Community Learns About Various Tax Issues at IACCGH Seminar


From left: CPA’s Imtiaz Munshi, Kershaw Khumbatta, Rimple Mashruwala, Ajit Thakur, Swapan Dhairyawan, Mahesh Desai, Vikas Patel
Photos: Bijay Dixit

By Manu Shah

HOUSTON: IACCGH’s Outreach Program – a tax seminar designed to educate the community on various tax issues, attracted many members of the Indo American community on February 28, at India House.

CPA Ajit Thakur moderated the presentations. He highlighted three issues that were of growing concern – identity theft, tax reporting of Obamacare and online purchasing.

According to the IRS database 700,000 people had their identities stolen last year. The IRS will combat this “nightmare” by henceforth requiring CPAs’ to identify their clients through their driver’s license. Regarding tax reporting of Obamacare, the matter is not clear as to whether taxpayers will get money back from Obamacare. Online purchasing besides being easy has the added benefit of zero sales tax but vendors are now required to supply the names and purchases to the IRS through the 1099K mechanism.

The first presentation by CPA Imtiaz Munshi dealt with small businesses and Employment Tax issues. If a small business engages a worker as a Contract worker instead of an employee to save on Social Security taxes and benefits, the IRS will determine whether this is true based on payment patterns and other factors. Misclassification of an employee as a contractor can result in the IRS penalizing the employer 100% of the worker’s compensation and possible criminal penalties. However, the IRS allows a business to voluntarily switch the status of a worker from contractor to employee by paying 10% of the employee’s portion of the taxes for one year (VSPP Scheme).


Other points raised were:
•    Compensation cannot be paid to family members through a W-2 if employed in the business.
•    Tax benefits can be availed if your children are below 17 and being paid to help in the family business
•    In case a husband and wife are running the business, paying the spouse compensation can help in adding up Social Security credits and save on taxes too
•    Small businesses can set up a Simple IRA Retirement plan where the employee puts in 12,500 a year.
•    Deductions up to $1500 by the Simplified method is now acceptable to the IRS for your home office as long as the business is operating and some conditions fulfilled.
The presentation by CPA Kershaw Khumbatta dealt with Annual Tax Updates. Some of the highlights were:
•    Taxpayers can deduct between $2,000 and $4,000 of qualified tuition expense which includes the purchase of computer equipment
•    Energy credits can be availed for home and business improvements like heating and cooling systems, insulation and windows. Tesla owners can also get tax credits
•    Teachers can claim up to $250 of unreimbursed classroom expenses. This has been made permanent in the Code
•    401(K) and traditional IRA accounts can be rolled over to Simple IRA
•    IRS is limiting the number of refunds that are electronically deposited into a single bank account or a prepaid card to three only
•    A check is no longer proof of your charitable contribution of $250 and more. The IRS requires a bank record that supports the donation and a written receipt from the charitable organization.

IRS has also introduced a very helpful Fresh Start Program – a voluntary program that encourages those who are behind on their taxes to pay up and avoid tax liens. Installment agreements and Offer in Compromise are also available with this program.

CPA Mahesh Desai made an illuminating presentation on FBAR or the Foreign Bank Account Report that must be filed by June 30th. In 2014, the US Government signed an International Government Agreement (IGA) with the Government of India which would require financial institutions in India to divulge bank account details first to the Income Tax department in India and then to the IRS. This treaty is being implemented since August 2015.

US citizens or Green Card holders who own overseas assets over $10,000 must report it to the IRS through the FBAR FINCEN Form 114.  Non willful violation can allow you to come clean through the Streamlined Domestic Offshore Procedures (SDOP) but if it is willful violation the penalty is criminal prosecution and half the value of your account.

As compared to the Overseas Voluntary Disclosure Program (OVDP), the Streamlined Domestic Offshore Procedures (SDOP) allows taxpayers to disclose their offshore assets with a lower penalty and a minimal tax. Taxpayers have to file 3 years of tax returns instead of the OVDP program’s requirement of 8 years of tax returns. Those will be assessed a penalty of only 5% instead of the OVDP program’s 27.5% penalty of the account.

Foreign mutual funds, equity funds and hedge funds must be declared even if they are inherited. Dividends must be attached when filing Form 114. In case of inheritance, tax payers must be clear about filing obligations when bringing money overseas.

(Presentations by the other speakers will be continued in next week’s issue)
(Disclaimer: The tax seminar is for advisory purposes only)