IRS

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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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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With tax season upon us, we have compiled a list of hot topics the IRS has been known to closely examine with the filing of a Schedule C – Profit or Loss from Business.

The IRS’s primary concerns revolves around the reliability/duplication of information provided on the Schedule C as well as the methods used for recordkeeping and presentation in the following areas:

Gross Receipts

An increase in income within the business should be considered taxable.

If the payment of income would not have been received without the existence of the business, the income should be considered business income.  This includes IOUs, cash, etc. So remember, if the payment crosses the door of your business, that payment of income should be considered part of your business income.

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Question
Our companies employ 22 full-time employees. Do we have to issue the new ACA Forms 1094 and 1095 to employees and the IRS under the affordable care act (ACA)? I believe we are exempt, but I wanted to confirm if our company needs to issue these ACA forms.

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Estimated personal taxes for the 3rd payment of the 2015 tax year are due on September 15th.  This also applies at the state and local level. These taxes must be paid by the due date to avoid interest & penalties. Below are the specific details.

Requirement: Make a payment for your estimated tax for the current year if you are not paying your income tax through withholding as part of payroll. This includes self-employment income, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards.

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Estimated corporate taxes for the 3rd payment of the 2015 tax year are due on September 15th.  This also applies at the state and local level. These taxes must be paid by the due date to avoid interest & penalties. Below are the specific details.

Requirement: Deposit the third installment of your estimated corporate income taxes to avoid interest, penalties & a big tax bill at the end of the year.

Who Must Pay: Corporations must generally make quarterly estimated tax payments if it expects the estimated tax for the year to be $500 or more for the tax year.

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Many existing C Corporations and new businesses elect to be taxed as an S Corporation. However, some of these businesses fail to meet the filing deadline, which is 75 days after incorporating or 2 months and 15 days after the beginning of the tax year. So, established businesses must file by March 15 of the new tax year, or before. New businesses must file by March 15. Fortunately, there are exceptions to this rule in which businesses may qualify for late election relief.

What is an S Corporation?

 An S Corporation is one of the tax structures a business can opt to file with because it provides unique benefits, including corporate tax returns. There are specific criteria requirements in order to be considered for this filing status, so be sure to be informed about what it entails before filling in the necessary documents. However, this process need only be completed once and will remain valid every following year, even if new shareholders do not consent.

HOW DOES A BUSINESS ELECT TO BE TAXED AS AN S CORPORATION?

The company will need to have an officer and all associated shareholders sign a Form 2553 and then file it with the IRS to elect to be taxed as an S Corporation. After this is completed, the IRS sends a CP261 Notice to businesses to confirm acceptance of the S Corporation election. If the business owner and/or accountant did not receive the letter or do not have a record of it, they should contact the IRS directly at their Business and Specialty Tax Line at (800) 829-4933 (M-F, 7 am-7 pm).

HOW TO QUALIFY FOR S CORPORATION LATE ELECTION RELIEF

If a company fails to timely file the form with the IRS to elect to be taxed as an S Corporation, it may still be eligible for a late election to be an S Corporation. However, the company must show that failure to file Form 2553 on time was the result of a reasonable cause. The IRS has two acceptable forms of reasonable cause: (1) a company’s president, chief executive officer, or similar responsible person neglected to file the election, and (2) that the corporation’s tax professional or accountant neglected to.

If a company does not file the Form 2553 on time, but still meets the late election relief criteria in IRC Section 1362(b)(5) detailed below, the next steps should be to file the IRS Form 2553. When filing the form, write at the top of the form the following words: “FILED PURSUANT TO REV. PROC. 2013-30.” Furthermore, if you make the election with your first tax return, write in the top margin of the first page of Form the 1120S “INCLUDES LATE ELECTION(S) FILED PURSUANT TO REV. PROC. 2013-30.

The Corp. meets the S-Corp. eligibility criteria:

1. The corporation intended to be classified as an S corporation as of the date entered on line E of Form 2553;
2. The corporation fails to qualify as an S corporation on the effective date entered on line E of Form 2553 solely because Form 2553 was not filed by the due date
3. The corporation has reasonable cause for its failure to timely file Form 2553 and has acted diligently to correct the mistake upon discovery of its failure to timely file Form 2553
4. Form 2553 will be filed within 3 years and 75 days of the date entered on line E of Form 2553

Please note that to request late election relief when the above requirements are not met, the corporation generally must request a private letter ruling and pay a user fee in accordance with Rev. Proc. 2014-1, 2014-1 I.R.B. 1.