Tax penalties and health care coverage

Obamacare (Affordable Care Act) Taxes and Penalties

Penalties Increase for Individuals and for Employers under Obamacare (Affordable Care Act)

Tax penalties and health care coverage
Play or pay

As promised, Obamacare taxes and penalties for not having health insurance are on the rise.  The following is a summary of  what to know:


Individual Health Care Penalties

The penalty for not having minimum essential coverage [MEC, ACA defined] in 2016 will increase to the following:

· The greater of (a) 2.5% of taxpayer’s household income over the filing threshold or (b) $695 per person ($347.50 per child under age 18) ($2,085 per family whichever is higher) OR the cost of the national average premium for a Bronze level health plan.
· Remember to save your 1095-A if you are a part of the Exchange. You should receive in January 2016 and will need it for your tax return.

Note : Open enrollment for 2016 coverage begins on November 1, 2015.

Employer Health Care Penalties

The Trade Preferences Extension Act of 2015 significantly increases penalties for companies failing to file correct information, returns, or provide correct payee statements. Penalties increased from $100 to $250 per return or statement with a cap increase up to $3 million.
Beginning in 2016, all companies with 50 or more Full Time Equivalent employees [FTE, defined by ACA] are required to report to the IRS whether they offer their FTE and their qualified dependents the opportunity to enroll in MEC under an employer-sponsored plan. Companies are required to file a transmittal report (Form 1094-C) which summarizes the Forms 1095-C which must be provided for each FTE employee who was employed for one or more months during 2015.

Employers who have fewer than 50 FTE but who sponsor a self-insured group plan must also file reports 1094-B for transmittal and a 1095-B to each employee.

Information that must reported to the IRS includes:
· The name, address, and employer identification number of the provider.
· The statement recipient’s name, address, and taxpayer identification number, or date of birth if a TIN is not available. If the statement recipient is not enrolled in the coverage, providers may, but are not required to, report the TIN.
· The name and TIN, or date of birth if a TIN is not available, of each individual covered under the policy or program and the months for which the individual was enrolled in coverage and entitled to receive benefits.

Employers should have steps and infrastructure in place to gather information reflecting coverage offered in plan year 2015, which can include monthly tracking.

Information you need to track:
· Date coverage is offered
· Proof of offering
· Employee Share of the Lowest Cost Monthly Premium for Self-only Coverage

Important Dates to Note:
· February 1, 2016 – Employee Statements are due
· February 29, 2016 – IRS Statements due if filing by paper
· March 31, 2016 – IRS Statements due if filing electronically (must file electronically if filing 250 or more forms)

Note: Employers who have fewer than 50 FTE and are not offering a self-insured group plan have no filing requirements.

Foreign earned income exclusion

The Foreign Earned Income Exclusion

What is the foreign earned income exclusion?

Foreign earned income exclusion
Beating the double dip

If you are a U.S. citizen (or U.S. resident alien) who living in or planning to relocate to a foreign country you may qualify for what is known as the “Foreign Earned Income Exclusion”. The foreign earned income exclusion is an exception to the general rule that US citizens and resident aliens are taxed on their worldwide gross income, that is, you must pay US taxes on all of your income from everywhere, even if you live outside the US or have never been here. While the foreign earned income exclusion doesn’t help you when it comes to being taxed in the foreign country, it does mean that, if you qualify, you can exclude some of that income from what is taxed by Uncle Sam.

Are you a “qualified individual” for purposes of the foreign earned income exclusion?

There are a couple of tests you must pass in order to qualify for the Foreign Earned Income Exclusion.

Tax home

(1)  You must have a “tax home” in a foreign country. An individual’s tax home is considered to be his regular or principal (if there is more than one regular) place of business. If the individual has no regular or principal place of business because of the nature of the business, or because he is not engaged in carrying on a trade or business, his tax home is his regular place of abode. In other words, you must either be conducting business abroad or have your home there. Additional rules apply to resident aliens claiming to have a tax home in their country of origin.

Bona fide resident and physical presence tests

(2)  You must either be (i) a “bona fide foreign resident” of that country (only US citizens and US resident aliens who come from countries with which the US has a tax treaty can use this test) for an uninterrupted period that includes an entire “tax year”; or (ii) physically present in the foreign country for 330 full days during any consecutive 12 month period (in which case you are a “qualified individual”). Both US citizens and resident aliens can use this test.

Whether you are a “bona fide resident” of a foreign country depends on the facts and circumstances of why you are there. Part (though not all) of the analysis depends on where you are “domiciled”. Selling your home in Des Moines, for example, and purchasing a scenic villa in Punta Del Este, Uruguay, where you stay all year round and join the community, suggest that you could be a bona fide resident of Uruguay for purposes of the Foreign Earned Income Exclusion. The duration of your stay is also relevant. If it is clear that you have moved for an indefinite period of time and made yourself part of the community in the foreign country, you move closer to being a bona fide resident.

If, however, you are abroad for a limited purpose, say, if you are a contractor in country solely for a particular assignment, with the expectation that you will return to the US when it is done, this would weigh against your being a bona fide resident. The physical presence test is more straightforward than the residence test, but more rigid. It doesn’t matter why you are in the foreign country (or countries – so long as they’re not the US) so long as you are physically abroad for the 330 twenty-four hour periods. So, unlike the residence test you don’t have to worry about why you’re there, but you can’t come and go for more than 35 days (with no more than 30 being in any single month).

Calculating the foreign earned income exclusion on your taxes

Assuming you qualify under the tests described above, calculating your foreign earned income tax exclusion is unfortunately not as simple as hacking the yearly exemption amount ($100,800.00 for 2015) off the top of your gross income. Rather, you must first determine for how many days of the year in which you earned the foreign income you were a “qualified individual” (as described by the tests above). Second you then take that fraction and apply it to the maximum exclusion amount.

For example, assume that U.S. citizen Sarah’s tax home is in France where she meets the bona fide residence test for 2015. Sarah is a qualified individual for 181 days and receives $100,000 that is attributable to services she performs in France. Sarah can exclude $49,986 of foreign earned income, the lesser of $100,000 or $49,986 ($100,800 x 181/ 365). Sarah would then factor that excluded amount into her other income to come up with the amount of tax she owes.

A couple caveats about the foreign earned income exclusion. First, the calculations for determining the amount of tax due at the end of the day are very complex. Second, the character of the income (i.e. wage income versus capital gains) is relevant in some cases. Third, there are different rules that may apply if you are running a business abroad and have what would otherwise be deductible business expenses, versus serving abroad as an employee.  It is very important to consult an international tax professional to understand how any foreign tax credit and/or the foreign housing cost exclusion (covered later) would apply and how you might benefit from this important way around being taxed twice by two different countries.

Contact an international tax lawyer now

Ari Good, Esq.

(786) 235-8371

Flags of the world

Tax Considerations For Inbound Investors in US Property

Flags of the world
Come one come all

Tax Considerations for Inbound Investors in US Property

Foreign Investments In US Real Estate

The United States has enjoyed a resurgence in foreign money coming to our shores to invest in stocks, businesses and, perhaps most of all, real estate.  Whether this is to scoop up real estate deals or simply find a safe place your money a key first step is proper tax planning.  The tax code provisions dealing with such “inbound” investments are very complicated and there’s always a lot of variables at play.  Key considerations include the type of property you want, for how long you want to hold it, and what type of income you expect it to produce.  While there is no substitute for professional advice here are some key concepts to keep in mind.

Regulations for Regulations

Be prepared to answer a number of questions dealing with who you are, where you’re from and where you got your money, especially if you are borrowing from any “financial institution” as part of the deal.  The United States government, particularly the IRS, has for years tightening the noose on international banking and trade.  Opening bank accounts or forming companies in many cases require you to complete “know your customer” style questionnaires asking about all manner of things including who will be the beneficial owners of your investments.  Unfair as it may be this is even more difficult if you come from a country that shows up on certain lists, such as the OECD “gray list” of countries deemed uncooperative in sharing bank account and tax information, or the Financial Action Task Force (FATF) “black list”, a list of countries deemed not to be doing enough to combat money laundering.  In the end, however, you can still achieve a measure of asset protection and anonymity by selecting the right entity and tax structure that will protect you while still keeping you in compliance with the thicket of regulations.

Moving your money

Withholding Your Money

The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) was designed to prevent foreign investors in US real property from selling and taking their proceeds abroad without paying tax.  At the time there was no way at the time for the IRS to collect tax from people who did not have a presence in the US other than the property they sold.  FIRPTA changed this by putting the burden on the buyer (or other transferee) to withhold part of the proceeds of the sale (10% as to individuals) to put against any tax liability the foreign buyer may have.  Typically it is the settlement officer / escrow agent who would bear this burden.  The burden is even higher (35%) for a foreign corporation that sells a US property and then sends the proceeds to the corporation’s shareholders.  Again, though, fortunately, going about both the buying and the selling the right way can reduce or even eliminate FIRPTA obligations.

Your silent partner

Your United States Tax Return

I would be hard pressed to think of one of my foreign investor clients who wants to get into the messy business of filing a US tax return.  There are options, however.  Even if you have to file a US tax return that doesn’t mean that you have to do so individually, rather, there are corporate structures that allow you to limit what “you” have to report to the business of that entity.  Second, in real estate it sometimes makes sense to consider yourself to be “effectively connected” to the United States and file a US return.  These are just words that mean that in the eyes of the law you are, in summary, doing business here and agree to file a US tax return.  The upside of this is that you are then able to fully deduct your expenses like property maintenance, interest expense, taxes and fees from your gross rents or spec properties.

Contact Us For Help

No matter what path you follow it is essential that you do it right the first time.  This requires careful attention to all of the filing and election requirements.  Failing to do this correctly could cost you some or all of your profits on the deal.  I am here to help.

Ari Good, Esq.

(786) 235-8371

band performing

Recording Industry Contracts – What To Look For

band performing
Negotiate your recording industry contract

The Ins and Outs of Recording Industry Contracts

One of the most exciting moments in an artist’s career is when he or she receives his first recording contract.  This can represent your  “big break” and an opportunity to market your music and gain more fans, followers and ultimately sales. The smart artist carefully reviews his contract before committing to any music marketing company, recording industry contract, or other agreement.  This is extremely important.  Committing yourself to the wrong contract can limit your artistic freedom, obligate you to produce a nearly impossible amount of music in a short period of time, and restrict you from working with your favorite musicians or producers. Here is a list for some common things to look out for:

Your minimum recording commitment

In summary, your minimum recording commitment (or “MRC”) spells out how much music you have to produce for the marketing company or record label in exchange for their services.  The MRC can be phrased in terms of the number of singles or number of albums, or sometimes both.  Have a good idea based on your experience of how long it takes you to produce a song or album.  You  will need to have enough time to create a quality product without sacrificing your artistic integrity, which is what brought you the contract in the first place.  The timeframe for meeting your MRC can often be pretty tight, which brings us to our next point:

The Recording Industry Contract Term

Rather than being for a year or for a certain number of albums, many recording industry contracts create several back-to-back terms that obligate you to meet your MRC within each term.  These can be as short as six months.  The contract typically gives the label or marketing company the option, but not the obligation, to cancel or renew the contract at the end of the each term while keeping the work you have produced thus far.  This often a pretty one-sided deal.  You may not have the same right to cancel if you’re unhappy with the relationship.  Ideally you would want either one of you to have the option to cancel the relationship after each successive term or extend the whole term in the recording industry contract so there is more of a mutual commitment.

Getting a Win-Win Deal

You scratch my back I’ll scratch yours as they say.  Many recording industry contracts are pretty thin on detail when it comes to what exactly the record label or marketing company will do for you.  You should have a very clear idea of what you want out of the deal and how the company plans to give it to you.  Are you looking for social media promotion?  Bookings?  Paying for your production and CD costs?  Perfecting your listings on iTunes, submitting your material to Spotify and Pandora and registering you with the performing rights organizations?  These are all critical parts of marketing your music.  Keep in mind too that most of the money in the music industry is made in live performances and merchandising rather than unit sales.  Be aware of  smaller companies that claim to have hot “industry contacts”.  Such companies often claim that they’ve worked with big artists and launched their careers.  Obviously these claims may be true, and this might be a great relationship for you, just be aware of claims that are very hard to prove.  Do your homework. What does their website look like?  How long have they been in business?  Exactly which artists having worked with and is their name on those artists websites or CDs, etc.

Music Industry Relationships and Leverage

Always know who has more bargaining power in any relationship.  If you’re looking at a contract from Virgin Music or Sony, suffice it to say that there’s probably not a whole lot you can do in terms of negotiating terms, and you are probably lucky to have such an opportunity.  If you’re dealing with a smaller company though, know that they might be hungry just as you are, and you may have more power negotiating terms if you already have an established fan base, merchandising relationships, and other things going for you that make you easier to market.  It’s sort of like the joke about getting a loan – the only people who get them are those who don’t need them.  The best contracts go to artists that have already done a lot for themselves and already have a following.

Getting the right advice in advance can make the difference between hitting it big and ending up with an impossible situation.  Call me for consultation and contract review.  A little good advice and perspective at the beginning can save you a lot of headaches down the road and open you up to  win-win deals that will deliver what you’re really looking for.

Ari Good, Esq.

(786) 235-8371