Five Things You Need To Know Before Filing Your Taxes

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If you’re
a US taxpayer, you’ll want to heed the following before
dropping off your 1040
this year.

You see, in
2010, Congress and President Obama passed a series of new rules
known as the Foreign Account Tax Compliance Act, or FATCA. FATCA
affects every US taxpayer who does anything overseas, as well as
every single financial institution on the planet. It may be the
most arrogant piece of legislation ever written.

Congress had
the audacity to pass a law regulating foreign banks on foreign soil.
It requires every ‘foreign financial institution’ on the
planet (though that term is very loosely defined…) to
enter into an information sharing agreement with the IRS, or else
face steep consequences.

Banks that
don’t jump into bed with the IRS risk getting locked out of
the US financial system. This is a big deal.

If you’ve
ever sent a foreign wire before, you probably know that almost every
bank on the planet has a ‘corresponding’ account with
one of the major banks in New York.

Banco General
in Panama, for example, has corresponding accounts with both Chase
and CitiBank. When someone wires US dollars to Banco General, the
money first hits one of those corresponding accounts in New York.
If Banco General gets shut out of those accounts, it risks being
cut off from the global banking system.

Needless to
say, this legislation is going to rapidly reduce the significance
of the US banking sector in the long run as other countries seek
new financial pathways that re-route funds around New York. Congratulations,
Congress!

In addition,
FATCA also requires new disclosures for US taxpayers with ‘foreign
financial accounts’
, and it starts this year. Before you
file your taxes, here are five things you need to know:

[Editor's
note:
The following does not constitute tax advice, rather a
friendly reminder of what the requirements are. Always consult with
your tax advisor.]

1) If you
had a ‘Foreign ‘Financial Asset’ in 2011, you may
need to file form
8938
this year.

The term ‘Foreign
Financial Asset’ covers a lot of ground and is ambiguously
defined. They use terms like financial asset, financial account,
and foreign financial institution to define each other.

It’s like
saying, “What is dark? The opposite of light. So what is light?
The opposite of dark.”

Ultimately,
the onus is on the taxpayer to figure it out.

In general,
foreign bank accounts and foreign brokerage accounts must be reported
in Part I of the form.

In Part II
of the form, taxpayers must also report interests in foreign entities
that they own. For example, if you own 100% of a Cook Islands LLC,
this would count as a foreign financial asset and must be reported
in Part II.

*The exception
here is if you are already reporting this company on form 5471 or
8865. This depends on if/how you elected to classify the entity
on form 8832. For example, if you elect to classify a foreign entity
as a corporation, you should report it on form 5471, not the FATCA
form 8938.

2) GOLD
is a bit tricky.

If you have
an account with an organization like GoldMoney.com
that takes in deposits from the banking system, this is akin to
a financial institution and financial account. It must be reported
on Part I of the form.

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