There has been a change of plans and as of January 31, 2025 I have retired from the tax preparation business.  I'm referring new tax clients to Online Taxman and they can be reached by contacting my (now former) assistants.  Please email Dawn Moreno (dawn@onlinetaxman.com) or Trish Flynn (trish@onlinetaxman.com) and they will take good care of you.

Still plugging away to help the little guy...

 We are still helping US citizens living in foreign lands comply with US tax laws.  It's been since 2011 and the work before that was domestic for 4 years.  Pokingthedragon is still in business and we look forward to hearing from you if you need help.

Now that cryptocurrencies are being used more and more, it's natural that taxing authorities want a piece of the action.  US citizens have always had to declare income wherever they live and from all sources worldwide.  This is just another source but how do you track the cost so you don't wind up declaring everything as income when there is an expense that should be deducted?  This will be examined in future posts and meanwhile, if you need tax help, no matter where you live, please feel free to contact me and/or sign up for the free notice service.

Also, FBAR reports are in transition now and the deadline this year has been extended for everybody until October 15th and there is no need to request an extension as it's automatic.  So, you don't have to have them done the day after tomorrow, after all.

If you need help with the FBAR, I can help you there as well.

Plus, now, I will accept cryptocurrency in lieu of US Dollars or Chilean pesos.  Let's make a deal!

Tax Preparer Directory

Looking For A Tax Preparer? IRS Launches Online Directory - Forbes
http://news.google.com Fri, 06 Feb 2015 00:27:57 GMT
CNNMoneyLooking For A Tax Preparer? IRS Launches Online DirectoryForbesYou can also search the directory by the following credentials: attorneys, CPAs, enrolled agents and those who have completed the requirements for the voluntary IRS Annual Filing ...
Read more ...
The IRS started a voluntary program of compliance for tax preparers.  Since I needed to be updated anyway, I decided to see if I could get in the program.
Guess what, I made the cut.  Yep, if you go to the 'country' selection and choose, 'Chile' and then hit the search button, I'm listed.  Me. Just me. I just checked. However, the contact information is a bit thin as it only lists my comuna, Providencia, and my postal code, lotta' good that will do.  So, if you want to contact me (from anywhere in the world), use email: ken@pokingthedragon.com or my Skype ID of kenwshields (Santiago, Chile).  Make sure you email me first before sending a contact request so I know it's coming.
So, it's time to get filings done.  If you live outside the United States and its territories, you have until June 15 to get the returns filed.  Sooner is better.  Let me know if I can help.

Bitcoin and the Dragon

Recently the Internal Revenue Service (IRS) ruled that digital currencies, Bitcoin in particular, are classified as property not currency.  Suddenly, the value dropped as people became fearful of the tax consequences.  Understandable.  The goverment acts in self-interest and that does not include yourself.  Basically, the banksters are afraid of a currency that will be limited in quantity as that will reveal the fraudulent nature of the fractional (read 'fiat') banking system that very effectively taxes the poor disproportionately higher by stealing their purchasing power over time. What to do.  Well, I have an idea.  'Property' covers a number of areas. Automobiles are 'property', right?  Yep, 'personal' property.  Wait, so GM sells 'personal' property?  No, GM sells a type of property called, 'inventory'.  Hmmmm.  So, maybe we, who use Bitcoin, should consider ourselves to be in business, buying and selling inventory (or creating it as in the case of the Bitcoin miners).  That would mean you have expenses to support that business of generating revenues from the buying and selling of Bitcoin.  An example would be you work for a couple of days for a friend in his business.  He is purchasing your labor with Bitcoin but you are purchasing Bitcoin with your labor, which is billable.  In order to keep track of the cost in dollars of Bitcoin, you have to 'purchase' it into inventory.  Then, you 'sell' your services (inventory) for whatever you think it's worth.  If the sales price is greater than the purchase price, you have a profit and if the sales price is less than the purchase price, you have a loss.  If you sell for the same as the purchase price, you are at breakeven  EXCEPT, remember, you are in business now.  You have other expenses.  One idea is secure storage costs for your inventory.  This is always an issue because inventory that just vanishes is a cost.  Because business involves relationships of trust at various levels, it would be a good idea to personally interview the people who will secure your inventory.  Of course, personal interviews involve travel to one degree or another.  Business travel is expensible, meaning it reduces taxable income.  Let's say you have to decide between Bitcoin exchanges and there are three that you think are reasonable candidates to guard your inventory.  Well Bitcoin.de is in Germany; Bter.com is in the British Virgin Islands; BTCclubs.com is in China.  That involves extensive, expensive travel.  All written off against revenues of trading Bitcoin inventory.  And if your executive assistant happens to be your spouse, travel costs double.  Not to mention the office you have to maintain in your home for business.  Use your imagination.  It gets even better if you do this with an 'S' corporation because active losses pass through to you  and you can pay yourself a relatively small wage and the pass-through earnings are not considered 'earned' income and, hence, no self-employment tax is due.  Thanks to the IRS ruling, we're all in business now.

Repeal FATCA

FATCA is on the ropes!

There is a heap of resistance to FATCA in Canada.  As seen in the reference article, Canada's resistance may be enough to doom FATCA when added to domestic resistance.

Read this:

Enforce Canadian law, not FATCA - Toronto Star

http://news.google.com Mon, 03 Mar 2014 22:53:21 GMT

CalculatorEnforce Canadian law, not FATCAToronto StarA “no” from Canada could itself doom FATCA in light of growing U.S. domestic opposition. A FATCA repeal bill has been introduced by Senator Rand Paul, a leading 2016 presidential prospect. The Repu ...

Read more ...

This is after the Republicans voted in committee to back the repeal.  The reason given is the number of Americans renouncing citizenship.

Who know for sure?  Have a look:

FATCA Repeal Call Backed By Republicans - Pars Herald

http://news.google.com Thu, 06 Feb 2014 06:43:56 GMT

FATCA Repeal Call Backed By RepublicansPars Heraldfatca-note-flag Foreign Account Tax Compliance Act (FATCA) watchers will have found the Republican National Committee vote to repeal the controversial tax law no surprise after all the ballyhoo leadin ...

Read more ...

If you want to be able to do business in Chile, this would be a good time to let Congress know you want FATCA repealed.  Then the banks here won't be hassling US Citizens and may actually learn about client service.

Please, send an email or make the call.

Why let them have all the fun?

Corporations get all the breaks!  For those of  you who think Republicans are too 'pro' corporate tax breaks, get a load of this:

Cuomo Wants To Give Banks & Corporations $400 Million In Tax Breaks - Gothamist

http://news.google.com Mon, 10 Feb 2014 18:10:33 GMT

Cuomo Wants To Give Banks & Corporations $400 Million In Tax BreaksGothamistA committee of experts ordered by the governor to review the state's tax code and make recommendations issued a report this fall [PDF] that stated 'New York's taxes are too h ...

Read more ...

We have a major Democrat singing the supposed Republican tune!  The real lesson here is ALL politicians are pro-corporation!  So the little guy gets crushed even more under the tax burden foisted on them by politicians giving more and more breaks to corporations.  What to do?  I'll tell you what to do, get in on the action with your own corporation, that's what!  I know you think it's really complicated and a lot of times it is; but you can keep it simple.

Consider this, you are an employee earning $ 50,000 per year.  Obamacare has your employer sweating.  You incorporate and only you are employed by your corporation (called YOU Corporation).  Now you can go to your boss and offer to be a leased employee to your boss and his company now doesn't have to handle payroll, health care and other employee 'benefits'. And, you are not an employee for Obamacare purposes. Normally, corporations have to match employee SS payments of 7.65 percent PLUS pay unemployment tax.  Now you can offer to take that off their hands for, say, 5% more to your own corporation and they don't even have to issue you a 1099 because corporations are not required to issue 1099 forms to other corporations and they now have less administrative costs because they only have to pay your invoice.  So now, your new little corporation has revenue of $ 52,500 which is still less cost to your now former employer than you were as an employee. As the owner of a corporation that has not made the 'S' election (and, please, don't do that!), you have control over the type of compensation you get that you did not have as an employee.  One of the standard reasons for setting up a regular corporation (called a 'C' corporation) is for income splitting.  Watch carefully.  YOU Corporation pays you rent for the office you WILL have in your home.  You have to have a place to do administrative work. Let's say $ 18,000 per year (no Social Security or Medicare is payable on this income, a savings of $ 2,754.00).  Now you have to pay wages and let's say $18,000 per year for that, too. You are now in a lower income bracket.  Now YOU Corporation can own property and owning a car is a prime requirement (say, $ 30,000).  The corporation can depreciate the car at $ 6,000 per year, NON-CASH expense. That means you get the expense but keep the cash.  It really does.  Now your Board of Directors has to have regular meetings at locations determined by the Board, which sometimes look an awful lot like vacation spots.  Let's say quarterly.  Your corporation needs Internet and Telephone service as well.  YOU Corporation does have some expenses you wouldn't have otherwise like Franchise Tax,  State agent and such.  Usually, it comes in at about $ 500 per year.  Plus, you'll have equipment expenses such as replacement computers easily at or near $ 1,000 per year.  Does anything sound strange?  That's because nothing is.  To sum it up, If you earn $ 50,000 as an employee, after taxes, telephone, Internet, equipment and travel (vacation) you'll have about $32,500 disposable income.  If you have a corporation, you'll have over $ 37,000 in disposable income.  Yes, you do have to file forms with Uncle Sam but the savings in taxes means you'll get about $ 135.00 from Uncle Sam for each form you file.

Does this interest you?  Let me know if it does.  Don't worry about the double taxation of corporate income.  That only happens when a corporation issues dividends.  YOU don't have to pay dividends.  No corporation is required to do so.

I don't want you to believe this is a cinch because  you have to do some work and take responsibility for your situation.  If you are not willing to do so, don't start. If you are the type who wants more control over your situation, drop me a line and we'll discuss it.

Remember, you CAN become your own corporate fat-cat.

Spaghetti Taxes

Let's say you were advised to set up an International Business Corporation (IBC) in, say, Nevis which owns an S.A. in Chile and a Limitada in Spain.  Add any number of other incestuous, interlocking companies to get a complicated picture. Kinda' like a bowl of spaghetti in appearance.  Lots of people do this to avoid taxes in the United States.  The problem is, it doesn't work, at least not legally.  Instead of me explaining all the ins and outs of what would be called a Controlled Foreign Corporation have a look at this web site which explains things really well.

Introduction to Controlled Foreign Corporations | Family Office ...

http://www.integratedwealth.com Wed, 17 Oct 2012 22:12:48 GMT

Investors in what Congress calls Controlled Foreign Corporations are not permitted to indefinitely defer or avoid US taxation. Such corporations are treated as pass-through to US Shareholders.

Read more ...

One more complication would be if the income from a CFC is passive (which has its own definitions in tax law) which leads to several complications not the least of which is taxation on undistributed income.

On top of that, there are special form that have to be filed like Forms 5471 and 8865 for CFCs and Limitadas that are treated as partnerships.  Failure to file EACH FORM can result in a $ 10,000 penalty...per occurrence.  

It isn't easy to avoid all this either.  If you set up family members as owners to divide responsiblity, you still are in control per the IRS using 'constructive ownership' rules.

Therefore, maybe you should make a different plan.  There are options and maybe I'll mention one or two in a future post.  If you're in hurry, send me an email and we'll talk.

Service with a Smile!

Who says the IRS isn't helpful?  Well, look at this.  The IRS will allow individuals to file for themselves BEFORE the January 31 official opening of the tax year with Free File!  um..YAY?!

IRS releases Free File to help taxpayers get jump on filing returns - MLive.com

http://news.google.com Sun, 19 Jan 2014 14:34:46 GMT

New York Daily NewsIRS releases Free File to help taxpayers get jump on filing returnsMLive.comGRAND RAPIDS, MI -- While the tax season doesn't officially begin until the end of the month, Internal Revenue Service says its Free File brand-name softwa ...

Read more ...

This is to let you know so you can file sooner than usual if you don't need help.  Supposedly it started on the 17th of January.  Well, no time to lose!  

If, however, you are one of those who does need help, feel free to contact me at ken@pokingthedragon.com

Cheers!

Year end tax planning thoughts

As the year ends, some of you may be thinking of what you will do in 2014 for business.  Maybe you will start a new one.  If you do, give careful thought to how to structure things, especially if you are a U.S. citizen in Chile (or anywhere overseas).  The U.S. tax code has some difficult to understand sections that can make your life miserable if you don’t plan properly.  A number of qualification tests start with the ownership percentage of “10% or more”.  If you own 10% or more of a Sociedad de Responsabilidad Limitada (Ltda), for instance, you have special reporting requirements, especially if others like  you own “more than 50%” of the Ltda.  The IRS (Internal Revenue Service) can and will impute “Controlled Foreign Corporation”  (CFC) status to your Ltda, even though it’s not technically a corporation.  There are some rather onerous reporting requirements in this case that are avoidable.  Even if the Limitada does not pass the CFC test, 10% or more ownership in a foreign partnership has its own problematic filing issues. It doesn't necessarily mean you'll pay more in taxes but the non-filing penalties are draconian.  The above does not consider any imputed control based on  “constructive ownership” rules, which only adds to the confusion.  Consider owning less than 10% right from the start, if it doesn’t interfere with your business purpose.  This is a very complicated area of law that should be examined closely before any decisions are made. You can file a form with the IRS to treat the Ltda as a “pass-through” (or invisible) entity but that’s for another entry.

If you are interested in more detail about this, consider signing up for the free update service to receive more details of how this can be handled.

10% Problem (and Solution)

FATCA implementation may be delayed again. Let's hope we get a Christmas present of yet another delay to some of the worst legislation ever created. Here is a little blurb from the nice folks at Forbes:

 Will FATCA Ever Go Into Effect? - Forbes

http://news.google.com Thu, 12 Dec 2013 15:42:10 GMT

Channel TelevisionWill FATCA Ever Go Into Effect?ForbesThe Foreign Account Tax Compliance Act seems to be revolutionizing the way governments share tax information. Other nations are using intergovernmental agreements to piggyback on FATCA informatio ...

Read more ...

But this is an aside.  The real reason I am writing this is because it's near the end of the year and even though Christmas is upon us, you need to know a little something for planning purposes.  A number of times I've been presented with tax situations that have been complicated by the fact that the US citizen involved owns 10% (or more) of a company, whether it's an S.A., Sp.A., Limitada or other.  Ten percent seems to be a magic number in several different ways and I'd like to point out that you will save yourself a lot of trouble if you only own 9.99% instead.  Tax law and regulations seem to look for 10% over and over again.  If you want specifics, subscribe to my free update service.  I'll be explaining things in more detail with my next broadcast.

FATCA Woes

FATCA is a slow implementation.  Much like Obamacare, FATCA is off to a slow start.  If you remember, the idea is to collect taxes on money that has previously evaded taxes.  The operative word is, 'evaded'.  In the US tax system, evasion is a crime, avoidance is not.  The difference is that the latter uses the regulations and tax law itself to reduce taxes through various means.  Evasion ignores the law.  The US has indicated it expects to recover something like $87 billion over the next ten years.  Likely the loss of taxes on falling international trade (as a result of FATCA compliance difficulties) will more than offset any gain.  For a good take on things read this link:  International Tax Evasion Crackdown: Slow, Tricky, And Only First Step in ... - International Business Times

http://news.google.com Wed, 30 Oct 2013 18:17:40 GMT

InsideCounselInternational Tax Evasion Crackdown: Slow, Tricky, And Only First Step in ...International Business TimesAttempts to implement the 2010 Foreign Account Tax Compliance Act (FATCA) have repeatedly stalled, partly because the sweeping law r ...

Read more ...

I'm hearing more and more stories of people renouncing their US citizenship because of the business difficulties caused by FATCA.

In my humble opinion, FATCA is bad law whose intended purposes cannot be realized without massive damage to international trade.  It needs to be repealed.

Filing taxes for free

Having recently received inquiries as to locating web sites that let you file income tax returns for free, I did a little research and this is what I've uncovered.  The IRS has a free filing option and you can get to it by clicking 'IRS Free Filing'.  There is another site you can investigate named FreeTaxUSA which may be of some help to you.  Be advised that all is not roses with this system as evidenced here: Pros & Cons of E-Filing Income Tax Return | The Classroom ...

http://classroom.synonym.com Fri, 20 Sep 2013 05:03:16 GMT

The Internal Revenue Service requires most income earners to file tax returns each year to make sure that it receives correct amount of tax. ... E-filing is a free service offered by the IRS, so you don't have to pay to submit your federal return.

Read more ...

The bottom line with these services is that YOU have to know what you are doing.  If you do your homework and are careful, these could be excellent services for you.

If you are not confident, you could always contact me.....

Here it comes again!

The new year will be starting soon and with it the flurry of activity that means people are trying to minimize taxes.  The IRS has published new, inflation adjusted numbers and you can see the official publication here. The threshold minimums haven't changed for tax year 2013 to be filed in 2013, (see prior posting in www.pokingthedragon.com Dec. 18, 2012).  Here is a new posting for tax year 2014 to be filed in 2015, just FYI.

IRS Announces 2014 Tax Brackets, Standard Deduction Amounts And More - Forbes

http://news.google.com Fri, 01 Nov 2013 15:22:13 GMT

BloombergIRS Announces 2014 Tax Brackets, Standard Deduction Amounts And MoreForbesAll together, the IRS posted more than 40 updates. You can read more about them at Revenue Procedure 2013-35 (downloads as a pdf). And kudos to the folks at CCH, part ...

Remember that you need to make any adjustments BEFORE the end of December (with only a few exceptions).

Soft landing!

2013 update

This is a pretty good review of the current state of affairs.

US Citizens Working Abroad: Everything you should know about ...

http://blog.newgensoft.com Mon, 28 Oct 2013 07:02:45 GMT

There is nothing to be feared or be skeptical of, if you are a law abiding American without any malicious intention to evade taxes while working abroad. The Foreign Account Tax Compliant Act, better known as FATCA, passed ...

I would also like to point out that, if you have earned income exceeding the Foreign Earned Income Exclusion (FEIE) of $ 97,600 this year AND you have paid Chilean taxes on the excess amount as well, it's possible to use the tax paid on the excess (only) on the Form 1116 and take the foreign tax credit on the US taxes due for the excess amount.  The US imposes taxes on the amount exceeding the FEIE at the maximum marginal rate so it stands to reason that the tax paid to Chile, on just the excess (this can be calculated using table available at www.sii.cl or click here) can be used to offset the US tax due, if possible.  The proof is to calculate the tax amount on ALL of your earnings (A); then calculate the tax on only the $97,600 (B).  Subtract B from A and you have the tax due to the US.  Do the same with the Chilean tax tables and see if the Chilean taxes exceed the US taxes.  They probably will as Chile's uppermost tax rate is higher than the US uppermost rate.  If you need help, drop me a line.

FATCA woes!

FATCA is conquering the world!  Hitler would have been proud!  

Fortunately, there is considerable resistance to what amounts to subversion of the sovereignty of other countries.  Plus, do YOU want to have government agents snooping into your financial affairs...just 'because' you 'might' be doing something illegal?  Hmmmm?

Have a look at this entry on a Google Blog:

RepealFATCA.com Files Freedom of Information Act Request on ...

http://1389blog.com Fri, 11 Oct 2013 18:34:54 GMT

As noted previously, FATCA (the “Foreign Account Tax Compliance Act”) cannot succeed unless the U.S. Treasury Department is successful in coercing a sufficient number of countries into enforcing this foreign (i.e., U.S.) law ...

Originally from : http://1389blog.com/2013/10/11/repealfatca-com-files-freedom-of-information-act-request-on-intergovernmental-agreements/

http://www.repealfatca.com/

This is good information and Americans need to get busy and repeal FATCA.  To fail to do so will cause a lot of regret later!

The Great Con

This is only about taxes peripherally.  The IRS was created the same year as the Federal Reserve System and the secret tax of inflation started then.  Mike Maloney has created a video that greatly simplifies the explanation of what is going on and why it's important to you.  The IRS is mentioned in the video and why it exists to tax (rob) you of your hard earned money.  Please do yourself a favor and watch the video.  Click here.  Sometime, if you have time, go to my blog about currency and read some there, too.  After you have learned about the currency system, it will help you plan your future.

Best to you.

Obamacare

Well, the new so-called Affordable Care Act is being implemented with all the grace of an elephant ballet.  To say the system if woefully unprepared would be putting it mildly.  There are tremendous problems with the implementation, even recognized by avid fans of the act.  Well, we'll concentrate on how people living overseas are affected.  According to the official ACA web site:

“U.S. citizens living outside the U.S.

U.S. citizens living in a foreign country are not required to get health insurance coverage under the Affordable Care Act. If you’re uninsured and living abroad, you don’t have to pay the fee that other uninsured U.S. citizens may have to pay.
Generally, health insurance coverage in the Marketplace covers health care provided by doctors, hospitals, and medical services within the United States. If you’re living abroad, it’s important to know this before you consider buying Marketplace insurance.
Questions? Call 1-800-318-2596, 24 hours a day, 7 days a week. (TTY: 1-855-889-4325) “

 Of course, if you think I may be misinformed, click here to see for yourself.

If you live permanently overseas, chances are you'll never have to deal with this.  If you are on temporary assignment and will return someday, keep your eyes peeled as to the developments so you'll know how to handle things when you return.

Yet more FBAR stuff...

Well, in typical government fashion, when I called the help desk to see about some details concerning getting registered as a 3rd party electronic filer of FBAR forms, the automated telephone answering system had me running in circles.  At one point, it was switching me back and forth between two messages and the only escape was to hang up and start over.  Sheeesh.  Is this any way to run a criminal, er, government enterprise? So, finally, I had to send an email after wasting almost an hour.  I mentioned the telephone number for FBAR help in my previous post; don't bother.  Send an email or, even better, email me and, if I know the answer, I'll tell you.  If I don't, I'll find out and make it a post. 

If you want to receive notices of new information, subscribe at the right and I'll keep you in the loop.  It's a free service so you have nothing to lose.

That's all for now.

More FBAR Stuff

Remember FBAR?  That nasty form that MUST be filed by June 30 each year for the previous calendar year?  Well, the US Treasury department is making it easier (?!) to file now.  Read this notice:

Effective July 1, 2013 – Electronic filing of FBARs is mandatory

E-filing is a quick and secure way for individuals to file FBARs. Filers will receive an acknowledgement of each submission. For more information about electronic filing, read the FinCEN news release . Help with electronic filing technical questions is available at BSAEfilinghelp@fincen.gov or through the BSA E-Filing Help Desk at 866-346-9478.

Now, you are not allowed to MAIL in the form.  Electronic filing is required.

Well, on the plus side, you won't have to worry about postage now.

Additionally, there is a provision to allow you to hire someone to file for you.

Details in another post.

Cheers.