1. My company just sent me overseas on a temporary assignment, do I have to pay tax to both countries?
In most cases the answer will be no. Taxation for US Citizens working abroad is generally governed by international treaties. These treaties commonly provide exemptions for different types of educational, cultural, and scientific exchange programs. One of the primary objectives of all of the treaties that I have read has been to avoid double taxation.
In the event you are subject to tax in a foreign country there is Section 911 of the Internal Revenue Code which allows you to exclude up to $80,000 of foreign income plus qualified housing costs (within limits) from your US tax return. This section generally applies to those who are abroad for an extended period of time. For more information, see IRS Publication 54 , or send us a note describing your particular situation.
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2. I am a citizen of a foreign country working in the USA. Do I have to pay US income taxes?
3. How do I survive a tax audit?Odds are pretty good there is a treaty provision that provides exemption (see #1 above). But before I can answer that question I need to know more about the nature of your work, what kind of visa you have, how long you've been here, and other information of that sort. However, if there is no treaty provision, Uncle Sam taxes foreign nationals living in the US the same as US citizens.
If you are exempt from US taxes under a treaty provision you still may have to file form 8833. For more information, see IRS Publications 513, 519, and 901, or send us a note.
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The best way is to hire a good accountant. Peter Masullo wrote an 11 page commentary on this subject about 4 years ago. We will be glad to share a copy with anyone upon request.4. Am I going to jail?
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5. What are my chances of getting audited?Why do you keep asking this question every year? We don't think it's very funny. Especially since we hear this same question 10 times a day during tax season.
Seriously, none of our clients have ever been charged with criminal tax offenses. Even people who fail to file their returns for years rarely face criminal prosecution. Perhaps the primary reason for this is because it is difficult to pay off a tax lien from a jail cell. Keep in mind that, for the most part, we represent average taxpayers. The rules seem to be different for celebrities, big money, and high profile cases. A 5% error by you or me means a costly slap on the wrist. However, a 5% error by Leona Helmsley means incarceration.
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If you are not in the upper tax brackets, don't have any large loss deductions, and don't operate a cash business or receive cash tips your odds of getting audited by IRS are very slim. My guess would be less than one in one hundred.6. Do I increase my chances of audit by filing an extension?
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We don't think so. It is usually what's on the return that causes the audit as opposed to when it is filed.7. What if I can't pay my taxes on time?
On the other hand, we once had a client who was audited because she filed her return early. She was anxious for her refund so she filed her return in January. It just so happened that the government was conducting a training program at the same time. IRS needed a few current year returns for instructional purposes. By the time the students finished learning about her deductions there was no more refund. In fact she owed a few hundred dollars after the audit. This return probably would not have been audited if it were filed a couple of months later. If you fear an audit, don't give the government extra time to snag your return. It is better to file when everyone else does, certainly not before April 1.
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Congress has repeatedly bestowed additional rights on taxpayers and we are now dealing with a kinder, gentler IRS. It is much easier to work out an agreement to pay off your back taxes in installments. You still have to pay interest on the amount you owe, and you have to promise not to fall behind with regard to any future taxes. The only major drawback is the amount of paperwork required. Usually, you have to give IRS a full financial statement. This makes it easier for them to levy on your assets if you forget to make payments. If you don't owe too much, it won't be difficult to work out a fair deal with IRS. You can give it a try, without my help, by contacting IRS at www.IRS.ustreas.gov.8. What is an "Offer in Compromise?"The important thing to remember is that there are separate penalties for failure to pay and for failure to file. Some of the largest penalties in the tax code are for failure to file. So if you can't pay your taxes on April 15, you will probably be better off if you send in your forms without payment. If you are in this situation you should seek professional guidance.
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This is when you ask IRS to take less than 100 cents on the dollar for what you owe them. The government will sometimes settle for less than full payment if there is doubt as to the amount due, or if you simply don't have the financial capacity to pay the full amount due. Congress has recently instructed IRS to consider new grounds for compromising taxes, such as financial or medical hardship. Click here for more information about offers in compromise.9. How long do I have to save my tax returns?
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Forever and ever! You never know when you will be called upon to prove something. Up until just a few years ago, the Social Security Administration and IRS seem to have been on different pages with regard to tabulating your earnings. Thus, when it comes time to claim your proper benefits, you may need your tax returns and W2 forms to prove you worked in 1975, or 1985, or whenever.10. What about the rest of my records, when can I throw them away?
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I know we're compulsive, but we hate to throw anything away. Most other accountants will tell you 7 years as a general rule. This is probably a safe bet for most old records. But some records, particularly dealing with your cost basis of assets and investments, should be kept longer, or at least 4 years after you sell the particular asset. To illustrate, assume you bought stock in 1990 and sold it in 2000. Under normal circumstances the government has 3 years from the due date of your return to decide if you are going to be audited (this time period is longer if the government establishes fraud or if you are out of the country). You must be prepared to prove the cost of the stock sold in 2000 until April 2004. Thus, your purchase records from 1990 are still relevant.
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This is by far the most frequently asked question by new or potential clients. I like to dispense with this issue at the outset so there are no misunderstandings or surprises later on. Existing tax return clients generally pay the same fee as the prior year (subject to minor inflationary increases). Fees for new clients are set before work begins.Unfortunately, misunderstandings about fees are the leading cause of disputes between accountants and their clients. We have no such disputes because we clearly communicate our charges before our clients are obligated to pay anything. Give us a copy of last year's return with a description of any changes and we'll give you a set price for preparation of this year's return.
We find that most clients are not receptive to a fee estimate based upon Masullo's base hourly rate of $200. Naturally, their immediate concern is the amount of hours it will take to finish the job. We avoid these vague, open-ended fee guesstimates. Instead, we find a value approach works best for our clients. We put ourselves in your shoes and try to make a realistic determination of a fair price for our service. Then we give you a set price for the entire job.
As a result of this policy, we occasionally work for less money than other accountants. Sometimes, we even provide services for free to those who are indigent or in desperate need of help. We don't mind because this allows us to broaden our client base and work for people who might have thought they couldn't afford a CPA. We feel this inclusive strategy will eventually prove more profitable in the long run.
We try to set our fees in the middle of the range for similar services. In other words, you can find tax return preparers that charge twice as much as we do; and you can find tax return preparers that charge half of our rates. That doesn't mean if you pay double to our competitors the work will be twice as good. We feel the level of our personal service, expertise, and commitment to detail cannot be matched at any price. However, after over 30 years of specializing in tax matters, we can usually complete your returns in half the time of our competitors.
In some instances, due to the complexity of the job or other factors beyond our control, we are unable to set our fee at a fixed price in advance. In these cases fees are usually geared to an hourly rate of $200.00 for Peter Masullo, and $25.00 to $85.00 for staff assistants. As stated above, these rates are adjusted, up or down, to reflect your ability to pay and the complexity of the job. We like to reward clients who present their information in an organized, timely fashion. So you have a better chance of negotiating a lower rate for your tax return fee if all your information is ready in February as opposed to midnight on April 14. If you do wait until the last minute we usually build an overtime premium into our fees. As a form of insurance or risk sharing, if we prepare your return and your return is audited by IRS, we will represent you at half our normal rates (assuming your income is less than $500,000 per year).For more information on our industry leading fee refund policies see our "Client Bill of Rights."
Contact us for a fee estimate. Our estimates are fair, firm, and free. We will be glad to put them in writing.
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12. Where should I put my money?
We can't really tell you anything specific without knowing much more about you. In general, our approach to money management involves balance (see Put Some Balance In Your Balance Sheet). We don't recommend or sell specific securities or investment products. Instead, our advice is geared toward the proper asset allocation, considering your risk tolerance levels, long term goals, and short term needs.In the course of our work as tax return preparers, we usually gain an intimate understanding of our clients' finances. As a result, we often make informed, unbiased recommendations to even the most seasoned investors.
In our years of tax work we have seen all sorts of losses, business failures, scams, and bad investments. We can share many war stories about broken lives, broken families, and shattered dreams because of poor investment decisions. While these horrors are the exceptions and not the norms, the fact remains that most of our clients' investments are not suited to their needs. Thus, we focus our investment planning services on risk reduction strategies and interpretation of financial data.
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To contact us Email to Masullo@catskill.net
Peter G. Masullo, CPA
Attorney at Law
New York, NY
Tax Questions & Answers
www.cpa-taxlawyer.com