As everyone knows the entire world is currently facing an unprecedented economic disruption due to the Coronavirus (COVID-19) outbreak. In an attempt to help businesses,The CARES Act was signed into law March 27, 2020 in the US, which provides over $370 billion dollars in funding for American small businesses and employees. Out of this came multiple avenues of funding for businesses through the SBA or Small Business Administration.
EIDL 10k Loan advance
The first relief program is the Economic Injury Disaster Loan Emergency Advance. This advance is for any small business owners in the U.S. currently experiencing a temporary loss of revenue due to the COVID-19 pandemic. The application is on the sba.gov website and if a business applies they will receive the Economic Injury Disaster Loan advance of up to $10,000. The $10,000 is supposed to be available in days time after submitting an application and there is no need to pay it back. The amounts over 10k will be the SBA loan to help a business that has lost income because of the Covid-19 pandemic.
This program is for any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization or 501(c)(19) veterans organizations affected by COVID-19.
The Paycheck Protection Program is a loan designed to motivate small businesses to keep their workers on the payroll. Any small business with less than 500 employees this includes sole proprietorships, independent contractors and other self-employed people, private non-profit organizations or 501(c)(19) veterans organizations affected by coronavirus/COVID-19. This program right now is not for independent contractors. That is an ongoing conversation so that will be addressed on its own, since it will be its own program from everything I’m seeing. Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries.Small businesses in the hospitality and food industry with more than one location could also be eligible if their individual locations employ less than 500 workers.
SBA will forgive these loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. One important detail is at least 75% of the forgiven amount must have been used for payroll. Which makes sense if you want to get small businesses to keep people employed and on payroll. The loan forgiveness is based on maintaining or quickly rehiring your employees. When rehired you can not reduce their pay or salary you need to maintain the current salary levels. Forgiveness amount will be reduced if the full-time headcount declines, or if salaries and wages decrease. The loan has a maturity time of 2 years and an interest rate of 1% .
There were 10 million people who applied for unemployment insurance so far. This program is to help get those individuals rehired and not have to file unemployment claims. If your business fired employees after February 15th this should be used to get those people rehired quickly. If you are an employee that was laid off be sure to inform your employer about this program as well. You do need to apply at any existing SBA 7(a) lender or through any FDIC insured bank or credit union. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. Based on the current demand most major banks are having issues keeping up. The applications just opened on April 3rd, and most major banks are still not prepared. First check with the largest bank you currently have your accounts with.
For businesses who are already in an SBA loan the SBA have relief options for them as well. The SBA will automatically pay the principal, interest, and fees of current 7(a), 504, and microloans for a period of six months. The SBA will also automatically pay the principal, interest, and fees of new 7(a), 504, and microloans issued prior to September 27, 2020.
For current SBA Serviced Disaster (Home and Business) Loans: If your disaster loan was in “regular servicing” status on March 1, 2020, the SBA is providing automatic deferments through December 31, 2020. The deferral of the payments does not mean the amounts are forgiven. The Interest will continue to accrue on the loan taken out from the SBA. The deferment will NOT cancel any scheduled or recurring payments on your existing loans. If you are a business that needs to defer payments, you are responsible for canceling those automatic payments. After the automatic deferment period, borrowers will be required to resume making regular principal and interest payments. Plan ahead to reestablish the recurring payments.
SBA Express Bridge Loans
Express Bridge Loan Pilot Program allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loan or used to bridge the gap while applying for a direct SBA Economic Injury Disaster loan. If a small business has an urgent need for cash while waiting for a decision and disbursement on an Economic Injury Disaster Loan, they may qualify for an SBA Express Disaster Bridge Loan. This loan like the Paycheck Protection Program is also taking into account what you receive from the Economic Injury Disaster Loan. The 25k you receive will be repaid in full or in part by proceeds from the EIDL loan.
If you would like International Accounting & Tax Consultants (IATC Inc) help with your accounting and tax issues please reach out to us at (202) 780-4494 or via email email@example.com.
If you live or work outside the United States did you know you can actually exclude almost $100,000 of your income tax free.
The Foreign Earned Income Exclusion is a one of the largest tax benefits available to you as US resident living or working abroad. This is something an expat would love almost as much as traveling abroad.
Expat is a short way of saying expatriate. An expatriate is defined as a person residing in a country other than their native country.
If you take this exclusion your first $97,600 earned overseas is going to be exempt from income tax.
Before you pack up the family and hop on a plane thinking you are about to just live tax free overseas. Not everyone can actually qualify for this exclusion.
In order to qualify for the Foreign Earned Income Exclusion, you must meet one of two test.
1) The Bona Fide Residence Test.
2) The Physical Presence Test.
Bona Fide Residence Test
You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. You can use the bona fide residence test to qualify for the exclusions and the deduction only if you are either:
A U.S. citizen, or
A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect.
You do not automatically acquire bona fide resident status just by living in a foreign country or countries for 1 year. If you go to a foreign country to do work for a particular job for a specified period of time, you will normally not be considered a bona fide resident of that country even though you have worked there for 1 tax year or longer. The length of your stay and the nature of your job are only some of the factors that goes into determining whether you can meet the bona fide residence test.
Bona fide residence. To meet the bona fide residence test, you must have established a bona fide residence in a foreign country.
Your bona fide residence is not necessarily the same as your domicile. Your domicile is your permanent home, the place to which you always return or you intend to return.
You could have your domicile in Nashville, Tennessee and a bona fide residence in Sydney, Australia. Nashville will be a bona fide residence, if you intend to return eventually to Tennessee.
The fact that you visit Australia does not automatically make Australia your bona fide residence. If you go there as a tourist, or on a short business trip, and return to the United States, you have not established a bona fide residence in Australia. If you go to Australia to work for an indefinite or extended period and you set up permanent quarters there for yourself and your family, there is a good chance you can claim you have established a bona fide residence in a foreign country, even if you intend to return to the United States someday in the future.
Now in real life it can be more difficult to decide whether you have actually established a bona fide residence. If you have any doubt or concerns feel free to reach out to IATC Inc for help.
Your bona fide residence will be determined according to each individual case, taking into account three main factors such as your
Why you are visiting and
The nature and length of your stay abroad.
A treaty that prevents you from becoming a bona fide resident of a foreign country is determined based on each individual treaty. All provisions of a treaty you could be subject including specific provisions relating to residence or privileges and immunities should be reviewed as well.
To meet the bona fide residence test, you must reside in a foreign country or countries uninterrupted for an entire tax year. An entire tax year is from January 1 through December 31 for taxpayers on a calendar year basis.
An entire year without seeing family or friends might be too difficult a task for some. You are allowed to leave the country for a brief or temporary trip back to the United States or somewhere else for vacation or business. And still be a bona fide residence in a foreign country, To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from the trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country.
Once you have established bona fide residency in a foreign country for an uninterrupted period that includes an entire tax year, you are a bona fide resident of that country for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. Your period of bona fide residence can include an entire tax year plus parts of 2 other tax years.
If you are assigned from one foreign location to another, you may or may not have a break in foreign residence between your assignments, depending on the circumstances.
The second physical presence test can be more confusing when applying to a person tax return. To be qualified for the exclusion based on your physical presence means you can leave the United States for business and can not return for more than 35 days throughout the past twelve months. This test is also not based on a calendar year. You can qualify by using any twelve month period of time.
One thing to keep in mind is with the 35 day limit. The days do not have to run straight in a row. You can become ineligible to take the exclusion if you have taken multiple trips back to the US that exceeds 35 days in the US during a 12 month period.
If a person meets the foreign income exclusion they are allowed to deduct up to $97,600 of their foreign earned income from their US taxes. If you are married filing jointly, you would be able to deduct up to double that from your US taxes. This amount is also indexed for inflation and increases each year.
The Foreign Earned Income Exclusion relies solely on foreign income for calculation purposes and the income must be earned. Foreign income from passive sources such as dividends, interest, retirement income, and rental income are not included since those income sources are not considered “earned” income.
There are some additional complexities to the Foreign Earned Income Exclusion, so it is almost always advisable to consult with a tax expert about your specific situation at www.iatcpro.com
Self employed individuals having to still pay their Self-Employment tax to the US. After paying your self employment taxes you can exclude your earnings.
Not all US expats are able to take advantage of the foreign earned income exclusion. If you are a US Government Employee and are paid by the US government then you will not be able to use the Foreign Earned Income Exclusion to minimize your US expat taxes. This includes individuals in the Armed Forces Exchange, Commissioned and non-commissioned Officers’ messes, Armed Forces motion pictures services and employees of kindergartens on Armed Forces installations.
if you claim either of the foreign income exclusion, You can’t take the additional child tax credit or earned income credit.
Additional Income: If you decided to rent your property while you were living abroad. Your rental income is still going to be reported, along with your usual expenses.
Need to File State Returns: Living or working abroad does not eliminate your need to file a state tax return with some states. Certain taxpayers must maintain a state of domicile in the United States, and there will be tax obligations to that state.
Retirement: If you are still making contributions to your retirement accounts, even if it’s your SEP, IRA or ROTH IRA they are all subject to certain limits based on your gross income. If you plan to claim your IRA deduction, special rules apply.
Foreign Housing Exclusion or Deduction: In addition to the foreign earned income exclusion, you can also claim an exclusion or a deduction from gross income for your housing amount if your tax home is in a foreign country, you have self employment income, and you qualify under either the bona fide residence test or the physical presence test.
Even though you are ineligible your spouse can claim this exclusion be if they are not government and work overseas. If you are having a hard time determining your eligibility for the foreign earned income exclusion schedule an appointment at www.iatcpro.com.
Every year after the extension due date new clients contact me ready to file their tax return. This is the time we find out extensions were not actually file, and now they have multiple penalties and interest to pay. I get them updated and write a letter to abate penalties.
The IRS isn’t in the business of letting people keep money. Penalty abatement is kind of easy the first time around for most clients. Some people don’t even feel it worth asking for penalty abatement/relief because everything involving the IRS is too complicated and time consuming. This is the part where I push up my glasses and tighten the tie getting ready to handle the hard part on their behalf.
I think taxpayers need to understand why the IRS actually uses penalties. Penalties are supposed to be a deterrent for people who fail to follow the rules and are out of compliance with the US tax code. They are a great way to bring in revenue for a under funded government branch so expect to see them applied whenever possible. The IRS apply millions of penalties to tax payers every year bringing in billions of easy money. Life happens and there are additional options to get penalties removed, or abated, for individuals ans businesses that qualify.
The most common used IRS penalties is the failure to file and failure to pay.
The IRS has over 130 different penalties the can assess. in the Internal Revenue Code, but two penalties make up 75% of all penalties assessed by the Internal Revenue Service.
Failure to pay penalty equals 60% of all penalties.
Failure to file penalty equals approximately 15% of all penalties.
The tax penalties can be disputed by providing an exception when filing your tax return.
Penalties will be removed by the Internal Revenue Service for a few reasons. We normally end up requesting penalty abatement for a statutory exception or reasonable cause.
Statutory exception- Are specific authoritative exclusions to the penalties. Statutory exceptions are rare, but rather easy to make a case for. A statutory exception would be a presidential declared disaster relief.
IRS Fault: If you can prove an error was the result of reliance on IRS advice. We always caution against following an agents advice. We default to the US Tax code and use that. To use the IRS error for a penalty relief is difficult and rarely successful. You need to have documented erroneous advice from the IRS that you reasonably relied on. The IRS doesn’t put tax advice in writing in majority of cases. You can also file penalty abatement based on erroneous verbal advice. Being able to successfully use either argument is not common.
Reasonable cause: providing a valid reason that you couldn’t comply based on your facts and circumstances. This argument normally includes chronic health problems and reliance on a bad tax professional or tax software. Those types of problems can be used under reasonable cause.
To successfully apply for an abatement using a reasonable cause argument for late filing and payment has its own requirements. You must demonstrate that you genuinely tried to comply. Your actions should demonstrate a sense of care. You need to show that your noncompliance was not due to your willful neglect.
IRS agents are also citizens and taxpayers just like you. To successfully prove a reasonable cause, you’ll need to make sure that the IRS knows all of the facts around the circumstances. It can seem unnecessary, but not all situations are the same. Leaving out facts that can clarify your position could result in you receiving a denial letter. If the denial letter fails to address facts crucial to your argument presented earlier. The option to request an appeal of the determination should be explored.
The IRS can provide administrative relief from a penalty under certain conditions. The most widely used relief is the first-time penalty abatement (FTA). FTA can be used to abate your failure to file, failure to pay, and other penalties for a single tax period. You do need to have a good history of filing your returns. You can use first time penalty abatement for your business tax penalties as well. FTA is the easiest of all penalty relief options to get approved. You just have to ask for it. If you need help with the IRS you should contact iIATC Inc for tax resolution services.
It wasn’t but a few years back when crypto currency started making mainstream news. IRS had not provided guidance on how to tax the currency. Crypto users were positive they wouldn’t have to pay taxes, because the government wouldn’t have the information needed to track them. Fast forward to 2019 and now the IRS is sending over 10,000 letters to crypto currency holders informing them of their tax duties. The IRS obtained the names of the taxpayers through summons given to the crypto exchanges.
The IRS Large Business and International division (LB&I) had previously announced the approval of five additional compliance campaigns. LB&I’s goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources. In plain english their job is to find tax returns with a high chance of errors and collect money and interest from that taxpayer. As a U.S. person you are subject to tax on worldwide income from whatever source derived, including transactions involving virtual currency.
The IRS has a focus on this area with real intentions on curbing noncompliance by taxpayers. The IRS letters are also conveying different messages to taxpayers. The letters were aiming to educate some taxpayers, while others are receiving letters about audits or criminal investigations being pursued. Professionals at IATC Inc always advocate staying in compliance with the tax code to avoid penalties and fines. Crypto traders should contact us for help with any letters they receive.
Every year millions of tax returns are audited by the IRS. The average taxpayer main concern behind paying taxes is somehow causing the IRS to audit their tax returns. It’s true that certain things can automatically trigger an audit. An audit doesn’t actually mean your return is wrong. There are items on a return that present higher opportunities for committing fraud or mistakes.
The burden of proof for taking credits and deductions falls on your shoulders. You might have to prove that you are taking a position on your return in line with current tax code.
The audits are done primarily by mail today. There is a small chance of having an auditor show up in person. No matter how your audit is done you need to respond as soon as possible to ensure they don’t give you a default position. Letter normally state you have a certain amount of days from receiving the letter to respond if you disagree. If you don’t respond they automatically assume you agree with their findings in the letter. If you respond there are one of three things that happens.
The IRS auditors decides the information provided is correct and your return stays the same.
The IRS auditor proposes a change to your tax return, and you can agree to it and/or pay the appropriate taxes, interest or a penalty.
The IRS proposes a change you don’t agree. You have a chance to appeal and enter into an agreement with the IRS.
In the cases of serious tax fraud even though it’s an extremely rare outcome. The IRS can pursue forfeiture of property, jail time, and restitution.
1. Reporting the wrong taxable income
The IRS actually receives your W-2,1099, and K-1’s before the taxpayers. This goes for both full-time employees and self-employed contractors.
You should check to see if your W-2 or 1099 you receive from any company matches your own records. If you think it is incorrect, immediately inform the company, and request that they file a corrected W-2 or 1099 with the IRS. If a company fails to update their information you would have to file a complaint with the IRS to go through this process of updating those records.
2. Charity donations
If you’re giving away large amounts of money to a charity when your income is low. Be prepared for some scrutiny from your tax pro and the IRS. If you are audited and can’t substantiate your donations. You and the tax pro will have fines and penalties to pay. Any large donation should be appraised, and you should file the Form 8283 for any donation over $500. Make sure you keep all of your charity receipts and follow the IRS’s tips for charitable donations.
3. Business Vehicles
Cars/ SUVs are still the main transportation for alot of business owners. Having a vehicles under your business doesn’t exclude you keeping track of personal miles. Running personal errands to pick up friends and go shopping should not be included. You should always keep a record of your mileage using qualified record keeping guidelines.
4. Home office
This deduction is on a lot of peoples deduction list. Who wouldn’t want to be able to take electricity, internet, and other expenses you use at home and get a benefit. There is a specific definition of what qualifies as a home office, so claiming it could easily trigger an audit. Ensure the room is where you do the majority of your work, and that is not used for any other purpose, especially personal use. This type of deduction can trigger an in-person audit where the IRS want to actually see the room you are claiming for a business deduction.
5. Tax Errors
Simple tax mistakes like small mathematical mistakes are the top reason for alot of audits. The IRS will normally fix these and send you a correction. This can also result in you actually receiving a larger refund as well.
6. Round numbers
On indication of making up income and expenses is have a series of even or round numbers. This is a common practice for people who don’t keep records and try to prepare a return from memory. Audits don’t always happen immediately. They normally come a few years later. You should have documentation to support your deductions and credits. When preparing you return use the actual numbers that match your receipts and other records.
7. Business Losses
The main requirement for being considered to have a business by the IRS is actually doing something to earn a profit. If your business just constantly loses money year after year it will cause some red flags. If you report a loss three out of the last five years. The IRS might consider your business a hobby or fraudulent depending on your specific circumstances. If you have a business ensure your run it like one with receipts and backup.
Uber and Lyft drivers are considered independent contractors. The beginning of the year you will receive a 1099 that details the images driven, fees taken, and income paid to you from each service. For those who made 20k and had over 200 rides or deliveries you will receive a 1099-k. As a Contractors you will file a schedule C with your 1040 individual returns.
Most rideshare drivers can deduct mileage, parking, tolls, food for passengers, and any other allowable expenses on Schedule C of their federal tax form.
The only requirement for claiming expenses is that they need to be “ordinary and necessary.”
Uber drivers are able to take deductions for:
Car Payments. Yes, car payments are deductible. You don’t have to actually own your car. If you are making lease payments the amount you pay is deductible up to the portion of the business use of your vehicle.
Licenses, Registration, Tags and Title, insurance, and uber fees are all deductible.
Mileage Uber does tell you the mileage you drove for them, but you are required to keep track of your personal use of your vehicle before you can actually take the deduction.
Tax and legal fees. You can deduct the cost of filing tax returns related to your business and tax planning. If you are a do it yourself type of person. you can take the cost of your tax prep software.
Home Office Deduction
The new 20% Deduction on Pass-Through Income. On top of the allowed business deductions, the current tax law allows you to take a 20% deduction on pass-through income. To qualify for this deduction, you need to have business income. As long as your income is $157,000 (filing single) and $315,000 (filing jointly). If you have a business loss you will not see this 20% deduction on pass through income. The deduction on pass-through income is set to expire on December 31, 2025.
This list is not an all inclusive list of the allowable deductions for rideshare drivers. These are some of the most common.
The new tax cuts and jobs act was recently signed into
law for 2018. There are some pros and cons from this passage. One of the
biggest changes is the overall decrease in corporate tax rates. Last year C
corporations were subject to graduated tax rates of 15% for taxable income up
to $50,000, 25% for income over $50,000 to $75,000, 34% for income over $75,000
to $10,000,000, and 35% for income over $10,000,000. If you happened to own a
personal service corporation, you were subject to a flat income tax rate of 35%
on all of your income. Now in the 2018 tax year the corporate tax rate a flat
21%. The new flat rate is now only 25% for personal service corporations. The
new tax cuts and jobs act (TCJA) also gets rid of the corporate alternative
minimum tax. An additional pro of the TCJA is the increased write off amounts
for §179 deductions when you purchase new vehicles and machinery. There is a
new pass through 20% deduction that your business could possibly take.
There were a few downsides for businesses in the TCJA.
The first con was the new 20% deduction phases out for higher income businesses
and personal service companies. The 2nd and major issue has been the
removal of the meals and entertainment deduction. Businesses that take clients
to sports events and restaurants will be losing this deduction. Food expenses
that were previously 100% write off in 2017 starting in 2018 they are now cut
to 50%. The food given out at your workplace like donuts and coffee will be a reduced
write off in 2018. No matter what changes go into law be prepared by planning
with a professional.
By law, U.S. citizens and residents must report their
worldwide income. This includes income from foreign trusts and foreign bank and
You must file required tax forms. You may need to file
Schedule B, Interest and Ordinary Dividends, with your U.S. tax return. You may
also need to file Form 8938, Statement
of Specified Foreign Financial Assets. Certain domestic corporations,
partnerships, and trusts that are considered formed or availed of for the
purpose of holding, directly or indirectly, specified foreign financial assets
(specified domestic entities) must file Form 8938 if the total value of those
assets exceeds $50,000 on the last day of the tax year or $75,000 at any time
during the tax year.
There is a foreign earned income exclusion. If you qualify,
you won’t pay tax on up to $100,800 of your wages and other foreign earned
Unmarried taxpayers. If you are not married, you satisfy the
reporting threshold only if the total value of your specified foreign financial
assets is more than $50,000 on the last day of the tax year or more than
$75,000 at any time during the tax year.
Married taxpayers filing a joint income tax return. If you
are married and you and your spouse file a joint income tax return, you satisfy
the reporting threshold only if the total value of your specified foreign
financial assets is more than $100,000 on the last day of the tax year or more
than $150,000 at any time during the tax year.
Specified foreign financial assets include the following
1. Financial accounts maintained by a foreign financial
2. The following
foreign financial assets if they are held for investment and not held in an
account maintained by a financial institution:
a. Stock or securities issued by
someone that is not a U.S. person (including stock or securities issued by a
person organized under the laws of a U.S. possession),
b. Any interest in a foreign
entity, and c. Any financial instrument or contract that has an issuer or
counterparty that is not a U.S. person (including a financial contract issued
by, or with a counterparty that is, a person organized under the laws of a U.S.
Exceptions: If you do not have to file an income tax return
for the tax year, you do not have to file Form 8938, even if the value of your
specified foreign financial assets is more than the appropriate reporting
Duplicative reporting. You do not have to report any asset
on Form 8938 if you report it on one or more of the following forms that you
timely file with the IRS for the same tax year.
Form 3520, Annual Return To Report Transactions With Foreign
Trusts and Receipt of Certain Foreign Gifts.
Form 5471, Information Return of U.S. Persons With Respect
To Certain Foreign Corporations.
Form 8621, Information Return by a Shareholder of a Passive
Foreign Investment Company or Qualified Electing Fund.
Form 8865, Return of U.S. Persons With Respect to Certain
Foreign Partnerships. Instead, you must identify on Form 8938 the form(s) on
which you report the specified foreign financial asset and how many of these
forms you file.
In some cases, you may need to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts.
Visit IRS.gov for more information. The FBAR is not filed with a federal tax
return. When the IRS grants a filing extension for a taxpayer’s income tax
return, it does not extend the time to file an FBAR. It should be filed at https://bsaefiling.fincen.treas.gov/main.html.
the US person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
the aggregate value of all foreign financial accounts exceeded $10,000 at anytime during the calendar year reported.
The new annual due date for filing Reports of Foreign Bank
and Financial Accounts (FBAR) for foreign financial accounts is April 15. Schedule
an appointment today so IATC Inc can help you.
One out of every four US citizens are currently paying back their student loans. At the end of the year you might receive a Form 1098-E, Student Loan Interest Statement. Generally, an institution lender that received interest payments of $600 or more on one or more qualified student loans must send Form 1098-E to all borrowers by January 31. Don’t forget to take this easy deduction to minimize your tax burden.
The amount of your student loan interest deduction is gradually
reduced if your income is between $65,000 and $80,000 ($135,000 and $165,000 if
you are married and file a joint return). You can’t claim a student loan
interest deduction if your income is $80,000 or more ($165,000 or more if you
file a joint return). The maximum deduction you can get regardless of how much
you pay is $2,500 as of 2018.