With the increasing rings of cellular phones, any CPA from USA will tell you the sleepless nights he/she encounters these days due to the current US tax season 2021-22. A large scrutiny of past returns as early as 2001-2003 in my client’s case, withholding of passport for non-filing of tax returns, and regular audit of taxpayers by Internal Revenue Service, Federal government of U.S.A. tell the stories of non-filing/improper filing of American tax returns.
On the other hand, with the emerging American economy in top gears, let us also learn the latest tax developments. Since non-filing of FBAR has attracted the attention of authorities in particular, sufficient information has been given but with the warning that heavy penalties await any taxpayer who ignorantly deals with tax returns/FBAR statements and willfully avoids filing them.
The reference for this article as usual appears at the end.
What are the latest changes, if any?
Individual income tax form 1040
“If you e-file your return, you generally won’t notice much of a change and the software you use will generally determine which schedules you need” is loudly proclaimed by IRS instructions. But let me inform you that various part 1 or 2 is used by various taxpayers for various conditions like additional income like farm income, business income, student loan interest reporting, claiming of nonrefundable credit, etc. with various schedules ranging from 1 to 3.”
Is there any change of rate of tax?
IF your filing status is at the end of 2021, you were file return if gross
income was ($)
| Single | under 65 | 12550 |
| 65 or olde | 14250 | |
| Married filing jointly | under 65 (both spouses) | 25100 |
| 65 or older (one spouse) | 26450 | |
| 65 or older (both spouses) | 27800 | |
| Married filing separately | any age | 5 |
| Head of household | under 65 | 18,800 |
| 65 or older | 20,500 | |
| Qualifying widower | under 65 | 25,100 |
| 65 or older | 26,450 |
Now, it is time to know 2021 federal income tax brackets
(For taxes due in April 2022 or in October 2022 with an extension)
Expand the filing status that applies to you.
Let me give you for those applicable to filing singly.
7 tax rates exist ranging from 10% to 37%.
| Tax rate | Taxable income bracket | Tax owed |
| Tax rate | Taxable income bracket ($) | Taxes owed |
| 10% | 0 to 9950 | 10% of taxable income |
| 12% | 9951 to 40,525 | 995 and 12% of amount above 9950 |
| 22% | 40526 to 86375 | 4664 plus 24% of amount above40525 |
| 24% | 86376 to 164925 | 14751 plus 24% of amount over 86375 |
| 32% | 164926 to 209425 | 33603 plus 32% over amount 164925 |
| 35% | 209426 to 523600 | 47843 plus 35% over amount 209425 |
| 37% | 523601 or more | 157804.25 plus 37% over 523600 |
Let us learn whether any change has occurred over the standard deductions.
What is a standard deduction?
I am giving below the official explanation of IRS.
“The standard deduction is a dollar amount that reduces your taxable income. It is a benefit that eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses, charitable contributions, and taxes, on Schedule A (Form 1040). The standard deduction is higher for taxpayers who: • Are 65 or older, or • Are blind.”
Standard deduction chart for most people
| One’s filing status | standard deduction |
| Single or married filing singly | $ 12550 |
| Married filing jointly or qualified widower | $ 25100 |
| Head of household | Head of household |
During nearly two decades of my observation of tax seasons, the following frequently asked questions have been answered by IRS for clearing the doubts of the taxpayers.
The connecting website is https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-about-international-individual-tax-matters
Let me give below some popular questions and the explanation given by IRS.
1. I am a US Citizen living abroad for many years working outside US. Do I still need to file tax return?
Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.
2. I am living in a foreign country and pay income tax since I am earning there. Am I to file US Tax return?
Yes, you must file US Income Tax return. The following explanation may help you.
You have to file a U.S. income tax return while working and living abroad unless you abandon your green card holder status by filing Form I-407, with the U.S. Citizen & Immigration Service, or you renounce your U.S. citizenship under certain circumstances described in the expatriation tax provisions.
3. What is the due date of U S Income tax return?
Due date of return. File Form 1040 or 1040-SR by April 18, 2022. The due date is April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia-even if you don’t live in the District of Columbia. If you live in Maine or Massachusetts, you have until April 19, 2022. That is because of the Patriots’ Day holiday in those states.
4. Any economic impact payment you received is not taxable for federal income tax purposes but will reduce your recovery rebate credit.
5. Extension and expansion of credit for qualified sick and family leave wages. The American Rescue Plan Act of 2021 (the ARP), enacted on March 11, 2021, provides that certain self-employed individual can claim credits for up to 10 days of “paid sick leave,” and up to 60 days of “paid family leave,” if they are unable to work or telework due to circumstances related to coronavirus. With the pandemic in mind, this information is of vital value.
6. What about virtual currency? Yes, If, in 2021, you engaged in a transaction involving virtual currency, you will need to answer “Yes” to the question on page 1 of Form 1040 or 1040-SR.
7. Many taxpayers ignore this information. Foreign financial assets. If you had foreign financial assets in 2021, you may have to file Form 8938 with your return.
Important 2021 tax documents
Organized tax records make preparing a complete and accurate tax return easier and may help taxpayers find overlooked deductions or credits.
Taxpayers may need the following documents generally to file the tax return but depending upon the individual cases, they may be more too:
- Forms W-2 from employer(s)
- Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends and distributions from a pension, annuity or retirement plan
- Form 1099-K, 1099-Misc, W-2 or other income statement if they worked in the gig economy
- Form 1099-INT if they received interest payments
- Other income documents and records reporting virtual or crypto currency transactions
- Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance Premium Tax Credits for Marketplace coverage
- Letter 6419, 2021 Total advance Child Tax Credit Payments to reconcile advance Child Tax Credit payments
- Letter 6475, 2021 Economic Impact Payment, to determine eligibility to claim the Recovery Rebate Credit
More US citizens are affected by inheritance, estate, and gift taxes unless timely action is taken during the lifetime.
A careful look at this keenly interesting tax issue is as under:
The United States imposes estate tax on the fair market value of assets an individual owns at death which is also applied on worldwide assets including insurance proceeds.
It is a complicated tax issue which invites the services of an excellent CPA with experience.
It is of news that American Taxpayer Relief Act of 2012 increased the top estate, gift, and generation-skipping transfer tax rates from 35% to 40% for estates of decedents dying after 31 December 2012. The following gradation of news on above will guide us. (Quoting from original instructions for authenticity)
- P. L. 115-97 maintained the estate, gift, and generation-skipping transfer taxes at the 40% tax rate. For estates of decedents dying and gifts made after 2017, P.L. 115-97 almost doubled the exemption for all three taxes; the exemption for 2022 is USD 12,060,000 per person and USD 11,700,000 for 2021.
- The gift and estate tax exemptions remain unified, so any use of the gift tax exemption during one’s lifetime would decrease the estate tax exemption available at death.
- The current law allowing a ‘step-up’ in basis to fair market value at date of death will continue. The gift tax exclusion for annual gifts is USD 16,000 per donee for 2022, up from the previous USD 15,000 per donee in 2021. unlimited transfers.
directly to educational institutions and health care providers are retained.
- The purpose of the gift tax is to prevent the lifetime transfer of assets without estate tax liability. Similarly, a generation-skipping tax exists to prevent avoidance of tax by skipping generations when making large transfers of assets.
Note that assets bequeathed to an individual’s spouse are exempt from estate and gift tax until the spouse’s death if such spouse is a US citizen.
I intend writing a separate article on above subject related to various states of USA with the available tax rate for estate duty.
Many Indians leaving India for varied happiness of USA go there, earn in millions, acquire assets, but die leaving no will or guidance to their family as how to dispose of their life earned millions.
Let us do analyze the position in India related to our left alone relatives of USA with the assets of their parents/family members with whom they have claims in terms of Hindu Succession Act for millions of assets left behind by their parents and others.
It is of interest to know that some of the properties sworn as Rs 1 lac have ballooned as Rs 100 lacs or more (10000000/75= US D 1,33,333.33, a substantial asset value). But if a US Citizen acquires these assets, it is expected that capital gains tax is paid by them by showing this as worldwide income and pay tax on them.
The commonest mistake of a US Citizen of Indian origin is to avoid FBAR statements being filed. Yes, as a CPA, I get more enquiries on FBAR than ever since most of our kith and kin forget the normal rules of taxation which has evolved before we were born and would continue forever.
A small brief about FBAR statements.
What is FBAR?
FBAR is Report of Foreign Bank and Financial Accounts (FBAR).
Web information reproduced.
https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar
Let me narrate some instructions for information. Non filing of FBAR invites huge fines/penalties and I have come across awful penalties being paid by my clients who did not have the services of a top-notch CPA who would have invariably got the relevant tax documents filed properly.
Yes, let us wade through the instructions carefully from above web information.
Per the Bank Secrecy Act, every year you must report certain foreign financial accounts, such as bank accounts, brokerage accounts and mutual funds, to the Treasury Department and keep certain records of those accounts.
You report the accounts by filing a Report of Foreign Bank and Financial Accounts (FBAR) on Financial Crimes Enforcement Network (FinCEN) Form 114. (Mostly CPAs help their clients filing these statements)
Who Must File?
1. The FBAR is an annual report, due April 15 following the calendar year reported. You’re allowed an automatic extension to October 15 if you fail to meet the FBAR annual due date of April 15. You don’t need to request an extension to file the FBAR. See FinCEN’s websitePDF for further information.
2. You must file the FBAR electronically through FinCEN’s BSA E-Filing System. You don’t file the FBAR with your federal tax
3. Most of my clients do authorize me to file these statements on their behalf along with the other regular tax returns. Yes, FBAR is not filed with IRS though they may ask you queries on these later on.
The next relevant question is how long to keep these documents.
For each account you must report on an FBAR, you must keep records with this information:
- Name on the account,
- Account number,
- Name and address of the foreign bank,
- Type of account, and
- Maximum value during the year.
The law doesn’t specify the type of document to keep with this information; it can be bank statements or a copy of a filed FBAR, for example, if they have all the information.
You must keep these records for five years from the due date of the FBAR.
What about consequences of non- filing of FBAR?
Penalties
You may be subject to civil monetary penalties and/or criminal penalties for FBAR reporting and/or recordkeeping violations. Assertion of penalties depends on facts and circumstances. Civil FBAR penalty maximums in Title 31 of the United States Code are adjusted annually for inflation. The FBAR Reference Guide PDF contains information about criminal penalties.
Let me unwillingly, give the details of penalties which are harsh, effective, and pursued continuously by IRS and other authorities due to indulgent taxpayers who happily avoided filing these statements and landed in legal tangles.
| Civil monetary penalty | current maximum ($) |
| 1.Foreign Financial Agency Transaction Non-Willful Violation of Transaction | $12,921 |
| 2. Foreign Financial Agency Transaction – Willful violation of transaction | Greater of $129,210, or 50% Of the amount per 31 U.S.C.5321(a)(5)(D) |
| 3. Negligent Violation by Financial Institution or Non-Financial Trade or Business | $1118 |
| 4. Pattern of negligent activity by financial Institution or non-financial trade or business | $86976 |
Filing an FBAR late or not at all is a violation and may subject you to penalties. In that case, it is advisable to contact a CPA to deal with the matter.
Conclusion
Intentionally, bare information has been given with the clear intent that tax returns/FBAR statements adorn your tax filing capabilities if you avail the services of an expert CPA who maintains your records by using the best software which helps sailing the tax season seamlessly for both the taxpayer and CPA, the tax consultant. Frequent changing of tax regulations/rules are made to meet the unexpected economical disasters that recently wrecked the life of a normal citizen throughout the world. With global income as the ringtone, taxation authorities around the world, having agreed on a minimum recovery of tax income from taxpayers, particularly, those who went happily to tax havens in the past, are helping themselves mutually to an unprecedented level to recover the tax dues attributed to income from their domains.
Let me give a friendly advice to all taxpayers to avail the services of an expert tax consultant like a CPA to keep continuous records of tax papers, answer the issues, if any, raised by tax authorities on time. Indian/US tax authorities help each other unknown to all of us in their sphere.
Yes, manage your tax returns wisely to avoid penalties.
Reference : https://www.irs.gov/
Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
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