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DECEMBER 2011 NEWSLETTER The IRS Wants To Know About Your Foreign Accounts Foreign accounts have been in the news a lot recently and this heightened interest in any foreign accounts is reflected in the increased interest by the IRS. Round One: Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts Each U.S. person who has a financial interest in or signature or other authority over foreign bank accounts, securities accounts or other financial accounts, must file a Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts or FBAR) for each calendar year during any part of which the aggregate value of the accounts exceeds $10,000. This is true even if the account has not earned any income during the year. For this purpose, a debit card account is a financial account, and a credit card account may be treated as a financial account under certain circumstances. The FBAR is due by June 30 following the year for which it applies. Note that there are no extensions for filing the FBAR, although you can amend the report. The FBAR must be filed separately from your income tax returns. The penalties for failure to file a FBAR are onerous. The civil penalties for a non-willful violation may not exceed $10,000 per violation. Civil penalties for a willful violation may not exceed the greater of $100,000 or 50% of the amount in the account at the time of the violation. The criminal penalty for willful violations is a fine of not more than $250,000, or imprisonment for not more than five years, or both. Round Two: Form 8938, Statement of Specified Foreign Financial Assets In addition to the FBAR filing requirements, a new filing/reporting requirement exists. Any individual who, for any tax year beginning after March 18, 2010, holds an interest in a specified foreign financial asset must attach to his or her income tax return for that tax year the required information for each specified foreign financial asset. This only applies if the aggregate value of all the individual's specified foreign financial assets exceeds $50,000. Unlike the FBAR, which is required if a reportable balance exceeds $10,000 at any time during the year, the reporting requirement here is where the balance at the end of the year exceeds $50,000. Specified foreign financial assets include financial accounts maintained by foreign financial institutions and other assets not held in accounts maintained by financial institutions. Stock or securities issued by non-U.S. persons, financial instruments or contracts with issuers or counterparties that are non-U.S. persons, and interests in certain foreign entities are examples. However, no disclosure is required for interests that are held in a custodial account with a U.S. financial institution. The penalty for failing to report specified foreign financial assets for a tax year is $10,000. However, if this failure continues for more than 90 days after the day on which the IRS mails notice of the failure to the individual, additional penalties of $10,000 for each 30-day period (or fraction of the 30-day period) during which the failure continues after the expiration of the 90-day period, with a maximum penalty of $50,000. The IRS has announced that the annual reports will be filed on Form 8938. The form has only been issued in draft form as of this writing. Note that there are circumstances where you may be required to file one or both of these forms. Also note that there are various other filing requirements related to foreign accounts and foreign ownership. If you are uncertain about whether you should have, are, or will be, required to file a Form TD F 90-22.1 AND/OR a Form 8938 for the current year or for a past year, please give us a call to discuss your situation and the best way to proceed. If you have any kind of foreign ownership, are an officer, director or executive of a foreign company or have assets in a foreign country or plan to transfer assets to a foreign corporation, we recommend that you contact us to discuss your transaction(s) in advance of executing them.
On September 14, 2011, the IRS issued new guidance in Notice 2011-72 removing cell phones from being classified as “listed property” which typically required detailed record keeping. The Notice is effective for taxable years after December 31, 2009. The Notice allows employers to provide cell phones to employees as an excludable working condition fringe benefit. When the cell phone is provided to employees primarily for “noncompensatory business reasons”, the business and personal use of the phone is generally nontaxable to the employee. The IRS will not require recordkeeping of business use in order to receive this tax-free treatment. At the same time and in a memo to its examiners, the IRS announced a similar administrative approach for cash allowances and reimbursements for work-related use of personal cell phones. When employers require employees to use their personal cell phones “primarily for noncompensatory business reasons”, the employer can treat the reimbursement of employee expenses as nontaxable. This treatment does not apply to reimbursements of unusual or excessive expenses or to reimbursements made as a substitute. The Notice contains examples of when the provision of a cell phone would and would not qualify as a working condition fringe benefit. You can review Notice 2011-72 in detail at www.irs.gov. We recommend employers establish a written cell phone policy covering employer provided phones and personal cell phone reimbursement policies. EMPLOYER-PAID EMPLOYMENT TAXES If you have employees who exceeded the Social Security wage limit of $106,800 in 2011, you enjoyed a drop in the amount of your federal payroll tax deposits since your matching contribution of 6.2% disappeared on wages above this limit. As you begin paying wages in 2012, your employees will again be subject to SSA and several other employer-paid payroll taxes, including:
Social Security & Medicare: The 2012 Social Security wage limit increases from $106,800 to $110,100, costing employers 6.20% of any wages below this limit. The maximum tax paid increases from $6,621.60 in 2011 to $6,826.20 in 2012. The employer portion of the Medicare tax is imposed on all wages at 1.45% without limit on the wages paid. During 2011, employees enjoyed a reduced Social Security withholding rate of 4.2%. Congress and the President are in discussions that may extend this benefit beyond 2011.
Federal Unemployment Tax: In Ohio this tax was generally imposed at .8% in 2011 on the first $7,000 of each employee’s wages resulting in a maximum tax of $56 per employee. However, as a result of the extended high unemployment, Ohio was among about 20 states that had to take out federal loans in order to keep their unemployment insurance benefit programs from becoming insolvent. As a consequence, Ohio employers will generally have to pay .9% on wages up to $7,000 per employee or a maximum of $63 per employee.
State Unemployment Tax: In Ohio this tax is imposed on the first $9,000 of each employee’s wages and is paid quarterly. Each employer has a different rate depending on their “experience”, but the “new employer” rate is 2.7% which would cost a new employer $243 per employee. You should check the rate your company pays to determine how much to expect to pay in 2012.
Workers Compensation Insurance: This tax is imposed on all wages of employees who are not officers of a company (officer’s liability may be limited) and paid semi-annually in July and January. The rate employers pay varies depending on their industry classification and their claim experience.
Holiday Bargain Fishing, Not Phishing! Online shopping has become incredibly convenient and the possibilities are seemly endless. But as Sgt. Phil Esterhaus (Michael Conrad)to say on Hill Street Blues, “Let’s be careful out there”. There are lots of bad people who are lurking online pretending to be real websites or offering you great deals that are really designed to steal your credit card information, your passwords and perhaps your identity. Use common sense and you can enjoy shopping online without threatening your personal identity and financial safety. Here are some tips we’ve compiled from a variety of sources. Start by making sure your computer is secure. At a minimum, you should use a good antivirus software product and keep it up to date. Use strong passwords and consider changing them periodically. We’ve beat the drum on this multiple times in our newsletters, but it bears repeating. Don’t use your birthday, “1234”, “password”, etc. Where ever possible use combinations of letters, numbers, special characters and capitalization. Don’t email personal or financial information. Email is not secure. Look for signs that the website you are shopping is secure and don’t ever give credit card or other personal data to a site that isn’t secure. Look for sites whose URL is HTTPS:// and not just HTTP://. The “S” indicates a secure website and you should also see a gold colored padlock in the bottom of your screen. Stores should never ask for your Social Security Number or birth date so don’t give them out to anyone online. Start your shopping on familiar websites and watch out for “look alike” sites. Also, watch out for slight variations in spellings and the use of “.net” instead of “.com” Check your credit card and bank statements regularly for any unusual or fraudulent activity. The credit card of a Worthington women was recently charged thousands of dollars in France. She, of course, was still in Worthington and still had her credit card in her purse. She caught and reported the problem immediately and won’t be held responsible by her credit card company. Avoid public terminals and avoid using your laptop or mobile phone unless you are sure you have a secure internet connection. Likewise, you should make you’re your own home internet and Wi-Fi connections are secure. Watch out for emails promising deals that are too good to be true – they probably are too good to be true. “Phishing” emails messages frequently try to get you to send personal information by saying that your account is expiring or has been compromised. They often have official looking Web pages and may ask you to click on links in the email or offer free products such as iPads. Social media is full of these kinds of offers and may even come from your friends. Don’t fall for these! We hope you find our newsletter informative and valuable. If you have comments or would like to discuss how any of these issues affect your situation, please call us. All of us at Oles & Associates wish you and your family Joyful Holidays and a Happy New Year. |