Month: October 2023

I hope this letter finds you and your loved ones safe and well. Recent natural calamities in various parts of our nation have caused considerable distress. I want to bring to your attention some crucial tax-related implications and preventive measures you may consider.

IRS Tax Relief Update

For Hawaii residents. The IRS has granted tax relief to taxpayers in Hawaii affected by recent wildfires by allowing them until February 15, 2024, to file returns and pay any taxes that would have been due after August 8, 2023, and before February 15, 2024.

For Illinois and Mississippi residents. The IRS also granted tax relief to Illinois and Mississippi residents affected by severe storms in June and July. The tax relief is similar to that provided to Hawaii residents, granting extensions for tax filings and payments.

Impact on Tax Records

If, unfortunately, you suffered damages during these calamities, especially in Hawaii, there’s a chance you may have lost crucial tax records to the fires. I must stress that the IRS maintains its stance on requiring documentation for deductions. The destruction of records by natural causes does not exempt you from this obligation.

Practical Measures to Secure Your Tax Records

Stay prepared for audits. If you suffered a disaster, would your records survive? If they did not, the IRS allows you to reconstruct them. Imagine that experience.

Securing your records. Consider fireproof and waterproof safes, file cabinets, and flood barriers to protect physical documents.

Digital transformation. A promising solution is transitioning to an all-digital record-keeping system:

• Pay bills using credit cards and bank transfers such as ACH and bill pay.
• Scan documents to create searchable PDFs, and store them in cloud services such as Dropbox, Google Drive, Microsoft OneDrive, Apple iCloud, and Amazon Drive.
• To avoid complex filing systems inside the cloud, use desktop search software such as Copernic Desktop Search or X1 Search.

Stay safe, and please reach out by calling my direct line at 408-778-9651 if you have any questions or concerns.

• By Leon Clinton
• October 19, 2023

Say you have a friend who moved to the U.S. from Greece. Here is a high-level look at eight tax considerations your friend needs to know:

1. Tax residency. A foreign individual’s income tax obligation in the U.S. hinges on their tax residency status—whether they are a resident alien or non-resident alien. Resident aliens are taxed on their worldwide income, whereas non-resident aliens report only U.S. source income.

2. U.S. resident alien. There are three primary ways to become a U.S. resident alien:

1. being a lawful permanent resident (e.g., green card holder),
2. meeting the substantial presence test (a formula based on days spent in the U.S.), or
3. making a first-year election.

3. Non-resident aliens are generally taxed only on U.S. source income and are subject to different rates based on the nature of that income.

4. Reporting and filing. Resident aliens use Form 1040, similar to U.S. citizens. Non-resident aliens utilize Form 1040-NR. State tax rules apply uniformly for both, though rules vary by state.

5. Taxpayer identification. The U.S. requires every taxpayer, including foreigners, to have a Taxpayer Identification Number, either through an Individual Taxpayer Identification Number (ITIN) or a Social Security Number (SSN).

6. Social Security and Medicare taxes. Totalization agreements exist to eliminate dual taxation on Social Security and Medicare. For certain countries, such as Greece, credits from both the U.S. and the native country can be combined for benefit eligibility.

7. Foreign financial accounts reporting. Those with foreign financial assets might have reporting duties beyond mere income tax returns, including the FBAR and IRS Form 8938.

8. Tax treaties. The U.S. has multiple tax treaties to prevent double taxation. The treaty with Greece, for instance, offers a tax credit system to avoid taxing the same income twice.

You can see that your friend’s move from Greece to the U.S. triggers many tax possibilities. If your friend would like to discuss what’s involved or needs a referral to an international tax specialist, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• October 17, 2023

When enacted, the Affordable Care Act (ACA) eliminated most small business health plans that reimbursed individually purchased health insurance. Consequently, many small business owners chose health savings accounts (HSAs) or opted to provide no health coverage at all.

As of 2022, over 35 million HSAs were active, with assets amounting to $104 billion. The Devenir survey expects this to increase to 43 million accounts with $150 billion in assets by 2025.

HSA basics:

• To open an HSA, you must have high-deductible health insurance.
• 2023 contribution limits are $3,850 for individuals and $7,750 for families. These limits increase slightly in 2024.
• If you’re 55 or older by the end of the year, you can contribute an extra $1,000
• HSAs come with substantial tax benefits, including deductible contributions, tax-free earnings, and tax-free withdrawals for qualified health expenses.

Monies taken from HSAs are tax-free when used for qualified medical expenses. If you don’t use the funds for medical expenses, they grow. Once you reach Medicare age,

• you can withdraw the funds and pay taxes or
• use the funds tax-free for medical expenses.

You generally cannot make HSA contributions if you have a non-high-deductible health plan that overlaps with the high-deductible plan. Similarly, you cannot contribute to an HSA and a general-purpose healthcare flexible spending account (FSA) in the same year.

HSAs are similar to IRAs. They are trust or custodial accounts you set up at banks, insurance companies, or brokerage firms. The purpose of your HSA is solely to pay your qualified medical expenses. Like IRAs, HSAs can offer various investment options, though some trustees might limit choices to more conservative options.

The benefits of HSAs have grown significantly in recent years, making them a mainstream and advantageous choice for many. Given their tax advantages and flexibility, the HSA could be a good fit for you as a business owner.

If you would like to explore the HSA as a possibility for you, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• October 13, 2023