefits reported to the social security administration.

Filing a return is easy. In case you owe back taxes, you may qualify for payment plan.If you opt for this, make sure you do not falter  on payments in future.But remember it is a costly plan. If possible pay the IRS in full out of a loan .

Accountants,Tax Preparers,Readers: Do share your views and real life experiences with  the IRS. This may help someone and cost him less. I would call upon retired IRS employees to join this forum for fruitful contribution.

CRIMINAL PROSECUTION

IRS also has the option of starting criminal proceedings against any one who does not file a tax return voluntarily. A taxpayer must volunteer to make an honest effort to file his back tax returns  and avoid going to jail.

The IRS helps to get people back into the mainstream, as part of its long term plan to improve its voluntary tax compliance.The cases of violation of the tax laws of land will continue to be investigated by the IRS.

The IRS suspended for 12 months from practice, a CPA, for providing false or misleading information. The CPA, advised his clients to transfer funds  from their business accounts to two corporations.The corporations then rebated the funds to his clients.

Robert A. Loeser, a Certified Public Accountant from Houston, Texas,helped  his clients to lower their tax bills by claiming false business expenses on tax returns he prepared.

Moral of the story is that, if  the pillars of  the  institution are sold for financial greed, will the society not stagnate. The solace is that there are checks in place to red  flag and stop the unscrupulous. Professionals need to work diligently for the institution and their clients,to justify the trust and faith reposed in them.

The Office of Professional Responsibility (OPR) establishes and enforces guidelines for competence, integrity and conduct for tax professionals, enrolled agents, attorneys, CPAs, and other individuals and groups.

The settlement agreement included a disclosure authorization that allowed the OPR to issue this release.

Contact for OPR : e-mail opr@irs.gov. Please do not send any confidential information via this email. Inquiries containing sensitive information should be faxed to our office at (202)-622-2207.

What are your views  on the subject.

Tax planning is an essential element of, management of personal financial resources.Need for tax planning is more acute, in these times of  shrinking jobs,rising prices of everyday use items, ever growing  demand of funds for Children education and  Housing.

In these  financially hard times, every dollar saved, followed by discrete spending  will be welcome, by majority of households. At least  in these days of recession, we need to give a fresh look at our concept of  spending.

Tax season 2010 is in full swing.It is therefore important to understand the do’s and dont’s,at the same time, remember the tips before and after filing a tax return.

D’os

Read  Important Changes for 2010 Tax season. Understand, what is applicable to you and get hold of  documents needed to claim a credit.

Select a Reliable Tax Preparer. Tax preparer must be  current  on latest changes in the tax laws. He/She should be able to provide the best possible service  and be diligent in giving advice to a tax payer.

Know your Rights as a Tax Payer.You have a right to representation.Your civil rights are protected.You have a right to appeal any action taken by the IRS.Innocent spouse relief is available in some cases.

File Your Tax Return In Time.If for some reason cannot, then ask for extension. It cost you nothing.If you don’t  file tax return in time,there is a      penalty.You pay $135 or 100% of tax owed,whichever is smaller.

E-File. your tax return. In case you claim First time home buyer credit, then file a paper return.

Don’ts

Frauds.  Do not give your personal information. Be watchful of  any impersonations. These people try to contact on phone, e-mail, internet site, and social networking  sites and obtain personal financial information for fraud purpose.

Avoid Accepting A Instant Refund. This may have additional fees, charges or interest attached. Some times this would be in the range of $100 to $350, which you have  to pay to get instant refund.

Tips

Making Work Pay Tax Credit. Workers must  file schedule M, if you worked during 2009, to claim $400(individuals) $800(married couples).Check  if you qualify.

IRS 2009. Open a file  marked, to secure all your W-2’s, receipts and other tax related documents handy, if you have not already done so.

IRS 2010. Keep a file marked, for tax year 2010, to save all the related documents.

Free File Program. Use this program to file your return, if you are eligible. This cost you nothing.

Refund. Best way of receiving  refund is direct from IRS. Refund goes direct to your bank account.This is received  faster than a check.

If You Cannot Pay The Full Amount Of Tax You Owe. File your return in time and pay as much as you can. Call IRS to discuss your payment options. Some times they let you pay in installments. If you decide to in installments,remember they come  with a cost. IRS may charge you penalty/interest on the amount of  tax you owe.One option is to  borrow money to pay taxes.

Readers are welcome to add more tips, do’s and dont’s for filing tax returns.

The IRS has issued significant policy changes in the 2010 tax season, for the  tax preparers in the US, who help About 80 percent American households, in filing a tax return.

IRS feels, there is  need for  raising the competence  threshold of the tax preparers.Therefore, there is a need for registration , testing and continued education of the tax preparers.  Some of the important proposals are being enumerated below.

Good news for employees preparing their employer’s tax return.In such a case,the tax preparer is not required to sign as a paid preparer.There is no requirement to register and obtain  a Preparer’s Tax identification Number(PTIN).

But in case  a tax prepare has  to file  returns for other tax payers,  as paid tax preparer,there is a requirement to register and obtain a PTIN number.

Accredited Council of Accountancy for Taxation(ACAT), credential holders will need to pass the IRS exam.

Attorneys, Certified public accountants and Enrolled agents will be exempt from testing and  the preparer continuing education.

PTIN will be mandatory in future. But  a PTIN  can be obtained now.  When the  new online  registration Starts, you will still need to register.

Tax preparers signing paid tax return  will be levid a  fee of $125, to register  and obtain a PTIN.Attorneys, CPAs, and Enrolled agents would not be required to pay the separate testing fee, as they are exempt from testing .

Online registration  is proposed to begin from Sept. 1, 2010.The proposed date for all paid preparers to be registered and use their PTIN  is  Jan. 1, 2011.

Testing will be implemented only after registration and allotment of PTIN’s is completed.

In the  States of Alabama, Alaska, Arkansas, California, Colorado, Connecticut, Hawaii, Idaho, Maine, Montana, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Vermont, and West Virginia ,  the LPA has the same rights and previllages as CPA’s they may not be required to test and enroll.

However in other states where LPA’s do not have the same privileges as CPA’s   they will be required to test and enroll.

The practice of enrolled agents  will not be limited.The practice of  new category of  paid tax preparers will be limited to preparation of tax returns.They also will be allowed to represent the tax payer , when the return they prepared,  is under examination.

For detailed reading: Proposed New Requirements For Tax Preparers

New guidelines for tax preparers: New registration , testing  and continued education  requirements for Tax return preparers

American Opportunity Credit Helps Pay for First Four Years of College. Eligible may qualify for max of $2500.

Books are eligible for credit/deduction.100 percent credit  for first  $2000 , 25 percent for next $2000, thus total of $2500.

Full credit for modified gross  income of $80,000 or less(160,000 for a joint return).

Energy Improvements Qualify for Expanded Tax Credits.

Non-business Energy Property Credit.Max of $1500 or 30% of dollars spent on eligible improvements

Residential Energy Efficient Property Credit. Home owners going green can get second credit.Solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.

Qualifying property purchased for new construction or an existing home is eligible for the credit. Generally, labor costs are included to work out the cost.

New Vehicle Purchase Incentive.deduct the state or local sales or excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles.

No limit on the number of vehicles purchased, and eligible taxpayers may claim the deduction for taxes paid on multiple purchases. The deduction is limited to the tax on up to $49,500 of the purchase price of each qualifying new vehicle.

Qualifying new vehicles must be purchased, not leased, after Feb. 16, 2009, and before Jan. 1, 2010.

Tax Credits Increased for Low and Moderate Income Workers.More workers and working families are eligible for the Earned Income Tax Credit.

$48,279 for families with three or more qualifying children.$45,295 for those with two or more children.40,463 for people with one child.$18,440 for those with no children

Standard Deduction Increases for Most Taxpayers.$11,400 for married couples filing a joint return and qualifying widows and widowers, a $500 increase compared with 2008. $5,700 for singles and married individuals filing separate returns, up $250.$8,350 for heads of household, up $350.

AMT Exemption Increased for One Year.

$70,950 for a married couple filing a joint return and qualifying widows and widowers, up from $69,950 in 2008.$35,475 for a married person filing separately, up from $34,975.$46,700 for singles and heads of household, up from $46,200.

Other Changes.

The standard mileage rate for business use of a car, van, pick-up or panel truck is 55 cents for each mile driven. The standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 24 cents per mile. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.

Unemployment benefits up to $2,400 received in 2009 are tax free for unemployed workers. Every person who receives unemployment benefits can exclude the first $2,400 of these  benefits on their return.

Unemployment benefit amounts over  $2,400 are taxed.

For detailed reading:American opportunity  credit

Eligible taxpayers can use a Federal Education Credit to offset part of the cost of college under the new American opportunity Credit. This credit modifies the existing Hope credit for tax years 2009 and 2010.Credit Helps  Pay for First Four Years of College. Tax credits/deductions are now avalable to broader range of tax payers as income guidelines have been expanded.

Max annual credit  of $2500 will be allowed. In addition to tuition,related fees, Books will  also be eligible for tuition/credit   deductions . Credit will be 100 percent for first $2000, and 25 percent for next  $2000.

Full credit is available for taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less ($160,000 or less for filers of a joint return). The credit is reduced or eliminated  for taxpayers with   income  above these   levels.

Forty percent of the American opportunity credit is  refundable. This means that even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible  student. 

The refundable  portion of the credit is not available to any student whose investment income is taxed, or may be taxed, at the parent’s rate, commonly referred to as the kiddie tax. See Tax Rules for Children and Dependents. for details: See Publication 929

Most taxpayers who pay for post-secondary education qualify for the American Opportunity Credit, some do not. The limitations include a married person filing a separate return, regardless of income, joint filers whose MAGI is $180,000 or more and, finally, single taxpayers, heads of household and some widows and widowers whose MAGI is $90,000 or more.

Students with more than four years of post-secondary education still qualify for the lifetime learning credit  and the tuiti0n and fees and deduction.

For details on these and other education-related tax benefits, see Publication 970, Tax Benefits for

Link :American Opportunity Credit.

The Internal Revenue Service along with its  partners are making Free File available starting Jan15. Using the software, most taxpayers can have  free electronic filing of the federal tax return.

This free filing software, makes it easier, to find all the new tax breaks this season, tax credits and deductions they are due. Taxpayers must go through www.IRS.gov homepage or www.IRS.gov/freefile to access the free options.

Free File is a g00d choice for  the novice as well as the  experienced taxpayers. It’s fast, safe and free.

Tax payers  who meet the $57,000 income limit, are eligible for the user-friendly Traditional Free File. Traditional Free File provides step-by-step software help that asks simple questions and puts the answers on the correct tax forms.

Traditional Free File can help taxpayers identify new tax credits or deductions under the American Recovery and Reinvestment Act. There are many new and expanded benefits for energy conservation, new car purchases, college tuition and first-time homebuyers.

Taxpayers must go through IRS.gov to access Free File. Each partner company sets its own eligibility criteria. For example, generally, eligibility criteria are based on state residency, age, income or military service. However, an individual or family with income of $57,000 will find tax preparation software they can use.

Taxpayers either can read over the company offers by clicking “I Will Choose a Company” or get a little help in making the selection by clicking “Help Me Find a Company.” With a little information, the tool will display those company offers for which taxpayers may be eligible.

For taxpayers who are comfortable preparing their own tax returns, there’s Free File Fillable Forms. Almost everyone is eligible for this service. There are no income limits and almost all tax forms are available.

Tax payers can complete the forms online and file electronically. The fillable forms perform simple math functions, but do not use the question-and-answer software format. Free File Fillable Forms does not support state forms or state electronic filing.

Taxpayers who use Traditional Free File or Free File Fillable Forms can enjoy all the benefits of IRS e-file – also for free.

By using the free e-file option, taxpayers also get the benefits of a fast refund, reduced error rate and a quick acknowledgement. By using e-file and direct deposit, taxpayers can get a refund in as few as 10 days.

If people owe taxes, they also can control their payments and set a date such as April 15 for electronic payment.  Unlike paper filers, e-filing taxpayers also will receive an acknowledgement that the IRS has received and accepted or rejected their returns.

Taxpayers who are eligible for the $8,000 or the $6,500 first-time homebuyer credit will not be able to e-file because they must attach proof of purchase to their tax return. However, these taxpayers still can use Free File to prepare their tax forms and then print and mail the returns to the IRS.

Free File is available 24-hours a day through April 15. For taxpayers who request an extension to file their federal returns, Free File will be available through October 15.