Yes. Both are additional federal taxes assessed on the "wealthy". Effective January 1, 2013, wage-earners and self-employed taxpayers with incomes in excess of $200K ($250K if married) will be subject to an additional Medicare tax of 0.9%, payable by the employee or self-employed individual, not the employer. Similarly, taxpayers with net investment income in excess of these same threshold amounts will be subject to a Medicare surtax of 3.8%. Investment income includes dividends, interest, net capital gains, annuities, royalties and net rents as well as the gain on sale of a principal residence in excess of the §121 exclusion of gain on sale of a primary residence. Income sources specifically excluded are tax-exempt interest, VA benefits, self-employed income, IRA and pension distributions. Some unfortunate taxpayers may be subject to both earned and investment income surtaxes!

Yes. The fair market value of property or services received through barter is taxable income; both parties must report the value of the goods and services received in the exchange as income. NOTE: Barter and trade dollars are the same as real dollars for tax reporting purposes. Bartering is taxable in the year it occurs. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income depending upon the type of transaction that took place. Generally, if you are in a trade or business you report bartering income on Schedule C Profit or Loss from Business and may be able to deduct certain business costs against the income claimed.

Yes. Government agency bonds are debentures issued by a Federal Agency or a government-sponsored enterprise (GSE). Bonds issued by a Federal Agency are usually backed by the full faith and credit of the United States government, whereas agency debentures issued by a GSE are backed only by that GSE's ability to pay. GNMA ("Ginnie Mae") bonds and all bonds from GSEs are subject to federal tax, as well as state and local income tax in most states. Most other agency bonds are subject to federal income taxation but are exempt from state and local income tax.

GSEs issuing bonds include:

• Farm Credit Banks

• Farm Credit System Financial Assistance Corporation

• Federal Home Loan Banks

• Federal National Mortgage Association (“Fannie Mae”)

• Federal Home Loan Mortgage Corporation (“Freddie Mac”)

• Federal Agricultural Mortgage Corporation (“Farmer Mac”)

• Student Loan Marketing Association (“Sallie Mae”)

Yes. US citizens, residents and business entities have a filing requirement if they have signature authority over foreign financial accounts, including bank, brokerage, annuity or mutual fund accounts with a combined value over $10K. Each account must be valued separately at its highest value during the calendar year; the value must be converted to US currency using the applicable exchange rate on the last day of the year. The account values are then aggregated to determine whether the filing threshold has been met. Form TDF 90-22.1 ("FBAR") must be received by the US Treasury on or before June 30th each year – no extension is available. Penalties for failure to file are steep!

In addition to FBAR reporting, certain taxpayers may be subject to additional reporting requirements. For example, Form 8938 Statement of Specified Foreign Financial Assets must be submitted to the IRS along with the taxpayer's income tax return if the taxpayer's foreign assets exceed specified thresholds: A domestic taxpayer must file if he has an interest in foreign financial assets with an aggregate value of either $50,000 on December 31st or $75,000 at any time during the year; married individuals must file if they exceed the thresholds of $100,000 and $150,000, respectively. For taxpayers residing abroad, the filing thresholds rise to either $200,000 on December 31st or $300,000 at any time during the year for single taxpayers; $400,000 and $600,000, respectively, for those filing jointly. Again, substantial penalties for non-compliance are assessed.

Taxpayers may be subject to yet more reporting requirements if they received gifts or bequests from abroad; if they transported, transferred or received in excess of $10,000 during the year; if they transacted business with a foreign corporation, partnership or trust; or [heavens!] attempted to expatriate.

Yes. Foreign pensions are generally subject to FBAR and 8938 reporting, and the income generated by the account is often taxable annually whether distributed or not. I urge you to seek legal counsel from an international tax law expert for any applicable tax treaty provisions, as well as a detailed analysis of the pension program to determine if the plan is subject to 8621 and/or 3520 reporting, not just in the current year but retroactively as well. Failure to file the requisite forms can lead to onerous penalties.

No. Foreign real estate – whether held directly or through a foreign entity – is not reportable on the FBAR. Nor is directly held foreign real estate considered a specified foreign financial asset required to be reported on Form 8938. However, if the real estate is held through a foreign entity, such as a corporation, partnership, trust or estate, then the interest in the entity is a specified foreign financial asset reportable on Form 8938. NOTE: The value of the real estate held by the entity is taken into account in determining the value of the interest in the entity to be reported on Form 8938, but the real estate itself is not separately reported on Form 8938.

Mortgages and loans – except Offset Mortgage accounts – don’t normally have to be reported on an FBAR because they don’t have a positive cash balance. An Offset Mortgage connects a savings account to the mortgage, whereby mortgage interest payments are reduced by the amount of savings accumulated. NOTE: US persons with an Offset Mortgage need only to report the balance of their savings on the FBAR, not the mortgage loan value.

No. An account established under the Uniform Transfer to Minors Act (UTMA) is held in the name and Social Security Number of the child, but administered by an adult custodian until the child reaches the age of majority as determined by state law (usually age 18 or 21). UTMA income is always attributable to the kid. However, a child who has annual investment income less than $1,000 and no other earned income, has NO income tax filing requirement. If a tax return is required, the child's investment income is first reduced by his standard deduction ($1,000 in 2014; $1,050 in 2015). The next $1,000 is taxed at the child's rate and the remainder is taxed at the parents' rate.

There are two filing options:

1. Child files his own return. Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's individual income tax return (Form 1040). This method is available to any child. If the parents have more than one child subject to kiddie tax, investment income of all such children is combined with the income of the parents to determine the tax.

   OR

2. Parents report child's income on their tax return. The election is made by completing Form 8814, Parents' Election to Report Child's Interest and Dividends, and is available if all of the following criteria are met:

   • The child's only income is from interest, dividends and/or capital gain distributions.

   • The child's gross income for the year is less than $10,000.

   • No overpayments are applied to the child's current-year return.

   • No estimated or withholding tax has been paid in the child's name.

No. Unless the partnership is filing a composite return and you are an eligible partner who has elected to participate in composite filing, you will receive the out-of-state K-1s. You must then file a non-resident return in each state if the respective state’s filing threshold as been reached.

Patience is key. Presuming that you are in fact eligible for the payment, it will come. The government is delivering its payments in waves, beginning with direct deposits into taxpayer accounts for which the IRS has account information gleaned from either TY’18 or TY’19 tax returns. If you filed a return and provided bank routing and account number so that I IRS could deposit an anticipated tax refund, the IRS will use that information to deposit your relief check. But if you had a balance due on your return and you authorized the IRS to automatically withdraw the money owed from your bank account, the IRS will not use this information to deposit your relief check. Strange but true!

Instead, the IRS will mail a paper check to you at your last known address [the one atop you 2018 or 2019 tax return]. These checks will also go out in waves: Beginning with the week ending April 24th, the government will send checks to taxpayers with the lowest reported income. Each week, another batch of checks will be mailed to taxpayers with ever-more income. The last scheduled checks will be mailed during early September. Non-filers (if eligibility can be determined in another manner) will get their checks in mid-September.

Additional resources:

• If a direct deposit was sent to an account that is no longer active, the receiving bank is required to reject the deposit and return it to the IRS. Once processed, the returned payment will be mailed to the taxpayer. Updated information about your mis-directed deposited will then be available on the Get My Payment app.

• New enhancements continue to be made to the IRS app on an ongoing basis. Taxpayers may now use the Get My Payment app to add bank account information and track the status of their payments. NOTE: The app will not allow taxpayers to input bank account info once a payment has already been scheduled for delivery.

To the frustration of many, the IRS app does not provide explanations for such error messages as “payment status not available” and “we can't determine your eligibility.” There may be a host of reasons that could include you checked before the IRS did its once-a-day system update, you entered your information incorrectly, you haven’t filed a return for TY’18 or TY’19, your TY’19 return has not yet been processed by the IRS, you are ineligible to receive the check based on your Adjusted Gross Income (AGI), or you’ve been temporarily locked out of the system due to a data mismatch. This is merely a list of issues most commonly encountered; there may be other problems specific to your situation.

So, I go back to where I started: Be patient. Your check – if you are entitled to one – will come. The IRS reports that 88 million payments have already been delivered to taxpayers in all 50 states and overseas. In the first three weeks of the program, payments have totaled roughly $158 billion [equal to 63% of the $250 billion budgeted by Congress].

Yes. Although paying by credit or debit card is convenient and may even allow you to accumulate frequent flier miles or other card benefits, it is also costly. Since credit card payments are not processed by the IRS, taxpayers will be required to pay a processing fee to one of four service providers authorized to process payments on behalf of the IRS. Please refer to the IRS website for a detailed listing of convenience fees charged and additional information.

If you e-file, you can generally expect to receive your federal refund within 10 - 21 days or 4 weeks after mailing a paper return. (Some tax returns require additional review and may take longer to process.) If you have not received your refund within that time frame, please contact your bank or check your monthly statement. In many cases, your refund will already have been electronically deposited. Since neither the tax authority nor the bank provide transaction confirmations, it is necessary to check your statement online, by phone or in person.

After your return has been filed, you can track the status of your refund (including a specific date on which the transaction will be processed) with the Where's My Refund? tool available on the IRS website. Information will generally be available within 24 hours after the IRS receives your e-filed return or 4 weeks after you've mailed a paper return. The computerized system updates every 24 hours, usually overnight; so there's no need to check more than once a day and there's no need to call the IRS unless the web tool instructs you to do so. To use the system, you must have a copy of your tax return for reference. You will need to input your Social Security number, filing status and the exact dollar amount of the refund you are expecting.

NOTE: Using e-file is the best way to file an accurate tax return; and using e-file with direct deposit is the fastest way to get a refund

If you have not received your Direct Deposit Refund (DDR), you must wait at least 25 working days from the authorized date of the refund (seven days for e-file returns and eight weeks for paper-filed returns) before contacting the tax authority. The agent will verify that your return was filed and will ask you to fax a bank statement showing that the deposit was not made to your account. The IRS will then ask you to submit Form 3911 Taxpayer Statement Regarding Refund (Form 3851 Taxpayer Affidavit of Misdirected Refund Deposit for the FTB) to start the replacement check process. The IRS and FTB then contact the bank or financial institution where the misdirected refund was deposited requesting information on the account holder who received the misdirected refund. Once they receive the information from the bank or financial institution, a paper check refund will be issued to the correct taxpayer.

Yes. By using your refund to reduce your estimated tax liability for the current year, you may be required to make fewer and smaller ES payments throughout the remainder of the year. Front-loading – paying more estimated tax early on (by applying the refunds) – also helps to minimize (and possibly even eliminate) under-payment and late payment penalties that the tax authority might otherwise assess.

Depending on the date you file your prior-year return, you may find that by the time you get your refund, you would only have to turn around and write a check for the next ES payment that is due almost immediately. And since little or no interest can be earned by depositing your refunds into the bank for only a short period of time, you are forfeiting nothing by allowing the tax authority to keep the money to which it will inevitably be entitled.

Finally, if you are a high-income earner, you are required to make ES payments equal to 110% of your total tax liability for the prior year under the federal Safe Harbor Rule. Yes, that means you will likely over-pay but that is precisely what the tax authority wants. It is also the only way to ensure that no penalties can be assessed in the coming year.

No. Unfortunately, the IRS has not yet promulgated specific regulations about the deductibility of transportation costs incurred by Uber, Lyft and other rideshare drivers. However, the IRS Publication 463 sets forth the following rules:

Transportation expenses include the ordinary and necessary costs of all of the following:

• Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home.

• Visiting clients or customers.

• Going to a business meeting away from your regular workplace.

• Getting from your home to a temporary workplace when you have one or more regular places of work. These temporary workplaces can be either within the area of your tax home or outside that area.

Obviously, most of these situations do not apply to you although you might argue that each of your passenger pick-up points represents a temporary workplace and, therefore, you should be allowed to deduct the expenses of the daily round-trip transportation between your home and the temporary location. However, the publication next states, “If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside [emphasis added] that metropolitan area. You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. These are nondeductible commuting expenses.”

That, then, leaves us with deductions merely for traveling from one workplace to another with the definition of “workplace” uncertain. The conservative approach would say that you are working only when you have a passenger in your vehicle. Transportation between the drop-off point of one passenger and the pick-up of another – particularly, when it is uncertain that you will in fact be called upon to pick up another passenger – become non-deductible commute costs.

If you wish to take a more aggressive stance, you could consider your home as your base and deduct all transportation costs while you are in drive-mode; whether you have a passenger in the vehicle or not. This, however, would mean that your home would have to qualify as your “home office” for tax purposes. Your home must:

• be used regularly and exclusively for business AND

• be your principal place of business

The IRS has identified two primary red flags on individual returns with reporting Schedule C business income: (1) mileage deductions and (2) home office deductions. Should a taxpayer’s return be pulled for audit, the examiner will in all probability disallow these deductions in part or in full. As a result, it is my suggestion that you deduct only those miles when you are actually carrying a passenger in your car. Kindly provide a tally of those miles to me when you provide the remaining missing data.

Please be sure to maintain accurate records. IRS rules require a contemporaneous record of beginning and ending odometer readings, date and business purpose of each trip.

Yes. Behind the scenes of everyday life for most US taxpayers, the IRS and the tax professional community have been debating whether the cost of tangible personal property used in a trade or business should be classified as a repair, a maintenance item or a new asset. "Big stuff" has been litigated all the way up to the US Supreme Court; smaller issues have been audited and fought over at lower levels of the courts and appeals process. In an attempt to create unimpeachable rules, the IRS issued "temporary" regulations nearly ten years ago. Recently, the IRS promulgated their "final" regulations which are disturbingly complex and involve a nightmarish onslaught of filing requirements. In response to a collective outcry from the tax professional community seeking to protect their clients from an excessively burdensome reporting mandate, the IRS on February 13th (2015) issued revised procedures that modify the "final" regulations that were only months old. These now are, of course, "final" again and apply to all individual taxpayers who file Schedule C's (small business and disregarded LLCs), Schedule E's (rental property owners) and Schedule F's (farmers), as well as all business entities (partnerships, S-Corps, C-Corps, trusts and estates).

Maybe. The IRS has issued new guidance (Rev. Proc. 2020-11) that offers relief to students whose loans have been discharged by the US Department of Education. Typically, the discharge of cancelled debt results in a taxable event to the debtor who must recognize taxable income, BUT certain students are now no longer required to report the discharged loan on the federal tax return. The tax break applies only to students who attended school at the time it closed or who withdrew from the school just before it closed, as well as borrowers who participated in the Defense to Repayment process or legal settlement discharge actions resulting from the unlawful, deceptive or abusive practices of a lender.

No. Mixing business and family may be a bad idea, especially since family transactions are often frowned upon by the IRS and almost always scrutinized or even recharacterized. In the event that you wish to lend money to a family member, you must be sure to do so in a business-like manner. Here are some things to consider:

You, as the lender should have a legally enforceable note that shows: (1) fixed loan amount, (2) definite payment date, (3) stated rate of interest and (4) collateral or security. It is best to charge your family member interest at the market rate (or higher) because the IRS may otherwise treat an interest-free loan as a gift or presume that the market rate of interest was charged. On loans between related parties, the IRS establishes minimum loan rates (AFR) that change on a monthly basis (see Applicable Federal Rates). Gift tax may be owed if the difference between the interest charged and the interest that would be charged using the AFR combined with other gifts exceeds the annual gift tax exclusion amount ($14,000 in 2015).

In a recent Tax Court ruling (DeFrancis v Comm, TCS 2013-88), borrowers were denied a deduction for mortgage interest on a family loan that properly established the rate of interest and payment terms but failed to establish that the loan was secured by the residence as required under IRC §163(h)(3)(B)(i)(II) and because the mortgage was not recorded with the county. It is, therefore, advisable that all contractual agreements are drafted or at least reviewed by a competent attorney.

While the borrower may hope to claim a deduction for interest paid, the lender must include that amount as taxable income whether or not a corresponding deduction can be claimed. In fact, the borrower will be required to issue Form 1099-INT to the lender reporting the amount of interest paid.

Yes. Taxpayers who have owned and used a home as a personal residence for at least two out of the five years prior to the sale may exclude up to $250,000 ($500,000 if married) of the realized gain as per IRC §121. This exclusion applies to only one sale every two years. To satisfy the Ownership Test, the residence must be owned by the taxpayer directly or through a living trust if the taxpayer was the grantor of the trust. To satisfy the Use Test, the residence must be the taxpayer's principal home. If a taxpayer alternates between two homes, the home that is used for a majority of the time during the year will ordinarily be considered the principal residence

If a taxpayer cannot satisfy the two-year Ownership and Use Tests, he may qualify for a reduced exclusion if the primary reason he sold his main home was due to a change in:

• his place of employment;

• his health if the primary reason for the sale is to obtain, provide or facilitate the diagnosis, cure, mitigation or treatment of disease, illness or injury of a qualified family member; or

• unforeseen circumstances such as divorce, death, unemployment or natural disaster.

Employment includes the start of work with a new employer or a new location of the same employer, as well as the start or continuation of self-employment. Under the Safe Harbor Rule, a change in place of employment is considered to be the primary reason the taxpayer sold the home if the change occurred during the period the taxpayer owned and used the property as a main home and the new place of employment is at least 50 miles farther from the taxpayer's home than the former place of employment was. If there was no former place of employment, the new place of employment must be at least 50 miles from the home sold. The IRS relies on facts and circumstances to establish eligibility for the reduced exclusion; the burden of proof rests with the taxpayer.

To calculate the reduced exclusion, the maximum dollar limitation ($250,000 or 500,000) is multiplied by a fraction. The numerator of the fraction is the shortest of either (1) the time the home was owned or (2) the time the home was used. The numerator and denominator may be expressed in either days or months. If the measure is days, the denominator is 730 days (365 days X 2 years). If the measure is months, the denominator is 24 months. Therefore, for single taxpayers the monthly amount of the exclusion will equate to $10,416.67 ($20,833.33 if married); the daily amount will total $342,47 ($684.93 if married).

Yes. Presuming that you otherwise satisfy the qualifying criteria of IRC §121, you may exclude up to $250K (if single) or $500K (if married filing jointly) of the gain on sale of a personal residence located in a foreign country.

Yes, but specific rules must be closely followed.

To begin, you will have to set up a self-directed IRA that allows for non-traditional investments – such as hard assets – as an alternative to bank and brokerage IRAs that generally limit investment options to publicly traded stocks, bonds and mutual funds. REMINDER: Contributions to a self-directed IRA are limited by the same rules that apply to Traditional and ROTH IRA accounts.

Once you have selected a custodian [based on the firm’s experience, expertise, funding options and costs] and are ready to fund your IRA, you must be very careful not to engage in a “prohibited transaction”. Real estate used to fund the IRA must be for investment purposes only and cannot be property already owned by you or a “disqualified person” such as a family member or other related party [IRC §4975(e)(2)]. Nor may the property offer indirect benefits to you; therefore, you may not purchase a vacation home or rent office space for yourself in a building owned by the self-directed IRA. WARNING: If you engage in a prohibited transaction, your IRA account will cease to be an IRA as of the first day of the tax year in which the transaction occurs [IRC §408(e)(2)]. Assets in the account will be deemed to have been distributed to you and included in gross income. Taxes, as well as penalties for early distribution (if applicable) will be due.

Because assets held in an IRA offer the advantage of tax-deferred (Traditional IRA) or tax-free growth (ROTH), you should note that gains on the sale of real property will not be taxed at favorable long-term capital gain rates that are otherwise applicable to assets held outside of the IRA. Additionally, IRA owners may not claim deductions for outlays normally associated with real property, including mortgage interest, property taxes, depreciation and other expenses. NOTE: All such costs must be paid from funds within the IRA; as a result, the owner must ensure that enough cash is available to meet those obligations on an ongoing basis.

Similarly, income generated by the real property must remain in the IRA and cannot be distributed to the owner until that individual is eligible for penalty-free distributions after the age of 59½. And because the self-directed IRA is subject to the same excess accumulation penalty that applies to its Traditional IRA counterpart, the owner must take the Required Minimum Distribution (RMD) after age 70½ [age 72 starting in 2020]; hence, sufficient liquidity must be available to allow for these mandatory withdrawal amounts once the IRA owner retires.

Real estate in the self-directed IRA may be purchased with borrowed money but not with a recourse loan personally guaranteed by the IRA holder. CAUTION: A non-recourse mortgage, on the other hand, may trigger unrelated business income (UBI) rules that require the filing of Form 990-T and may subject the IRA holder to the highest applicable marginal tax rates in effect each year. Failure to File Form 990-T may result in the disqualification of the IRA, resulting in a lump-sum distribution that is fully taxable.

So; yes, you may purchase real estate in a self-directed IRA but subject to many caveats; too many for most lay investors to navigate successfully. I urge you to be careful and seek expert guidance before proceeding.

A ROTH conversion from a Traditional IRA must be completed during the tax year, on or before 12/31 subject to the following rules:

1. The amount of the distribution that would have been included in income if it were not converted to a ROTH is included in income in the year of the conversion. Thus, any part of the conversion that is attributable to basis is not included in income.

2. The 10% penalty tax on distributions before age 59½ does not apply.

3. The converted amount is treated the same as a regular ROTH contribution once the 5-year period rule is met. To avoid a 10% penalty on distributions following a ROTH conversion, taxpayers who do not meet one of the penalty exceptions cannot take a distribution within the 5-year period beginning with the first day of the tax year in which the conversion was made. Once the 5-year period has expired, taxpayers can withdraw conversion amounts (but not earnings) without penalty regardless of their age. NOTE: Each conversion amount has its own five-year period and must satisfy the five-year period rule to avoid the 10% early withdrawal penalty.

4. A SIMPLE IRA will qualify for conversion only if a 2-year period has elapsed since the taxpayer first participated in any SIMPLE IRA of an employer.

5. Taxpayers age 70½ or older cannot avoid the required minimum distribution (RMD) for the year by converting an eligible retirement plan to a ROTH.

6. Effective January 1, 2018, pursuant to the TCJA, a conversion from a traditional IRA or other retirement plan to a ROTH cannot later be recharacterized.

With these rules in mind, you may indeed fund a Traditional IRA now and later convert it to a ROTH. But to avoid IRS scrutiny of a transaction that may appear to simply skirt the contribution limitation that would otherwise preclude your ROTH contribution, many advisers suggest that you place significant time between the date of the Traditional IRA contribution and the date of the ROTH conversion. Unfortunately, the tax authority has not yet offered any official guidance on this subject although Donald Keiffer, Jr of the IRS’ Tax-exempt and Government Entities Division stated in a July Tax Talk webcast that so-called Back-Door ROTH IRAs are “allowed under the law.”

Yes. The required minimum distribution (RMD) in the year of death is calculated as if the owner had lived through the year. The beneficiary must take the owner's RMD by year-end if the owner died before taking his own distribution. On the other hand, if the owner died before reaching his required beginning date for distributions, no distribution is required in the year of death.

The balance of the account must be distributed to the IRA beneficiary as a lump-sum by the end of the year following the year of death, unless the beneficiary elects to take distributions under the five-year rule. This requires that the entire account balance is distributed by the end of the calendar year five years after the year of death. Nevertheless, some plans may mandate a lump-sum payment even though the five-year rule is authorized under tax law. In that case, the beneficiary may choose to roll the assets into an inherited IRA and a different financial institution, thereby benefitting from a longer distribution period. Non-spouse beneficiaries may make a trustee-to-trustee transfer of the decedent's account and establish a new "inherited IRA"; that is, an IRA in the decedent's name but payable to the named beneficiary.

No. If you are under age 59½, I would recommend exploring alternative financing options. Premature distributions are generally subject to the IRS’ Early Withdrawal Penalty (10%), in addition to federal and state income taxes. Depending on your state of residency, you may also be subject to a state-imposed penalty, ultimately forfeiting almost half of the total distribution you hope to take. The penalty – not the tax – may be waived for certain limited exceptions, including distributions made:

• to a deceased IRA owner’s beneficiary,

• because the IRA owner is totally and permanently disabled,

• as part of a series of substantially equal lifetime payments,

• by qualified first-time homebuyers,

• to fund qualified higher education expenses,

• to pay for a portion of certain medical insurance premiums paid while unemployed,

• for unreimbursed medical expenses in excess of 10% of adjusted gross income,

• due to an IRS levy, or

• by a qualified reservist.

Qualified education expenses include amounts paid for tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, reduced by any tax-free educational assistance received such as grants, scholarships and Coverdell education account distributions. The distribution may be used to pay for costs incurred by the taxpayer, his spouse or child. An eligible educational institution is any college, university, vocational school or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit and proprietary (privately owned profit-making) postsecondary institutions.

Indeed, the education exception is rather liberal but only serves to eliminate the Early Withdrawal Penalty imposed on pre-retirement distributions. Taxpayers should not under-estimate the tax liability that remains; even without imposition of the penalty, many taxpayers may be required to “share” up to 40% of their IRA distribution depending on the federal and state marginal tax brackets to which they are subject.

Instead, you might wish to explore and consider the following alternative financing options:

• Student Loans – apply through your school’s financial aid office. The interest rates are generally reasonable, the repayment terms usually liberal, and these loans do not require the borrower to satisfy the usual qualifications imposed by lenders on all other types of loans.

• Grants & scholarships – it never hurts to ask to see if you might be eligible for one or the other. Once again, you should inquire with the financial aid office but you may also do a bit of research online as there are innumerable sources of grants for which you might be perfectly suited.

• Home equity loan – if you haven’t already explored this option, it may be worth a try. Unfortunately, loan interest will not be tax deductible if the loan proceeds are used for a purpose other than home improvements but the tax consequences would still be cheaper than an IRA withdrawal.

• Selling company stock – always a possibility but be aware that you will be taxed at capital gains rates on the difference between the sales price and your basis. If you did not originally pay for the stock, your basis is zero and the entire sale will be subject to tax at slightly lower rates (and no penalty) than the ordinary income tax rates at which the IRA distribution would be taxed.

• Borrow from your 401(k) plan – you’ll have to check with your employer about the terms and conditions. Note that this should be considered a loan which must be repaid to avoid becoming subject to tax and penalties (just as if you made a withdrawal from your IRA). Further, you are “violating” the purpose for which the account was initially established which was to save for retirement not ongoing expenses – even if they are educational expenses.

Yes. If, when you retire, you take a distribution of company stock from your 401(k) plan, you will be required to pay tax at ordinary income tax rates on the cost basis (acquisition price) of the stock. Say you have 1,000 shares at a cost basis of $15. If the market price of the stock is $40/share when you withdraw the shares, you will pay tax on only $15,000 rather than $40,000 under special NUA rules:

• Net Unrealized Appreciation (NUA)
  To be eligible for the NUA rules described above, you must have a triggering event such as separating from service with your employer, being age 59 1/2, total disability or death. You had to buy the stock with pretax contributions. Your entire vested balance in the plan must be distributed in a lump sum within one tax year, so if you withdraw some money for personal needs, you may disqualify yourself from NUA treatment. Also, you must distribute all assets from all qualified plans at your former employer, not just the one that held the shares of stock.

If you later choose to sell the shares that you previously withdrew, you will pay capital gains tax on the difference between the cost basis ($15) and the future sales price.

On the other hand, if you keep the shares throughout the lifetime of the 401(k) plan and eventually roll them into an IRA, you won't pay any tax when you make the rollover but when you later sell the stock, you will be required to pay tax at ordinary rates on the full value of the stock. Using the example above, if you were to make a rollover when the market price was at $40/share and then promptly sold the stock at the price, you would pay tax on $40,000.

In this scenario, your choices are (1) pay ordinary income tax on $15K now and capital gains tax on the NUA later or (2) pay ordinary income tax on the entire balance later. While Choice # 1 sounds preferable, you should consider:

• Whether you are, in fact, eligible for the NUA rules as described in the limitation above

• Whether you have liquidity outside of plan dollars to pay the tax that would result from selling stock within the plan

• Whether you intend to continue to hold the stock to benefit further from NUA treatment

• Whether you intend to postpone distribution of assets – along with the attendant tax – from your IRA rollover to benefit from ongoing tax deferral

Maybe. Restricted stock is often given to an employee at no cost, albeit subject to restrictions such as forfeiture if the employee fails to remain with his employer for a certain number of years. Normally, the employee does not recognize taxable income until vesting occurs and the stock is no longer restricted. The amount included in income and subject to payroll tax withholdings will be the excess of the stock's value when the restriction lapses over any amount paid for the stock by the employee.

Alternatively, the employee may elect under IRC §83(b) to recognize the income on the date of the stock's receipt rather than on the date of its vesting. There will be no further tax consequences when the stock vests. Instead, tax on any appreciation between the transfer and vesting dates is deferred until the stock is eventually sold. In the interim, dividends earned from the stock are treated as dividend income rather than compensation subject to payroll tax withholdings. While tax deferral is always tempting, the 83(b) election requires immediate income recognition even though the employee has received no cash with which to pay the resulting tax. If the stock is subsequently forfeited, the employee cannot claim a deduction for the previously recognized income; however, any amount paid for the stock may be deducted as a capital loss.

The 83(b) election is best made when:

• the shares given to the employee have nominal value on the date of transfer, or

• the employee pays full or substantial value for the stock, or

• significant appreciation between the date of receipt and the time that the stock vests is anticipated.

The election is best avoided if the employee would be required to recognize substantial income upon receipt of the stock, or the employee expects to be unable to satisfy the conditions imposed on him by his employer, thereby creating a substantial risk of forfeiture.

Yes. But to claim a loss on your investment, you will need proof that the company, or at least your shares are indeed worthless. Securities—defined as corporate stock, stock rights, or bonds—which have no value may be reported as capital losses upon the occurrence of an identifiable event that establishes their worthlessness, such as the bankruptcy of the issuing corporation [IRC § 165(g)].

However, if a security retains even a minute value, a loss deduction is not allowed. In that case, a taxpayer has two choices:

1. He can sell the securities for the nominal value that they have retained and thereby fix the dates and amounts of the attendant losses, or

2. He can abandon the assets.

While the first option indeed allows the taxpayer to claim the difference between his minimal sales price and his original purchase price as a capital loss, he may be unable to find a buyer for what is essentially a “worthless” security. On the other hand, by relinquishing title to his security, permanently surrendering his rights, and receiving no consideration in exchange, he can abandon the asset. While aggressive taxpayers have argued that abandonment should be eligible for ordinary loss treatment, the IRS has proposed a regulation [Prop. Treas. Reg. §1.165-5, Fed. Reg.1001-05 (September 4, 2007)] requiring that abandoned securities be treated in the same manner as worthless securities and are, therefore, eligible for capital loss treatment only.

In any case, worthless securities are deemed to have become worthless on the last day of the year in which the identifying event occurs – it is this date that determines whether the attendant loss is long- or short-term. Note that your loss can only be used to offset capital gains incurred in the same year. You may use an additional $3K of any excess capital loss as a deduction against other ordinary income but the remainder must be carried-forward into future years.

UPDATE: For tax years beginning in 2018, business miles and other previously allowed expenditures by wage-earners are no longer federally deductible since the deduction for unreimbursed employee expenses has been eliminated in its entirety with the enactment of the Tax Cuts and Jobs Act (TCJA). But because unreimbursed employee business expenses remain deductible in many states – including California – the answer below continues to be relevant.

Yes, if your employer (1) requires you (2) in writing to incur certain out-of-pocket business expenses which then (3) remain unreimbursed by the employer. Employee business expenses must be reported on Form 2106 Employee Business Expenses and may then be claimed as itemized deductions on Schedule A if the total of your miscellaneous deductions exceed 2% of your Adjusted Gross Income (AGI).

Additionally, please note the following:

• Entertainment expenses must be directly related to or associated with the active conduct of a trade or business, or for the production or collection of income. Thus, you must be able to show that the main purpose of the entertainment event was business, that you actually engaged in business during a meal or entertainment activity, and that you had more than a general expectation of receiving income or some other specific business benefit in the future. If the event is “associated with” a business purpose, you must provide the entertainment or meal directly before or after a substantial business discussion but you are not required to devote more time to business than to entertainment.

• The deduction for business gifts is limited to $25 per recipient per year. A gift to a customer’s family member is considered a gift to the customer unless there is a bona fide business relationship with the recipient family member.

• Expenses for transportation, meals and lodging are deductible for business travel away from your tax home (the entire city or general area where you regularly conduct business). To deduct travel expenses, you must be away longer than an ordinary work day and long enough that you could not reasonably be expected to complete the trip without sleep or rest.

• Unless your employer requires you to work from home and doing so is for his convenience (not yours), you may not claim any deductions related to a home office. Should this test be satisfied, you must then meet the usual standards for home office deductions which require that the area in the home used for business must be used regularly and exclusively as well as regularly and continuously. Then, and only then, may you claim a deduction of pro-rated rental expenses and utilities.

• If claiming a deduction for business expenses, you must maintain an account book, diary, log, trip sheet or similar records, as well as documentary evidence (e.g., receipts and canceled checks) substantiating the amount, time, place and business purpose of your expenditures. The so-called Cohan rule that allows taxpayers to estimate the amount of certain business expenses may not be used for travel, meals and entertainment expenses.

• Expenses reimbursed to an employee under an accountable plan are not included in taxable income and, therefore, you may not claim a tax deduction for these expenses. Reimbursements made under a non-accountable plan are treated as taxable wages and reported on Form W-2; you should claim an off-setting deduction for these business expenses based on the rules outlined above.

This is a very broad question that can only be addressed generically on this page. Each taxpayer’s situation should be evaluated on an individual basis to determine the rules applicable to specific countries of residence, pertinent tax treaties, length of foreign stay, travel to and from the US, foreign currency and exchange issues, the established tax home, family matters and many other unique factors. Due to this complexity, US taxpayers living and working abroad should consult an experienced tax professional familiar with US tax law as well as a knowledgeable practitioner in the country of residence who can address local filing requirements. Typically, each professional is proficient with only one set of rules and so the taxpayer will probably have to engage several professionals to obtain the most comprehensive advice.

Foreign Retirement Accounts
The lack of international conformity can be overwhelming. For example, US citizens living and working in the United Kingdom (UK) may invest in local pensions and retirement plans much in the same way they would if living in the US and contributing to a 401(k) or IRA; they may even be able to deduct or exclude up to $55K ($61K if over age 50) of qualified contributions [in 2018]. Similarly, US citizens living and working in Germany may take advantage of the German Pension System. In contrast, employee and employer contributions to a Swiss Pillar II pension account may not be deducted from US taxable income but the amounts contributed may later be withdrawn tax-free; in that way they are comparable to ROTH accounts. Employer contributions to Singapore’s Central Provident Fund must be included as wage income.

Social Security Benefits
Totalization agreements between the US and other nations help to mitigate the effects of double taxation. As a result, Social Security benefits are generally taxed only by the country of residence rather than by the country in which the benefits accrued. However, US taxpayers should note that only 26 countries have currently signed on.

Tax Year
Calendar year reporting is required by US tax authorities in contrast to many other countries. For example, the tax year in the UK ends in early April; the Australian tax year ends in June. As a result, US taxpayers should keep pay stubs and account statements to help determine precise amounts of income earned throughout the year rather than rely on foreign tax reporting documents.

Tax Reduction Strategies
Eligible US taxpayers may use the Foreign Earned Income Exclusion (“the exclusion”) and/or the Foreign Tax Credit (“the credit”) to help reduce their US tax obligations. The exclusion can be used to decrease taxable income; whereas the credit is a dollar-for-dollar reduction of tax owed. While the credit cannot be applied against foreign income that has already been excluded, a taxpayer may use the credit against foreign taxes paid on non-excluded income and may therefore use both the exclusion and credit to maximize the allowable tax benefits.

The taxpayer may choose to use whichever vehicle offers the greater benefit. For example, it may be preferable for US citizens living in the UK to elect the credit rather than the exclusion since UK tax rates are generally higher than those in the US; the resulting excess tax credits can be carried forward and used to reduce US tax liabilities for up to 10 years. On the other hand, it may be preferable to use the exclusion for income earned in the United Arab Emirates (UAE) since qualified expats living and working in the kingdom are not subject to foreign taxation. Since the credit can only be claimed for taxes paid, US taxpayers should instead use the exclusion to reduce or eliminate the amount of income subject to US taxation. Similarly, low tax rates in Hong Kong (HK) will likely make the credit less attractive than the exclusion. But because housing costs are exceptionally high in HK, US taxpayers who keep careful records of rent, utility costs and residential parking may claim a deduction for those costs. And in Switzerland, A US taxpayer may claim a credit for cantonal and municipal income taxes.

Foreign Account Tax Compliance Act (FATCA)
In addition to income tax filing requirements, US citizens may also have to report specified foreign accounts. Reporting criteria depend on the aggregate value of all accounts and whether taxpayers live in the US or abroad, as well as the tax filing status of single or married individuals. Additionally, taxpayers may be required to file a Foreign Bank Account Report (FBAR). Australian Superannuation Funds, for example, are deemed to be reportable accounts on the FBAR. Employer contributions to such funds are includible as wage income and distributions in excess of employer contributions are taxable for US tax purposes.

No. In general, foreign pensions are not deemed to be “qualified” plans and are therefore ineligible for the tax benefits granted to US-based accounts, including IRAs and 401(k) plans. Instead, employee contributions to foreign pensions are generally not tax-deductible, employer contributions are includible as taxable income in the year made, and the income earned in the foreign retirement account is taxable to the participant on an annual basis. At retirement, distributions are often subject to both foreign and US taxation, which means that many plan participants will have been subject to US taxation as income accrued and again as it is paid out (barring any protections afforded by applicable tax treaties).

Yes.  Foreign pensions are not typically deemed to be “qualified” retirement plans (comparable to familiar plans in the US) and are instead viewed as trusts by the IRS.  As such, they are subject to the onerous reporting requirements applicable to passive foreign investment companies (PFICs), defined as entities that hold mainly passive assets or receive mainly passive income from interest, dividends, capital gains, rents, royalties and annuities.  PFICs can include foreign mutual funds, money market accounts, pension funds, partnerships and other pooled investment vehicles such as REITs.

The PFIC regime was created under the Tax Reform Act of 1986 in hopes of leveling the playing field between foreign and US-based mutual funds and closing a loophole that historically encouraged US taxpayers to shelter investments from taxation by heading offshore.  The rules – intentionally complex and burdensome – require that each PFIC as well as its shareholders maintain accurate records of all transactions such as dividends paid and undistributed income, which must be allocated on a pro rata basis to each shareholder.  The tax liability that results from distributions not actually but only deemed to have been made, may be deferred until the sale of the PFIC but interest charges on the unpaid tax will accrue in the interim.  NOTE:  Capital gains from the sale of the PFIC are taxed as ordinary income and realized losses are not deductible.  Under limited circumstances, PFIC shareholders may elect to treat an eligible PFIC as a Qualifying Election Fund (QEF) or make a mark-to-market election to qualify for more favorable tax treatment.

Form 8621 Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund must be attached to a taxpayer’s timely filed individual, partnership or exempt organization income tax return (and sometimes filed even if a tax return is not required). Taxpayers who hold multiple PFICs must file separate Forms 8621 for each PFIC owned.  Failure to file may suspend the statute of limitations with respect to the taxpayer’s entire return until the omission is corrected; potentially extending the statute for an unlimited period of time.

Form 8621 is a complex 4-page form that requires specialized expertise – not held by most otherwise competent practitioners – and that even the IRS estimates will take more than 20 (!) hours to complete.  Taxpayers are urged to consult an experienced international financial adviser and/or an expatriate tax specialist to not only assist with the arduous reporting obligations but to determine whether it might, in fact, be best to divest of the asset.

Yes. The Foreign Housing Exclusion (FHE) may be claimed in addition to the Foreign Earned Income Exclusion (FEIE), resulting in a combined exclusion that exceeds the annual threshold. The FEIE is set at $99,200 in 2014 and is indexed annually for inflation.

US citizens who live abroad continue to have a tax reporting requirement in the US but may, if eligible, exclude a portion of their earned income from wages and self-employment from taxable income. They must satisfy either the Bona Fide Residence (BFR) test or the Physical Presence (PP) test; each mandating that the individual has lived abroad for a requisite period of time. In the case of the BFR, the taxpayer must have lived in a foreign country for one full calendar year and, therefore, will only become eligible for the exclusion in the second year after his departure from the US, at the earliest. He may instead qualify under the PP test if he has lived abroad for at least 330 days in any consecutive 12-month period of time. TIP: A taxpayer may amend a prior-filed return or file an extension to allow the requisite number of days and months to accrue before submitting his return. However, if he has amassed fewer than the necessary days in any particular tax year, he must reduce the maximum allowable exclusion on a pro-rata basis.

For example, a taxpayer moved to Germany on August 20, 2013 and plans to remain abroad through the end of 2014. He will have been physically present in Germany for at least 330 full days during the 12-month period ending August 20, 2014 but only 134 days in 2013. As a result, his foreign earned income exclusion for 2013 is limited to $35,831 (134 days ÷ 365 days × $97,600).

Additionally, qualified individuals may also claim an exclusion (or deduction, if self-employed) for reasonable housing costs such as rent, repairs, utilities, insurance, occupancy taxes, furniture rental and parking. The exclusion is limited by a government-calculated base amount as well as a maximum threshold; in 2014, for example, only those housing expenses which exceed $43.48/day but are less than $81.53/day are eligible, resulting in a maximum allowable exclusion of $13,888. The IRS allows a greater threshold for taxpayers living in certain high-cost cities.

Using Form 2555 to claim the various exclusions, the taxpayer will be required to claim the housing exclusion first, then reduce his earned income by the amount of FHE claimed, and finally calculate his allowable FEIE based on the reduced income he just computed. If his foreign earned income is sufficiently high, the taxpayer will be able to benefit from a combined FHE and FEIE that might well exceed $99,200 in 2014.

Yes. If you disagree with the notice issued by the Social Security Administration (SSA) demanding that you pay a higher premium amount, you have the right to request an appeal in writing by completing Form SSA-561-U2 Request for Reconsideration.

Your appeal will be considered only if you experienced one of these eight life-changing events:

• Death of Spouse

• Marriage

• Divorce or annulment

• Work reduction

• Work stoppage

• Loss of Income Producing Property

• Loss or reduction of pension income

• Receipt of employer settlement payment

Each person (donor) may give to any other person (donee) up to $15K in 2019, free of gift tax. Thus, husband and wife can each gift $15K to their child.

Gift-splitting, allows a married couple to treat gifts made by one spouse as though one-half had been made by each spouse. As a result, spouses are able to maximize their annual exclusions, sheltering gifts made from the assets of only one spouse and which would otherwise not be fully excluded by that individual’s annual exclusion. To qualify, spouses must (1) be U.S. citizens or residents at the time of the gift, (2) be married at the time of the gift, and (3) remain unmarried at the end of the calendar year if they have separated during the year of the gift.

Presuming that neither spouse has exceeded the annual exclusion amount or made other taxable gifts, Form 709 would not be required merely to report the particular gift in question.