Federal Tax

OUR TAX SYSTEM

Taxation in the US comes in many different varieties. We have taxation on income, self-employment, gifts, and so on. When speaking in terms of the estate tax, we are discussing a tax imposed on a transfer of net assets, a transfer tax. 

Different government bodies impose various types of taxes. Federal tax governs all US citizens or domiciled residents and encompasses all the different states found across the nation. 

Each US state also has its own set of rules and regulations that apply to specific residents of that particular state. 

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Every day we hear about new scams in which a scammer calls victims and claims to be the IRS, demanding money. The general professional consensus is that the IRS will never call and demand money, but that is going to be changing in the next few months. Congress passed the FAST Act, which authorizes private debt collectors to call individuals who are delinquent in their tax payments. Although not currently in effect, likely by the end of 2016 if you owe more than $50,000 in back taxes to the federal government, they can suspend your passport. Many states, such as New York and Massachusetts, will suspend your driver’s license if unpaid state taxes exceed a certain threshold. New Jersey does not currently have a suspension policy like this in place.

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Part III: Special considerations when filing Form 1040NR

This three part series will look at who qualifies, requirements and exemptions of the form based on individual circumstances, and, finally, special considerations to note when filing a 1040NR: U.S. Nonresident Alien Income Tax Return.  Even after you have determined which form you should use for filing as an NRA as discussed in Part II, important special rules and considerations can play important roles in future tax planning when filing Form 1040NR.

The main focus of this segment will take a closer look at spouse elections under Section 6013 comparisons, filing status considerations for same-sex couples, and special rules for dual-status taxpayers.

Spouse elections considerations under Section 6013

Section 6013 (g) – Election to treat Nonresident Spouse as U.S. Resident: Only applies to married taxpayers with one spouse being a NRA and other must either be a U.S. citizen or resident at the end of the tax year.  This is a continuing election that can only be used once in a lifetime, meaning this election must be selected every future tax year after the initial tax year it is used.  Neither spouse can make another 6013 (g) election in the future even if the spouses separate, divorce, or remarry.  The death of either spouse will result in the termination of the election. Termination or suspension of the election by either spouse will result in the inability to use this election in any future tax years for either spouse as well.  Both spouses are taxed on worldwide income. Neither spouse is eligible to claim they are not U.S. residents under a tax treaty.

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Part II: What form should I file?

This three part series will look at who qualifies, requirements and exemptions based on individual circumstances, and, finally, special considerations to note when filing a 1040NR: U.S. Nonresident Alien Income Tax Return.  After establishing who is considered a U.S. nonresident alien (NRA) in Part I, the next step is understanding what conditions require an NRA to file this form.

This segment covers the qualifying conditions and exceptions for using Form 1040NR and 1040NR-EZ as well as additional form requirements based on triggering circumstances.

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Form 1040NR – U.S.Nonresident Alien Income Tax Return requires U.S. nonresident aliens (NRAs) to file this form if the NRA participated in any trade or business in the U.S. during the tax year and has U.S. source income.  Activities to include studying, teaching, or doing research in the U.S. are considered to be participating in trade or business within the U.S.  NRAs that were employees during the tax year and received wages would also need to file this income tax form.  For more information on Form 1040NR and its instructions, please visit this link:

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You, your employees or your clients may receive one or more forms that provide information about 2015 health coverage. These are Form 1095-A, 1095-B and 1095-C. The following health care tax tips provide some answers to common questions about these forms:

• Form 1095-A: What you need to do with this form
• Form 1095-B: What you need to do with this form
• Form 1095-C: What you need to do with this form

For more information on these forms, see Questions and Answers about health care information forms for individuals, or contact Freyman CPA P.C. for further assistance.

As a reminder during this tax season as well as throughout the year, it is important to keep in mind that the IRS will not contact you by phone or e-mail regarding tax liens or outstanding tax liabilities.  The IRS has strict protocols when contacting taxpayers regarding tax deficiencies, with letters of correspondence being their official method of first contact.

How to identify a tax scam:

• Demands immediate payment; extreme urgency to receive payments
• Tries to make you pay taxes without giving you the option to research the debt or file an appeal for the amount you allegedly owe
• Asks for payment using a credit or debit card especially over the phone
• Threatens to arrest you for not paying

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The W-2 form is a document that employers must furnish to their employee(s) by the February 2nd, 2015 for the 2014 tax year. The deadline is generally January 31st, but this year it fell on a Saturday. The IRS and the State will also receive a copy of the form. Furthermore, the taxing authorities will match the information on this W-2 form with the information provided on your tax return. If there are any mismatches, depending on the error, it can automatically trigger an initial rejection of your tax return or a correspondence audit.

As a working individual, you earn income is subject to federal, state, city and payroll taxes (social security & medicare). The amount of income taxes (not payroll) that are withheld throughout the year depends on the information detailed on the federal form W-4 and state form (NYS uses form IT-2104, each state has a different form) that you completed when you commenced work for your employer. Please note that the more exemptions you claim, the less tax withheld for federal and state income tax purposes.

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Let us review the concept of how state taxes impact federal tax returns.

On New York State tax forms IT-201-I, or IT-150, or NYC-202(4), the taxpayer is subject to either individual or business income tax. However, on Schedule A or Schedule C of federal form 1040, the taxpayer may deduct state and local income taxes. Specifically, if the taxpayer elects to itemize deductions on Schedule A, state and local taxes would be included in the schedule. Please note though that the state taxes remitted during the year are generally not equal to the total amount due at the end of the tax year. Moreover, the taxpayer will end up either owing additional taxes or receiving a refund for taxes overpaid.

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