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Tax Defense Network


Tax Defense Network

Avoiding Tax Problems

Taxes aren’t everyone’s favorite part of life, to say the least.

When your personal or business taxes are mishandled, the IRS or state will notice. Avoid issues by addressing these common mistakes for the upcoming tax season (and all year long).

Smart Recordkeeping
To file taxes correctly and avoid audits or tax debt, you need to report on how much you earned, spent and paid in taxes. Your tax records must include:
• the receipts of the expenses that you claimed on your tax return
• income statements
• balance sheets of your assets, liabilities, and equity in your business (if any)

These records help you to:
• Monitor your taxes
• Prepare financial statements
• Identify the source of receipts for tax and financial planning purposes
• Prepare returns and keep a record of the tax returns filed
• Have documented proof of deductions, credits, and income reported on tax returns

Keep a record of deductible expenses if you claim them on your tax return to avoid cause for tax debt. The IRS checks each deduction and credit claimed, and if it’s not accurate, your due taxes are recalculated. You’ll receive notice of the disallowed deductions and the amount of the resulting tax liability. When these owed taxes are left unpaid, this is when the IRS begins collection actions such as monthly penalties and interests.

Updating and keeping your records is key to smart financial and tax planning, helping you dodge errors and trouble with the IRS.

Reporting your Gambling Winnings: Form W-2G

Gambling income, including winnings in a jackpot, race, raffle or contest are considered taxable income and must be reported on your tax return. If you win a car or other non-cash prizes, use the fair-market value.
If you win a large amount in gambling, the organization will send a Form W-2G (Certain Gambling Winnings) if you have won:
• $1,200 or more in gambling winnings from bingo or slot machines
• $1,500 or more in proceeds (the amount of winnings minus the amount of the wager) from Keno
• More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament
• $600 or more in gambling winnings (except winnings from Bingo, Keno, slot machines, and poker tournaments) and the payout is at least 300 times the amount of the wager, or
• Any other gambling winnings subject to federal income tax withholding

If winnings are shared by more than one individual, the payer will send a Form 5754 (Statement by Person(s) Receiving Gambling Winnings) instead of Form W-2G.

Deducting gambling losses: Gambling losses can be deducted by itemizing your losses on line 28 of Schedule A, Form 1040, but you can’t deduct more than your winnings. You can check with the IRS to determine if you must claim your winnings or deduct your losses using this information:
• Amount of your gambling winnings and losses
• Your filing status
• Any information provided to you on Form W-2G

Keep any receipts, tickets, or statements of each win/loss for your records.

Reporting Overseas Assets: FBAR vs. FATCA Form 8938

Financial assets outside of the U.S. require specific filing to avoid issues with the IRS. Here are the scenarios for when you need to file with each foreign filing document:

Criteria for filing Foreign Bank and Financial Accounts Report (FBAR):
• Have a financial account at a foreign branch of a U.S. financial institution
• Financial account is held by a Franked Investment Income (FII)
• Resident aliens of U.S. territories and U.S. territory entities
• Value of your overseas assets during a calendar year reaches $10,000 at any time

Criteria for filing IRS Form 8938 (required under the Foreign Account Tax Compliance Act, or FATCA):
• Financial account is held by a Franked Investment Income (FII)
• U.S. citizen, resident alien, or situational non-resident alien that has an interest in certain foreign financial assets and meet the reporting threshold set by the IRS
• Value of foreign assets at or over $50,000 on the last day of the tax year or reach $75,000 at any time during the tax year.

Note: Value thresholds are for taxpayers filing separately. Married filing jointly and individuals living abroad have a higher filing threshold.

What to report in FBAR:
• If you have sufficient interest in a financial entity and/or have the authority to control the assets
• The maximum value of financial accounts maintained by a financial institution that is located overseas

What to report in FATCA Form 8938:
• If you have any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or assets that need to be reported on your tax return
• The maximum value of certain specified foreign financial assets. These include financial accounts in FIIs and certain other foreign non-account investment assets

How to report: You can file FBAR electronically using the BSA E-Filing System (FBAR is never filed with a tax return). Form 8938 is always filed with the income tax return.

Accounting for your assets on and off U.S. soil is a surefire way to lower your risk for issues. If you need help determining whether to report overseas assets or resolving any tax problems, contact Tax Defense Network’s team of tax professionals to walk you through it.

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