Tax Year 2013 Changes to the Itemized Deduction for Medical and Dental Expenses

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US taxpayers who itemize their deductions on Schedule A of Form 1040 should be aware that new IRS rules are in effect for 2013 tax returns to be filed in 2014. Under the new rules, the threshold for unreimbursed medical and dental expenses paid by taxpayers for themselves, spouses or dependents have increased for most individuals.

This article will briefly explain the change in the rules; it is not intended to convey tax or legal advice. Please consult a tax attorney if you have further questions. Sherayzen Law Office, PLLC can assist you in all of your tax and legal needs.

Taxpayers under the Age of 65 in 2014

For married couples, with both spouses under the age of 65, unreimbursed medical and dental expenses will now only be deductible provided that they exceed 10 percent of the couple’s adjusted gross income (AGI) from Form 1040, line 38.

Taxpayers over the Age of 65 in 2014

For taxpayers over the age of 65, or a married couple with one spouse over the age of 65, the existing 7.5 percent threshold is still in effect for tax year 2013. Note however, that the exemption will only apply to tax years beginning after December 31, 2012, and ending before January 1, 2017, if a spouse attained age 65 during or before the tax year.

Taxpayers Turning 65 in 2014

For taxpayers who turn 65 in the year 2014, (assuming they are not married to a spouse who is already 65), the 10 percent threshold should be used for calculating allowable medical and dental expenses for their 2013 tax returns. When such taxpayers turn 65 years old in 2014, the 7.5 percent threshold may then be used for filing the next year’s tax return. (Further, as noted above, beginning with the tax year 2017 return and years following, the 10 percent threshold must be used).

Taking the Medical and Dental Expenses Deduction

Generally, taxpayers may deduct medical and dental expenses paid for themselves, their spouses and their dependents. (See IRS Publication 502, “Medical and Dental Expenses” for more information). Taxpayers should keep sufficient records for each medical expense consisting of amount and date of each payment, and the name and address of each medical care provider that received payment. Also, taxpayers are advised to keep statements and/or invoices showing who received medical treatment for the claimed expense, a description of the type of medical care received, and the nature and purpose of all medical expenses.

According to the IRS, “Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness.” Such expenses generally include, “[P]ayments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.” Accordingly, expenses that are “merely beneficial to general health, such as vitamins or a vacation” (as well as expenses such as teeth whitening, health club dues, and cosmetic surgery) are not deductible.

Contact Sherayzen Law Office for Help With Your Tax and Estate Planning

As the new tax law changes are being implemented in 2013 and subsequent years, the necessity for proper tax planning will only increase with each year. Such planning should be conducted by an experienced tax attorney. This is why you are advised to contact the experienced tax law firm of Sherayzen Law Office to help you create a thorough tax plan aimed at taking advantages of the various provisions of the U.S. tax code.

FATCA Tax Lawyers: Six More Agreements to Implement FATCA

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On December 19, 2013, the U.S. Department of the Treasury announced that the United States has signed bilateral agreements with six additional jurisdictions to implement the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). The six jurisdictions are: Malta, the Netherlands, The Islands of Bermuda, and three UK Crown Dependencies – Jersey, Guernsey, and the Isle of Man.

Enacted by Congress in 2010, these provisions target non-compliance by U.S. taxpayers using foreign accounts. With these most recent agreements, the United States has signed 18 FATCA intergovernmental agreements (IGAs), has 11 agreements in substance, and is engaged in related discussions with many other jurisdictions.

In general, FATCA seeks to obtain information on accounts held by U.S. taxpayers in other countries. It requires U.S. financial institutions to withhold a portion of certain payments made to foreign financial institutions (FFIs) who do not agree to identify and report information on U.S. account holders. Governments have the option of permitting their FFIs to enter into agreements directly with the IRS to comply with FATCA under U.S. Treasury Regulations or to implement FATCA by entering into one of two alternative Model IGAs with the United States.

FATCA Tax Lawyers: Model 1 IGAs Signed by Fix Jurisdictions

Malta, the Netherlands, Jersey, Guernsey, and the Isle of Man signed Model 1 IGAs. Under these agreements, FFIs will report the information required under FATCA about U.S. accounts to their home governments, which in turn will report the information to the IRS. These agreements are reciprocal, meaning that the United States will also provide similar tax information to these governments regarding individuals and entities from their jurisdictions with accounts in the United States.

In addition to these FATCA agreements, protocols to the existing tax information exchange agreements with Jersey, Guernsey, and the Isle of Man were also signed.

FATCA Tax Lawyers: Bermuda Signs Model 2 IGA

Unlike the other jurisdictions, Bermuda signed Model 2 IGA meaning that Bermuda will direct and legally enable FFIs in Bermuda to register with the IRS and report the information required by FATCA about consenting U.S. accounts directly to the IRS. This requirement is supplemented by government-to-government exchange of information regarding certain pre-existing non-consenting accounts on request.

FATCA Tax Lawyers: Tax Shelters Are No Longer Information Shelters

The fact that Bermuda, Jersey, Guernsey, and the Isle of Man (all of which are considered to be offshore havens) signed FATCA is a fact that is indicative of a general trend that I have emphasized since the appearance of FATCA – there are no reasonable safe havens for non-compliant U.S. taxpayers outside of few important jurisdictions, such as China. Even Russia has declared its intention to sign FATCA. More importantly, the jurisdictions that are generally regarded as tax shelter or low-tax jurisdictions are likely to allow the IRS to impose its will on their banks.

“FATCA continues to gather momentum as we work with partners worldwide to combat offshore tax evasion,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack. “This large number of signings in one week alone sends a strong signal to tax evaders everywhere: international support for FATCA is growing.”

FATCA Tax Lawyers: Implications of Recent Agreements for Non-Compliant US Taxpayers

These developments continue to support the argument that non-compliant U.S. taxpayers worldwide need to urgently consider their options with respect to the voluntary disclosure of their foreign financial accounts and other foreign assets. Each new jurisdiction that signs FATCA is going to turn over the information about the non-compliant accounts to the IRS in one way or another. In such circumstances, procrastination with a voluntary disclosure may result in a dramatic reduction of available disclosure options and increase the chances of a criminal prosecution by the IRS.

Contact Sherayzen Law Office for Help with Your Voluntary Disclosure of Offshore Assets

If you have undisclosed foreign financial accounts or any other assets subject to U.S. reporting, contact Sherayzen Law Office. Our experienced international tax law firm will thoroughly analyze your case, review the available options and implement a customized plan of your voluntary disclosure (including the preparation of any required legal documents and tax forms).

IRS Tax Attorney Perspective on the Top 3 International Tax Enforcement Trends in 2014

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As an IRS tax attorney, I foresee that 2014 is likely to be a continuation of the global tax enforcement trends that started in the earlier years. Specifically, I believe the following three moves by the IRS will form the core of the US international tax enforcement efforts in 2014.

IRS Tax Attorney Top Trend #1: FATCA IGAs

I believe we will see a continuous efforts by the U.S. government to expand the enforcement scope of the Foreign Account Tax Compliance Act by increasing the number of Intergovernmental Agreements (“IGAs”). Through the IGAs, the IRS hopes to increase FATCA compliance to the most important tax jurisdictions in the world.

Of course, expanding FATCA compliance to such countries as China, Russia and even India, will continue to present a formidable challenge to the IRS. If IGAs are actually enforced in these countries, it would be a major victory for U.S. enforcement efforts given the sheer number of non-compliant U.S. taxpayers from these countries and their stubborn belief (less so in India than in other countries) that the IRS will not be able to expand FATCA to these countries.

IRS Tax Attorney Top Trend #2: US DOJ Program for Swiss Banks

Undoubtedly, the latest initiative by the US government in the form of the Department of Justice Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Program”) will occupy the central stage if the attention of any IRS tax attorney who practices in the area of international tax compliance. The Program is a unique, unprecedented effort to apply the lessons from the individual IRS Offshore Voluntary Disclosure Program (“OVDP” now closed) that has been running in the United States since 2012 in its current form (and since 2003 in other variations) to foreign banks located in foreign jurisdictions.

As I predicted earlier, it is likely that the Program, if successful, will become the template for similar programs throughout the world. Potentially, it could become a permanent feature in the current arsenal of tax enforcement tools.

IRS Tax Attorney Top Trend #3: OVDP for Non-Compliant US Taxpayers

The latest version of the IRS Offshore Voluntary Disclosure Program was launched in 2012 on the heels of the success of 2011 Offshore Voluntary Disclosure Initiative. I anticipate that this trend will continue into 2014. In combination with the Program, it is likely that an ever increasing number of non-compliant U.S. taxpayers will join the OVDP, especially since they are urged to do so by the Swiss banks without the benefit of analyzing their voluntary disclosure options (something that should be done by an IRS tax attorney who specializes in international tax compliance such as at Sherayzen Law Office).

Contact Sherayzen Law Office for Help with International Tax Compliance

So far, I provided just the top three trends that every IRS tax attorney who practices in the area of international tax law should know. However, even this simplistic overview makes it abundantly clear that international tax compliance is real and you should be worried about it if you have undisclosed foreign assets or income.

Given the complexity of the international tax law and the draconian penalties in case of non-compliance or incorrect compliance, it is very important to choose the right firm to represent your interests. This is why you should contact the IRS tax practice of Sherayzen Law Office who has built a wide range of expertise in the area of international tax compliance.

We offer specialized services for international tax matters to individuals and businesses with foreign income and/or assets. If you are currently in violation of US tax laws, we can help you bring your tax affairs into full compliance in a responsible manner.