capital gains

Accounting Tax

Income from Foreign Sources

Many U.S. citizens earn money from foreign sources. But unless it is exempt under federal law, taxpayers sometimes forget that they have to report all such income on their tax return.

U.S. citizens are taxed on their income regardless of whether they live inside or outside the United States. The foreign income rule also applies regardless of whether the person receives a Form W-2, Wage and Tax Statement, or Form 1099.

Foreign source income includes earned and unearned income, such as:

  • Wages and tips
  • Interest
  • Dividends
  • Capital gains
  • Pensions
  • Rents
  • Royalties

But there is some good news. Citizens living outside the United States may be able to exclude up to $92,900 of their 2011 foreign source income if they meet certain requirements. This will increase to $95,100 in 2012.

If you’re married and you and your spouse both work abroad and meet either the bona fide residence test or the physical presence test, each of you can choose the foreign earned income exclusion. Together, you can exclude as much as $185,800 for the 2011 tax year.

Caution: The exclusion does not apply to payments made to U.S. government employees or folks in the military living outside the United States.

If you earn income from outside the country, please be sure to meet with us about it. We can advise you on how to address all of the tax implications of this situation.

Accounting Business Tax

Year End Tax Saving Ideas For Individuals – Make Charitable Contributions

Make Charitable Contributions

You can donate property as well as money to a charity. You can generally take a deduction for the fair market value of the property; however, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses however.

Keep in mind that a written record of charitable contribution is required in order to qualify for a deduction. A donor may not claim a deduction for any contribution of cash, a check or other monetary gift unless the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution.

Tip: Contributions of appreciated property (i.e. stock) provide an additional benefit because you avoid paying capital gains on any profit.

Accounting Business Financial Planning Tax

Year End Tax Saving Ideas For Individuals – Deferred Income

There are a number of steps you might take by year-end to cut your 2011 tax bill, such as deferring income, accelerating deductions and capital gains planning.

Deferring Income

  • If you are planning on selling an investment this year on which you have a gain, it may be best to wait until the following tax year to defer payment of the taxes for another year (subject to estimated tax requirements).
  • If you are expecting a bonus at year-end, you may be able to defer receipt of these funds until January. This allows you to defer tax payments (other than the portion normally withheld) until the following year. However, keep in mind that you usually defer taxes on a bonus that is contractually due in 2011.
  • If your company grants stock options, it may be wise to wait until next year to exercise the option or sell stock acquired by exercise of an option. Exercise of the option is often but not always a taxable event; sale of the stock is almost always a taxable event.
  • If you’re self employed, and can afford the delay in cash inflow, defer sending invoices or bills to clients or customers until the end of December.

Caution: Keep an eye on the estimated tax requirements.

Scroll to top