Foreign Investments and Bank Accounts
The amnesty period for holders of foreign bank accounts to come forward and pay back taxes due to avoid prosecution and penalties has expired and now the IRS seems serious about rooting out potential tax evaders. First UBS was coerced into coughing up an estimated 4,000 names and now HSBC seems under the gun. In addition to the rules over foreign bank accounts, don’t forget your requirements to disclose certain investments in foreign corporations. Expect this to be a hot area of compliance for some time. Unfortunately, the statutory penalty for failure to file IRS Forms 5471, 8858, or 8865 with the IRS is $10,000 per return, per year, per taxpayer for each year in which the required returns are not filed. Keep in mind that the penalty is for failing to disclose and has nothing to do with rather or not any additional tax would have been due.
Contract Workers and 1099s
Another bee up the IRS’s bonnet is the improper classification of employees as contract workers, thus depriving the Treasury of the employer’s portion of FICA and of federal unemployment. A reclassification by the IRS can be hideously expensive, so cover your ass by making sure that you get it right. One way to do so is by making sure you treat all workers consistently, making sure that your classification is reasonable, and giving everyone a 1099. If you clear those three hurdles the IRS cannot retroactively declare them employees and demand the FICA and employment insurance payments from you. However, if you fail to give the workers a 1099 and the IRS audits and reclassifies them as employees, you’re left holding a potentially very expensive bag.
Deduct Your Health Insurance on Your Schedule C to Lower SECA
In what will be a sweet deal for many of my clients self-employed persons will be able to deduct their medical insurance right on Schedule C for 2010. A sweet deal, if very brief because right now that will only be a one-off for 2010. This could be great for you because it should lower your Schedule C income and therefore lower your self-employment taxes.
Save Your Kids Taxes By Dying in 2010
If you have assets in excess of $3.5 million then this might still be a great year to die, just ask George Steinbrenner. Ridiculously, Congress has still yet to act to close the loop in the inheritance tax law that could, in the absence of a new law, allow George Steinbrenner’s kids to inherit the Yankees without owing any estate tax. Back in January everyone was sure that a new law would be passed before the year’s end that would include 2010 but so far there has been no action. If things keep going like this the Mrs. and I might consider a vacation to the West Bank come December. Of course, we would need to come up with another $3.4 million to make it worth Junior’s while.
