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Keep up with changing US tax rules

As the year progresses the Internal Revenue Service continues to provide taxpayers with updates on expiring legislation that was renewed as well as deductions indexed for inflation. Recent updates follow.

FBAR: new filing deadline

The new annual due date for filing Reports of Foreign Bank and Financial Accounts (FBAR) for foreign financial accounts is April 15. This date change was mandated by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41 (the Act). Specifically, section 2006(b)(11) of the Act changes the FBAR due date to April 15 to coincide with the federal income tax filing season. The Act also mandates a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required. (Please note: The due date for FBAR filings for foreign financial accounts maintained during calendar year 2016 is April 18, 2017, consistent with the Federal income tax due date.)

In general, the filing requirement applies to anyone who had an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2016. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them.

Three extra days to file and pay

Taxpayers will have until Tuesday, April 18, 2017 to file their 2016 returns and pay any taxes due. That's because of the combined impact of the weekend and a holiday in the District of Columbia. The customary April 15 deadline falls on Saturday this year, which would normally give taxpayers until at least the following Monday. But Emancipation Day, a DC holiday, is observed on Monday, April 17 giving taxpayers nationwide an additional day. By law, DC holidays impact tax deadlines for everyone in the same way federal holidays do. Taxpayers requesting an extension will have until Monday, October 16, 2017 to file.

Standard mileage rates revised

The standard mileage rates for the use of a car, van, pick-up or panel truck are:

• 54 cents per mile for business miles driven in 2016, down from 57.5 cents in 2015. For those planning ahead, the 2017 rate, for use on a 2017 return filed next year, is 53.5 cents per mile.

• 19 cents per mile driven for medical or moving purposes in 2016, down from 23 cents in 2015. The 2017 rate is 17 cents.

• 14 cents per mile driven in service of charitable organisations. This rate is set by law and is unchanged.

New self-certification available for missed rollover deadline

A taxpayer who inadvertently fails to properly complete a tax-free rollover of a distribution from an IRA or workplace retirement plan to another eligible retirement programme can often qualify to use a new self-certification procedure. Under the procedure, eligible taxpayers, encountering a variety of mitigating circumstances, can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes. Normally, an eligible distribution from an IRA or workplace retirement plan can only qualify for tax-free rollover treatment if it is contributed to another IRA or workplace plan by the 60th day after it was received. Previously, in most cases, taxpayers who failed to meet the time limit could only obtain a waiver by requesting a private letter ruling from the IRS.

Now, a taxpayer who missed the time limit ordinarily qualifies for a waiver if one or more of 11 circumstances apply to them. They include a distribution cheque that was misplaced and never cashed, the taxpayer's home was severely damaged, a family member died, the taxpayer or a family member was seriously ill, the taxpayer was incarcerated or restrictions were imposed by a foreign country.

Ordinarily, the IRS and plan administrators and trustees will honour a taxpayer's truthful self-certification that they qualify for a waiver under these circumstances. Moreover, even if a taxpayer does not self-certify, the IRS now has the authority to grant a waiver during a subsequent examination.

Refund delays

A law change now requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until February 15. Under this change required by the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund — even the portion not associated with the EITC and ACTC. Even though the IRS will begin releasing EITC and ACTC refunds on February 15, many early filers will still not have actual access to their refunds until the week of February 27. The additional delay is due to several factors, including weekends, the Presidents Day holiday and the time banks often need to process direct deposits.

This law change gives the IRS more time to detect and prevent fraud. Beyond the EITC and ACTC refunds and the additional security safeguards, the IRS anticipates issuing more than nine out of 10 refunds in less than 21 days. However, it's possible a particular return may require additional review and take longer. Taxpayers are reminded that state tax agencies have their own refund processing time frames that vary, and some states may make additional reviews to ensure their refunds are being issued properly. Even so, taxpayers should file as usual, and tax return preparers should submit returns as they normally do.

Use e-file and free file

The IRS expects more than 80 per cent of returns to be filed electronically. Choosing e-file and direct deposit remains the fastest and safest way to file an accurate income tax return and receive a refund.

The IRS Free File programme, available at IRS.gov, gives eligible taxpayers a dozen options for brand-name products. Free File is a partnership with commercial partners offering free brand-name software to about 100 million individuals and families with incomes of $64,000 or less. Seventy per cent of the nation's taxpayers are eligible for IRS Free File. People who earned more than $64,000 may use Free File Fillable Forms, the electronic version of IRS paper forms.

Pursuant to the requirements relating to practice before the Internal Revenue Service, any tax advice in this communication is not intended to be used, and cannot be used, for the purpose of (I) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing or recommending to another person any tax related manner.

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.

James Paul Sabo, CPA, is the president of ETS Ltd, PO Box HM 1574, Hamilton HM GX, Bermuda. Questions should be sent to: jsabo@expatriatetaxservices.com

Little more time: US taxpayers will get three extra days to file their returns to the IRS this April

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Published February 09, 2017 at 8:00 am (Updated February 08, 2017 at 7:54 pm)

Keep up with changing US tax rules

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