Posts Tagged incomes
2011 Offshore Voluntary Disclosure Initiative
Posted on May 25, 2011 | Tax Studies.
The 2011 Offshore Voluntary Disclosure Initiative (OVDI) is an initiative by the IRS to provide some form of amnesty to individuals seeking to comply with disclosures for foreign incomes. The IRS is seeking to aggressively pursue incomes made overseas that have not been disclosed and has provided taxpayers with a window to come clean before they can apply the full force of the law. This initiative runs until August 31, 2011 and provides for some level of general pardon for previously unreported accounts.
What Does the Initiative Offer?
The tax amnesty initiative provides a reduced 25% penalty charge on the highest account balance that the account had between 2003 and 2010. This applies for accounts that ran balances over $75,000.00 for the same period. For accounts whose highest aggregate balance remained below $75,000.00 between 2003 and 2010, the penalty will be 12.5% of the highest account balance for the same period.
However, for accounts that are proven to be an inheritance account, the IRS is charging a reduced penalty of 5% of the highest account balance. This is in contrast to the high civil and criminal charges that would apply for non disclosure of foreign incomes and foreign accounts under the Foreign Bank and Financial Accounts (FBAR). These charges include paying all due taxes, any interests, and penalties for incomes that were not disclosed for every tax year. A further accuracy penalty of 20% of taxes due is also charged over and above the taxes, interests, and penalties.
The 2009 Initiative
In 2009, a similar initiative to provide some level of amnesty to people who had not fully complied with the FBAR disclosure requirements was also provided by the IRS. However, the initiative provided an even lower penalty of 20% as opposed to the current 25% charge for the highest account balance for the period between 2003 and 2008. The 2010 initiative also covers a longer period as it includes the period covered by the 2009 initiative plus the disclosure for the 2009 and 2010 tax years.
The Initiative May Seem Unfair to Some
Many who are seeking to take advantage of the initiative are complaining that the initiative does not take into account the different and particular circumstances of the various foreign disclosure cases and instead, provides only a standardized approach. In this way, some taxpayers seem to be more favored over others.
A taxpayer could have had a low account balance for most part of the period with a one-off shoot in balance that would push the account into the 25% penalty bracket. On the other hand, a wealthier taxpayer would have an account whose balance remained pretty constant at about $70,000.00 and therefore, have the lower 12.5% penalty apply.
In this case, the initiative may appear unfair. However, being an amnesty initiative and therefore, a relief to taxpayers, there is nothing much one can say in terms of complaints, especially when facing the alternative, which will be paying the due penalties and taxes under the FBAR (which will end up being much more punitive). Therefore, even if the amnesty initiative seems unfair, there is little recourse that one can pursue and it may be best to simply comply with the initiative and take advantage of this relief program before time runs out.
Tax Relief Credit for Retirement Savings Contributions
Posted on May 8, 2011 | Tax Studies.
The Retirement Savings Contribution credit, also referred to as the Savers Credit, is a tax credit given to individuals who contribute towards a qualifying retirement plan, either employer-sponsored or individually paid. However, the tax credit is subject to various rules and limitations:
Income Limitation
The tax credit for the Retirement Savings contributions is given to individuals and couples who earn a given maximum income per year. The credit is given to singles, couple who file returns jointly, and to widows and widowers. For singles, widows and widowers, and for married individuals who choose to file separately, one needs to earn a maximum of $27,750 to claim the credit. For head of households with dependents, the limit for income is $41,625 to qualify for the credit. For married spouses who choose to file their returns jointly, the maximum income that they should jointly earn to qualify for the tax credit is $55,500.
Credit Limitation
The amount of tax credit that you can get for the Savers Credit is a maximum of $1,000 for individuals and $2,000 for couples who file jointly. The tax credit is calculated at different percentages of the contributions made based on an individual or couple’s income. The people who earn lower incomes will have a higher percentage of their contribution being given as a tax credit as compared with those who earn more.
Age Limitation
To qualify for a Savers Credit, you need to have been born before January 2, eighteen years prior to the date of return. In other words, to qualify for the credit for the 2010 tax returns done in 2011, an individual needs to have been born before January 2, 1993 to qualify for the credit.
Net the Distributions Received – The amount of contributions used to calculate the qualifying tax credit is the net of the contributions made minus any distributions received from the retirement plan. The distributions considered are the those made 2 years prior to the tax year the claim is made, the tax year that the credit is made, and any distributions received between the tax year and the due date for the returns.
Claimed Hand in Hand with Other Retirement Related Deductions
The Savers Credit can also be claimed hand in hand with any other retirement related tax benefits. Contributions to regular 401(K) for example, are not included in the income to be taxed and contributions to a traditional IRA are deductible for various income groups. The Savers Credit can therefore, be claimed over and above such tax benefits.
How to Apply
To claim for the Savers Credit, you will need to fill out a Form 8880, “Credit for Qualified Retirement Savings Contributions Form” and attach it to your tax returns for the year that the credit is being claimed.