How To Get An ITIN Through A Certifying Acceptance Agent
Some Basics About ITINs

An individual taxpayer identification number (ITIN) is a tax processing number, issued by the Internal Revenue Service, for resident and nonresident aliens, their spouses and their dependents, if they are not eligible for a Social Security number. The ITIN is a nine digit number beginning with the number 9, has a range of numbers from 50 to 65, 70 to 88, 90 to 92 and 94 to 99 for the fourth and fifth digits, and is formatted like a Social Security number (like this: 9XX-7X-XXXX).

Only individuals who have a valid tax filing requirement or are filing a U.S. federal income tax return to claim a refund of over withheld tax are eligible to receive an ITIN. ITINs are used for tax purposes only, and are not intended to serve any other purpose. The ITIN does not authorize you to work in the U.S. or to receive Social Security benefits, is not valid for identification outside the tax system, and does not change your immigration status. To read more about ITINs, see our U.S. Tax Guide for Foreign Nationals.

Do You Need One?

If you do not have a U.S. Social Security number (SSN) and are not eligible to obtain an SSN, but you are required to file a U.S. federal income tax return, be claimed as a spouse or dependent on a U.S. tax return, or furnish a tax identification number for any other federal tax purpose, you need an ITIN. You must have a valid filing requirement and file an original valid U.S. federal income tax return with your ITIN application, unless you meet one of the exceptions listed below.

Even if you meet one of the exceptions to filing a tax return, you must still have a valid tax purpose. Here are some examples of who needs an ITIN:

  • A nonresident alien individual not eligible for an SSN who is eligible to obtain the benefit of a reduced tax withholding rate under an income tax treaty.
  • A nonresident alien individual not eligible for an SSN who is filing an application for reduced withholding on the sale of U.S. real property.
  • A nonresident alien individual not eligible for an SSN who is required to file a U.S. federal income tax return or who is filing a U.S. tax return only to claim a refund.
  • A nonresident/resident alien individual not eligible for an SSN who elects to file a joint U.S. federal income tax return with a spouse who is a U.S. citizen or resident.
  • A U.S. resident alien (based on the substantial presence test) who files a U.S. federal income tax return but who is not eligible for an SSN.
  • An alien individual eligible to be claimed as a dependent on a US federal income tax return but who is not eligible to obtain an SSN.*
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Surprise! The Mutual Fund Tax Trap
Too often taxpayers receive tax surprises at year-end due to actions taken by mutual funds they own. What can add insult to injury is the unsuspecting taxpayer who recently purchases the shares in a mutual fund only to be taxed on their recent investment. How does this happen and what can you do about it?

Tax surprises

Towards the end of each year, many mutual funds pay a dividend to the holders on record as of a set date. The fund might also distribute funds deemed as capital gains based upon buying and selling activity that takes place in the fund throughout the year. This can create many problems:

  • Taxable paybacks. If you purchase shares in a mutual fund just before a distribution of dividends, part of your purchase includes the dividends that are effectively paid right back to you. Not only will the asset value of your recently purchased shares in the mutual fund go down after the distribution, but you will owe tax on a distribution that is effectively your own money!
  • Kiddie tax surprise. Many taxpayers purchase mutual funds in their children’s names to take advantage of their lower-tax rates. By keeping their child’s unearned income below $2,100 the tax is low or non-existent. A surprise dividend or capital gain could expose much of this unearned income to higher tax rates.
  • The $3,000 loss strategy. Each year, you may take a net of up to $3,000 in investment losses. Your losses can offset high rates of income tax with correct tax planning. But first, these losses need to offset capital gains. If you receive a surprise capital gain, you could be reducing the effectiveness of this tax strategy.

What To Do

Here are some ideas to help reduce this mutual fund tax surprise:

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Understanding Tax Terms: Depreciation Recapture

One of the more unpleasant surprises that can hit a taxpayer occurs when you sell personal property, rental property or assets from your small business. This tax surprise is often associated with depreciation recapture rules.

Depreciation recapture refers to reducing the cost of an asset sold by prior period’s depreciation expense to determine whether taxes are owed on the sale of an asset and to determine the type of tax that must be paid on the sale of the asset.
When you have business property with a useful life of over one year, you often have the ability to deduct part of the cost of that property over the estimated useful life (recovery period) of that property. The most common users of these depreciation rules are small businesses and rental property owners.
When the asset is later sold the IRS wants you to determine if any tax is due as either ordinary income or as a capital gain.
A simplified example: Assume you run a small business out of your home. You purchase a new computer used 100% by your small business. The cost of the computer is $3,500. IRS rules determine you may recover the cost of this type of asset over five years. So each year you can deduct $700 as depreciation (1/5 of the cost of the computer assuming straight-line depreciation is used) on your business tax return.

Next assume the computer was sold at the end of year three for $2,000. This will result in a taxable event that includes depreciation recapture.
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The Trouble With 0% Financing

Companies want to make it easy to buy their big ticket items, especially at times of economic uncertainty. A popular technique is to offer 0% financing when you buy furniture, electronics and other household items. You can also take matters into your own hands with a credit card that offers 0% APR on purchases, balances transferred to the card, or both.

Why 0 Financing is Often a Terrible Idea
While paying for goods and services with 0% interest may sound appealing, there are risks you’ll face that you should be aware of before you take this step.

What’s Hiding Behind 0% Financing
Here are some of the potential problems hiding behind these 0% financing offers:

1.Special financing offers make it easier to overspend. Psychology Today reported that credit card use can easily result in overspending, and the same is true for loans. The key is to understand the monthly payments you are committing to, and ensuring you can handle them. At the same time, try to assess your purchase decision. Would you buy this item if the 0% offer was not available?

2.Some 0% APR offers come with deferred interest. Hidden in the fine print of some 0% interest offers may lurk deferred interest charges. This means that while you’re enjoying monthly payments with no interest, the interest charge accrues over time. If you miss a payment, have a late payment or haven’t paid off the loan by the end of the 0% offer period, the accrued interest gets added to your unpaid balance. The key is to precisely understand what happens if you miss a payment or don’t follow the 0% offer exactly as written…before you take the 0% offer.
3.The 0% offer may be impacting the price. Remember, money has value and someone is paying the interest cost of the 0% financing. Usually the merchant is hiding the cost inside the price you are paying for the item.

What You Can Do
Before considering a 0% interest financing offer on your next purchase, do this:
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Multiple Jobs: Be Prepared For Tax Surprises

Working more than one job can help maximize income, but also potentially create a tax surprise. Here are several be aware of:

Social Security Surprise: As a full-time employee, the most you’ll have to pay in Social Security taxes in 2023 is $9,932. The problem is each employer you work for will withhold Social Security taxes up to this threshold.

Example: Jane Smith works two jobs. Employer #1 has withheld $6,000 in Social Security taxes so far in 2023, while Employer #2 has withheld $4,000. Jane has already paid more than the annual limit of $9,932 in Social Security taxes for 2023. Jane will get back the excess Social Security taxes, but she’ll need to wait until she files her 2023 tax return in 2024.

What you can do: Work as a contractor for your second job. You’ll be responsible for paying your own income, Social Security and Medicare taxes, but you’ll be able to manage Social Security taxes to avoid overpayment.

Phaseout Surprise: As your income increases, the number of deductions and tax credits available to you will get smaller as benefit phaseout limits are reached.

Example: The Child Tax Credit provides a $2,000 tax credit for each qualifying child. You don’t qualify for this credit, however, if you file a joint tax return with taxable income above $440,000, or are single and file a return with taxable income above $240,000.
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Taxpayers May Forfeit More Than $1.4 billion In Refunds

“Time is running out for more than a million people to get their tax refunds for 2019,” said IRS Commissioner Danny Werfel. “Many people may have overlooked filing a 2019 tax return due to the pandemic. We don’t want people to miss their window to receive their refund. We encourage people to check their records and act quickly before the deadline.”

That deadline is quickly approaching: July 17, 2023

The Three Year Rule
Refunds have to be claimed within three years or they are forfeited to the government. The unclaimed $1.4 billion comes from over 1 million taxpayers who still haven’t filed returns for the 2019 tax year. Often the people who leave these refunds behind are young adults, college students, senior citizens and low-income taxpayers.
What’s new this year is the July 17 deadline versus the traditional April 15 deadline due to a filing delay during the pandemic.

Why Refunds Go Unclaimed
Most readers of this June alert will breeze right past this friendly reminder. But not so fast, everyone who reads this tip probably knows of someone that will be donating their 2019 refund to the federal government. Here are some examples:

Forgetting withholdings. Even if you have very little income, your employer may have taken some money from your paycheck for federal tax withholdings. The only way to get it back is to file a tax return. This impacts part-time employees and students.

Not claiming refundable credits. Many tax credits are “refundable credits.” This means you can receive a refund even if you owe no income tax. Common examples available to students and parents are the earned income tax credit and the premium tax credit.
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Expatriate Guide To Required Forms

Generally, if you are a United States citizen or permanent resident (green card holder) living outside the United States for more than one year, you are called an expatriate or “expat.”* Rather than adding to the long list of tax guides that explain the general concepts of expat taxation,** we will focus on the specific requirements to file several US international tax forms. These are forms not well known, but they carry huge penalties for excluding or screwing up.

We will give you a general understanding of the following US tax forms: 1) Treasury Form 114, Report of Foreign Bank and Financial Accounts (FBAR), 2) Form 3520/substitute 3520-A, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, 3) Form 5471, Information Return of US Persons With Respect To Certain Foreign Corporations, 4) Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, 5) Form 8858, Information Return of US Persons With Respect To Foreign Disregarded Entities, 6) Form 8865, Return of US Persons With Respect to Certain Foreign Partnerships, 7) Form 8938, Statement of Specified Foreign Financial Assets, and 8) Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI). We then discuss ways to comply if you haven’t filed through the Streamlined Filing Compliance Procedures, the Delinquent FBAR Submission Procedures and the Delinquent International Information Return Submission Procedures.
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The Home Gain Exclusion: Make Sure You Qualify!

The home gain exclusion is one of the most generous tax breaks available to taxpayers, providing the ability to exclude up to $250,000 ($500,000 married) in capital gains on the sale of your personal residence. Here is what you need to know.

As long as you own and live in your home for two of the five years before selling your home, you qualify for this capital gain tax exclusion. Here are the hurdles you must jump over to qualify for this tax break:

Main Home. This is a tax term with a specific definition. Your main home can be a traditional home, a condo, a houseboat, or mobile home. Main home also means the place of primary residence when you own two or more homes.
Ownership test. You must own your home during two of the past five years.
Residence test. You must live in the home for two of the past five years.
Other Nuances:
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 Understanding The Gift Giving Tax Excess Gift Giving Could Cause A Tax Surprise

In an effort to keep taxpayers from transferring wealth from one generation to the next tax-free, there are specific limits to the amount of gifts one may give to any one person each year. Amounts in excess of this limit are subject to filing an annual gift tax form. For most of us, this is not something we need to worry about, but if handled incorrectly it can create quite a surprise when the tax bill is due.

The Gift Giving Rule

You may give up to $17,000 (up $1,000) to any individual (donee) within the calendar year 2023 and avoid any gift tax filing requirements. If married you and your spouse may transfer up to $34,000 per donee. If you provide a gift to your spouse who is not a U.S. citizen, the annual exclusion amount is $175,000 for 2023.

Gift Tax Reporting

Amounts given in excess of this annual amount are subject to potential gift tax reporting. The amount of tax is currently unified with estate taxes with a maximum rate of 40%. The donor of the gift is responsible for paying any associated tax. When you exceed the annual gift giving amount, this triggers the need to file a gift tax form with your individual tax return. The excess gift amounts are netted against your lifetime unified credit. If your lifetime gifts do not exceed the credit you may not have additional taxes owed. Here are some instances when a gift tax problem may occur and ways to manage the problem:

Gifts for college. Grandparents like to help out with the tremendous expense of funding a college degree and amounts donated can quickly surpass the annual gift threshold. To avoid the gift tax problem consider making payments directly to the college as this form of payment can be excluded from the annual gift giving limit AS LONG AS the funds are not used to pay for books, room or board on behalf of the donee.
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The Marriage Penalty Is Alive And Well

Despite what you may think, the marriage penalty is still alive and well. Whether you’re changing your filing status in 2022 because of marriage, divorce or another event (or even if your filing status staying the same), you should review this information and plan accordingly.

What is the marriage penalty?
The marriage penalty occurs when the dollar ranges for married taxpayers (joint filers) are not exactly double the dollar ranges for single taxpayers. It results from the way the graduated tax rate system works, based on your tax filing status and other tax return items. Married taxpayers are often taxed more than they’d be as two single filers.

Situations Subject To The Marriage Penalty
• Both spouses with high incomes. A disparity for the dollar ranges still exists for the two top tax brackets of 35 percent and 37 percent. That means that the marriage penalty often applies to high-income couples. Wealthy couples may save money by avoiding a marriage certificate! For example, Riley’s taxable income was $400,000 per year, while Avery’s annual taxable income came in at $300,000. Before getting married, Riley’s tax bill using the 2022 tax brackets would be $113,753 using a single filing status, while Avery’s tax bill would be $78,753, for a combined tax liability of $192,506. Once they marry, Riley and Avery would have a tax bill of $193,549 using married filing joint tax brackets.

• Local taxes over $10,000. Legislation also limits the annual deduction for state and local tax (SALT) payments to $10,000. This limit is the same for a married couple as a single taxpayer. For instance, assume that a couple pays $25,000 in property taxes in 2022. As joint filers, their deduction is limited to $10,000, whereas they could write off a total of $20,000 if they were both single filers.

Tax-Planning Opportunity
While no one is saying you should get married or divorced because of the marriage penalty, factoring it into your tax planning can make a big difference. Please call if you wish to review your situation.

have a question? Contact Gary Carter, CW Carter Limited.

Attribution to Gary Carter Newsletter Author

FBAR (FinCEN Form 114, Formerly TD F 90-22.1), Report of Foreign Bank And Financial Accounts

The law requires each “United States person” who has a financial interest in or signature authority over any foreign financial account to file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. The form required is FinCEN Form 114.

This is one that should be pretty well known by now. The obligation to file a Report of Foreign Bank and Financial Accounts (FBAR) with the US Treasury was initially imposed by the Bank Secrecy Act in 1970. Here are the Instructions to FinCEN Form 114 (FBAR). You can electronically file Form 114 for free here.

What Is a Financial Interest for the FBAR?

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