Reporting of foreign bank account for US citizens

Published on: February 26, 2012 | 36 Comments

Each United States person is required to disclose any financial interest in foreign bank accounts on Form TD F 90-22.1, commonly referred to as FBAR, if the aggregate value of all accounts exceeds $10,000 at any time during the calendar year. Disclosure is mandatory with possible criminal and civil penalties for failure to report or filing a false report.

The interest must be reported on Schedule B, of the current year and under the newest Offshore Voluntary Disclosure Program (OVDP), announced in IR 2012-5, all prior returns are to be amended to report the interest earned on foreign accounts, the tax due and any interest on the amount due for the last eight (8) years. Penalties can be as high as 27.5% of the highest balance during the eight-year period. However, it could be as low as 5% for eligible taxpayers.

According to the IRS website, tax practitioners must exercise due diligence when it comes to determining the accuracy of information obtained either written or orally from our clients including the answers given for questions 7 and 8 on Schedule B, Part III. Practitioners, subject to Circular 230 regulations, must advise the taxpayer of the consequences for noncompliance. If the client refuses to disclose interest earned in a foreign account, the practitioner cannot prepare the return without being in violation of Circular 230.

Payroll Tax Cut Extension

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Payroll Tax Cut Extension

President Obama has signed the Middle Class Tax Relief and Job Creation Act of 2012, which extends to the end of the year the payroll tax cut for employees, continuing the reduction of their social security tax withholding from 6.2 percent to 4.2 percent of wages paid. The Act also repeals the “recapture” provision, which applied to those employees who received more than $18,350 in wages during January and February (the social security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount).

Five tax benefits you need to know about:

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accoutning firmsThere are five tax benefits that cannot be split on the tax return when unmarried couple is living together under one roof, dependency exemption, child tax credit, EIC, the child and dependent care credit and the head of household filing status. These benefits can be split only when the parents are separated under a divorce or separation agreement and one parent is the custodial parent. When the parents living together but are not married then only one person can claim these benefit on his tax return.