As the Internal Revenue Service updates its computer systems, taxpayers need to more closely follow the tax rules to avoid having to navigate a still antiquated Internal Revenue Service system.

 

 

Are you newly married and are now using your husband’s last name? If so, it is important to notify the Social Security Administration so that they can issue a new Social Security card to you.

 

The Internal Revenue Service computers are now doing a better job of matching up your name and social security number on the tax return with that of the Social Security Administration records. If there is not a match several things happen, all of them bad.

 

If you file a joint tax return with your new spouse and have not changed your records with the Social Security Administration the Internal Revenue Service will likely disallow you as a exemption, re-calculate the tax return to add additional tax, penalty and interest, and send this on to their collection department whose computers will now generate past due letters every two weeks.

 

And if you used your maiden name for which Form 1099’s or Form W-2’s were issued, the Internal Revenue Service computers will find that no return has been filed matching this name and social security number. The computers will then compute a tax on gross income, and if a tax is due send this to the collection department.

 

So if you do not want to spend 6 months of your time talking to nameless, faceless people at the Internal Revenue Service and Social Security Administration if you are newly married and are using your husband’s last name, call the US Consulate in Bermuda to have your Social Security card changed.

 

 

If you move, you should complete Form 8822 and file it with the Internal Revenue Service as soon as possible. Most individuals will sarcastically say that they do not want the Internal Revenue Service to know where they are. The problem is that under the law the Internal Revenue Service is only required to send notices to you at the last address that they have on file. So if they send a refund check to your last address and it is sent back to them, they make no further effort to find you. And if they send an erroneous collection notice to your last address and you do not respond, that could turn into a judgment against you.

 

 

 

 

The preparation of US tax return for expatriate employees has long been the province of the Big 4 accounting firms and a small group of firms who have ex Big 4 partners and managers on staff. The fact that this is a specialized area does not stop the small town preparer who has never prepared an expatriate return from attempting to do so. They basically rely on their software to prepare the correct return, but have no idea as to whether the return that comes out of the computer is correct.

 

We recently were asked to intervene in an audit wherein the small town preparer had elected the foreign earned income exclusion, did not elect the foreign housing exclusion because he apparently did not believe that you could elect both, and also took the foreign tax credit without allocating any amount to excluded income. When the return was prepared for filing, it did not include either Form 2555 or Form 1116. To compound the problem the small town preparer did not inform the client of the need to make estimated tax payments and apparently did not file for an extension. When the IRS received the return, they disallowed the foreign earned income exclusion and the foreign tax credits, computed additional tax, and imposed a 25% penalty for the late filing of the return, a penalty for underpayment of tax, and penalty and interest for late payment of tax. The penalties and interest exceed $100,000. Now the question is who is going to pay?

 

 

Before recessing for the election, Congress passes a number of tax law changes. One change is to allow a 10% tax credit for energy saving home improvements. But the credit is only allowable in 2009, so if you were considering installing skylights, windows, outside doors, furnaces and water heaters, you should consider waiting until next year to do so.

 

 

In 2009 the Social Security tax will remain at 6.2% and the Medicare tax at 1.45%. Self employed individuals will continue to pay 15.3%. But the tax will now be computed on the first $106,800 of compensation.

 

 

In 2009 the maximum deduction will rise to $16,500 and individuals 50 or older can deduct $22,000.

 

 

If you complete Form 4506 and send it to the Internal Revenue Service along with a check in the amount of $57, you will receive the copy you need within a few weeks.