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September 15, 2014 / 20 Elul, 5774
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Posts Tagged ‘tax’

Surviving an IRS Audit in Israel

Thursday, August 9th, 2012

Almost every American living in Israel is aware of the legendary “additional child tax credit” (ACTC) “tax credit/refund” of $1000 per child.

Over the years I’ve written about it on the blog; The IRS Taxman comethThe Apocalypse: Feds arrive in Israel, With Liberty and Passports for all, as well as the importance of filing the FBAR (Foreign Bank Account Report) — disclosure of all Financial Holdings and Bank accounts outside the United States that belong to American citizens that are in excess of $10,000.

Therefore, almost any American who has moved to Israel and has a pension fund or keren hishtalmut– is required to file the US FBAR.H

However….because there exists an entire underground “industry” of return preparers who have filed fraudulent returns, fabricating earned income in order for their clients to claim child credits, and have retroactively filed for tax credit refunds after children have been naturalized (not American by birth, but by being brought to the USA and made citizens there) — many tax practitioners in Israel have stated that the IRS has begun scrutinizing (read: AUDITING) all returns of Americans in Israel claiming the ACTC.Thankfully I have not (yet?) been audited, but with the IRS targeting everyone  — I am putting together this list on how to proactively prepare for an audit.

Step 1: Take a deep breathe, count to ten, and don’t panic. 

Assuming you used a reputable tax-preparer, didn’t count a kollel stipend as income,  and you didn’t retroactively try to claim the refund after bringing your kids to the US for naturalization — you should be able to survive the audit unscathed.

Step 2: The key for surviving the audit is to prepare now, even if you aren’t being audited.  Proactivity is the key.

You should prepare and gather the following information:

A letter from the comptroller of your company stating -

- Duration of your employment

- For the previous 3 years, your salary, income tax, health tax, and national insurance (ביטוח לאומי) payments

- The bank name, branch number, and acct. no. into which your salary was paid.

Your original form 106’s and authorized English translations** for the previous 3 years.

A letter from your family physician listing the names and date of births of all your kids, and a statement that s/he has been treating them for the previous how many years and that they reside with you and your spouse. The letter should be on Kupat Cholim stationary, preferably with an English letterhead.

A letter from each of the schools your kids attended during at least the previous 3 years indicating their names, date of births, the grade they’re currently studying in (if relevant), and a statement that you and your spouse are their primary care providers and that they reside with you. The letter should also indicate your address, that you paid their school fees, and that you attend parent-teacher meetings faithfully.

A copy of your marriage certificate. If married in the USA – your marriage license. If married in Israel, the registration form provided by the Minister of Religious Affairs when you got married, (not your Ketuba), and an authorized English translation.**

Copies of US passports for each member of the family.

Copies of IL passports for each member of the family.

Copies of Social Security cards for each child.

Copies of IL birth certificates for each child.

Copies of US Consular Report of Birth Abroad for each child.

**Authorized English Translation means you need an authorized translator (not yourself)  and it must be approved by a notary.   This may actually be cheaper in the US than in Israel because notary services in the US cost a fraction of notarization services in Israel (which are outrageous).

Step 3: Don’t try to deal with the audit by yourself. Pay a CPA in Israel — they have far more experience, and even if you get all the documentation above by yourself (which will save you much time and hassle), its still best to pay the CPA and let them be the interface to the IRS.

Pelosi: Republicans Exploiting Jewish Voters

Monday, July 30th, 2012

Rep. Nancy Pelosi, the minority leader at the U.S. House of Representatives, said that Republicans exploit Jewish voters for political gain.

Pelosi (D-Calif.) in an interview last Friday with the Bloomberg news service also said that many Republicans “are using Israel as an excuse, what they really want are tax cuts for the wealthy.” She also said that President Obama “has been a staunch supporter of Israel.”

Responding to the observation that the Republican Jewish supporters are active due to their support of Israel, Pelosi said “they’re being exploited. And they’re smart people. They follow these issues. But they have to know the facts. And the fact is that President Obama has been the strongest person in terms of sanctions on Iran, which is important to Israel. He’s been the strongest person on whether it’s Iron Dome, David’s Sling, any of these weapons systems and initiatives that relate to Israel.”

House Majority Leader Eric Cantor (R-Va.), the only Jewish Republican in Congress, on Sunday responded to the Pelosi interview, saying: “It is both patronizing and deeply insulting for Nancy Pelosi to suggest any Jew is ‘exploited’ for their political beliefs or that support for Israel is somehow an ‘excuse’ for anything,” Cantor said. “Such thinking diminishes the importance of issues affecting Jews everywhere.”

Cantor told the CBS newsmagazine “60 Minutes” in a January interview that the Jewish tendency to vote Democratic has been the “bane of my existence.”

Risks You Need to Know Before Buying Dividend-Paying Stocks

Sunday, July 22nd, 2012

In my last blog, “Three Reasons to Buy Dividend-Paying Stocks,” I described the benefits of buying dividend-paying stocks and why people may think that they are a worthwhile investment. But before you rush to buy dividend-paying stocks for your portfolio, take a few minutes to read about some of the pitfalls involved with this kind of stock.

1. Sometimes, a company will either reduce or suspend its dividend payments. If this happens, it may be prudent to reconsider staying invested in the company, as most companies will only cut dividends as a final resort. The cut/elimination of dividends may be a wake-up call to a company’s demise. Shareholders won’t generally rejoice at getting smaller than anticipated payments, so why would the company risk their negative reactions, unless it is in some sort of trouble?

2. Benjamin Franklin said, “In this world nothing can be said to be certain, except death and taxes,” and this definitely applies to dividend-paying stocks. With dividend-paying stocks, you are going to be hit for taxes twice. First of all, the IRS levies the usual corporation taxes from the company itself on its profits, before shareholders are even compensated. Then, the company transfers whatever profits are left to the shareholders (i.e., you), and you have to pay another tax on the dividends that you receive! (If you have dual citizenship or are living in Israel, the Israeli government may also levy a tax on dividends. Check with your accountant to confirm that you won’t be double-taxed.)

3. Although it’s great that companies may reward their shareholders by paying dividends to them, there is no such thing as a free lunch. Consider the possibility that the reason why the company is paying its investors (as opposed to reinvesting in its own growth and development), is because it can’t find any better investment options right now. Indeed, many large companies tend to pay out dividends when their growth has started to slow. Perhaps this is not what you want, as you would prefer to invest your money into something that is a little more dynamic.

Are you still thinking about buying dividend-paying stocks? If so, I suggest that you reread my last blog, “Three Reasons to Buying Dividend-Paying Stocks,” and then read this article again as well. If you have the full picture, it will be easier for you to see if dividend-paying stocks are really for you.

It’s About The Children, Mr. Barron

Wednesday, July 11th, 2012

A watershed moment took place in Brooklyn last month on primary night. Those who care about private school education should sit up and take notice.

Democratic Assemblyman Hakeem Jeffries, who rode a tidal wave of support from all corners of the district in his smackdown of Charles Barron, gave a resounding victory speech, speaking to the “beautiful mosaic” of diverse communities he hopes to represent in Congress. In his first public comments, Jeffries spoke passionately about education, his signature issue, and singled out among other things the “crushing burden” of yeshiva education and the need for government to find creative solutions to assist yeshiva parents.

Yeshiva administrators and school choice advocates, who have long sounded the “private schools are collapsing” alarm to any and every elected official who will listen, took encouragement from his words. Public school advocates, teachers-union types and, yes, Charlie Barron, were not pleased at all.

Regrettably, their entrenchment and opposition are to be expected. Public school lobbyists and their supporters demonstrate a gross sense of entitlement when they declare war against government relief to parochial schools.

Harder to understand is their unjustified attacks on politicians like Jeffries – a longtime supporter of public education – who seek to breathe energy and enthusiasm into additional school funding for all schools, public and private alike.

Let’s be clear. Every child, whether in a public or a parochial school, is entitled to a quality education, period. Somehow, though, private school-paying parents and school choice advocates have found themselves under relentless attack from the teachers union and a vocal public school lobby that views education funding as an all or nothing proposition – all for them and nothing for anybody else. Though supporters of public education always make their case by championing “the children,” we in the private school community know all too well they mean only “their” children.

Vociferous public school advocates and politicians like Charles Barron refuse to acknowledge the painful inequity of a system that takes money from taxpayers to use for education – and yet refuses to allocate any meaningful portion of those dollars to provide funding, or at least desperately needed tax relief, for those very same taxpayers who send children to private schools.

In fact, Barron, in his post-election criticism of Jeffries, took particular aim at Jeffries’s desire to help yeshiva students, saying Jeffries wants “us taxpayers [to] pay for private religious schools.” The truth, of course, is that in addition to thousands of dollars in tuition, private religious-school parents pay taxes and those taxes help fund public education.

Orthodox Jewish children, as well as Catholic and other religious schoolchildren, require a dual educational curriculum. Besides an arduous religious studies curriculum, students are also bound by state curricular requirements, with many taking state aptitude tests to verify retention of their secular studies. Test scores confirm that many of these children do very well in private school settings.

There are constitutionally acceptable ways for government to support yeshivas and other nonpublic schools. Certainly no law prevents the state from honoring its commitment to educate and fund the secular studies of these students. To say that any child – Jew, Muslim or Christian – is not entitled to some form of tuition assistance for secular studies simply because he or she attends a private school is wrong and unjust.

Supporting parochial schools via tax credits, school vouchers (there, I said it) or through tuition tax deductibility in no way diminishes the hardship and sacrifices private and public school parents and teachers make for their families and students.

In fact, government-sponsored tuition relief will only help to prop up an overall teetering educational system. Ultimately, should nothing change and private schools continue to close as is now happening, the consequences for the public school system would be disastrous.

Consider the numbers in Brooklyn alone. Approximately 90,000 children are currently enrolled in Jewish religious schools (and the number is growing). An average public school class has 25-30 students. If the New York City Department of Education were forced to absorb these students, at a cost of $20,000-$22,000 per child annually, it would be looking at an additional annual cost of nearly $2 billion, aside from the massive capital expenditures necessary to add and maintain, approximately, an additional 3,600 classrooms.

Fighting The Tuition Crisis With Financially-Driven Parent Volunteer Programs

Wednesday, July 11th, 2012

A recent CNN Money article focused on how more students than ever are requesting need-based financial aid from the private schools they attend. “Private schools are getting flooded with financial aid applications, and a growing number of the parents seeking help are earning $150,000 or more a year,” the article stated. It also pointed out that “overall, the average cost of tuition at private schools across all grades is nearly $22,000 a year, up 4% from a year ago and 26% higher than it was in the 2006-07 academic year, according to the National Association of Independent Schools.”

To make matters worse for private day schools, the recession of the past few years has adversely affected the fundraising numbers in many of these schools, especially in the geographical areas hardest hit. And if that wasn’t bad enough, once again the Obama administration, for a fifth time has proposed lowering the income tax deduction for charitable giving. By decreasing the value of itemized tax deductions for higher-income taxpayers, the president’s proposal would weaken the incentive for the wealthy to give to private day schools and other non-profit organizations.

In light of these developments, schools must consider new and innovative ways to increase income and reduce costs in order to maintain financial stability and fiscal health. One approach that should be considered is to institute a parent volunteer program. There are many schools throughout the country that have established parent volunteer programs. However, the central purpose of many of these programs is to benefit the educational quality of the school. That’s the objective behind Three for Me, a national parent volunteer organization running in thousands of schools across the U.S.

While enhancing educational quality through parent volunteer efforts is certainly worthwhile, schools should consider making financial goals the primary objective of such a program. By using the time and efforts of the parent body, schools can effectively convert hundreds of parent-hours into thousands of dollars in revenue and savings – in essence, monetizing the massive amount of man-hours of the parent body.

Many school administrations are already overworked and understaffed, so in order for such a program to succeed it would need to be low maintenance and easy to manage. Further, in order to generate the necessary volunteer hours to have a financial impact, parent participation would need to be made obligatory (staff excluded). There is a case to be made for making participation voluntary for full paying families while making financial aid grants conditional on participation. It is not unreasonable to ask the beneficiaries of financial aid to give a small amount of their time back to the school each year. However, in many schools, the perceived disparity would be a non-starter.

A little over ten years ago, the school I manage instituted such a program. We made participation obligatory for all families receiving tuition assistance and voluntary for all full-paying families. Staff was exempt. The results of the program are compelling. From a pool of approximately 200 parent volunteers, annual gross revenue raised totals on average $170,000 while annual costs savings total on average $30,000. The program’s methodology has been fine-tuned over the years so that today not only has it become a vital part of our operating budget, it takes a relatively small amount of time to administer.

Either way, undertaking and implementing such a program is a serious commitment. While the program is not difficult to manage once it is up and running, it can be somewhat time consuming to establish. In addition, there is no doubt that many parents will be less than happy with this new obligation. But by having the parents give back a minimum of one or two hours each month, the increase in revenue and cost savings can bring great financial relief to the school especially in these very difficult economic times.

Finally, it should be pointed out that this is only part of an overall solution. Schools need to adapt many of the best practices in corporate management in order to grow and thrive. Foremost is implementing strong and effective internal and financial controls and then training the staff with the knowledge to execute these controls properly. This should be done in conjunction with establishing proper governance and long-term strategic planning with active parent involvement.

J.E. Dyer: A Fun Independence Day List of Things That are Now Considered Taxes

Wednesday, July 4th, 2012

If you have decided to go along with Chief Justice Roberts and agree that Obamacare is a tax, now is the time to contemplate the many things this reading will allow Congress to require you to do.

The list is literally endless, because of the endless number of things ideologues can come up with. But these are some of the top tunes:

1. Congress can force you to buy an electric car.

2. Congress can force you to buy solar panels.

3. Congress can force you to buy and install a remote-control thermostat for your home.

4. Congress can force you to buy internet service.

5. Congress can force you to buy particular kinds of food.

6. Congress can force you to buy contraceptives for yourself.

7. Congress can force you to buy biofuels, even if you don’t have any use for them.

8. Congress can force you to donate to political causes and “charities.”

9. Congress can force you to pay union dues.

10. Congress can force you to buy the New York Times.

11. Congress can force you to buy “green travel” packages.

12. Congress can force you to buy a 3-bedroom, 2-bath townhome with a 1-car parking spot for your electric car.

13. Congress can force you to pay for soccer, gymnastics, and ballet lessons for your children.

14. Congress can force you to pay for a gym membership.

15. Congress can force you to rent a 2-bedroom apartment with no parking space.

16. Congress can force you to borrow money.

17. Congress can force you to pay for a state-college education for your children, regardless of where or whether they actually attend college.

17. Congress can force you to buy a goat.

19. Congress can force you to hire people.

20. Congress can force you to buy mass transit passes, whether you use mass transit or not.

The list could go on and on. After all, if fining people for not buying health insurance is the same thing as a “tax,” then fining them for not spending on other things is also a tax.

We rarely make important distinctions in our politics anymore, and that is a great menace to our idea of liberty and limited government. We must not let our concept of the purpose and character of a tax be corrupted, precisely because taxing us is a power accorded Congress in the Constitution. The definition of “tax” is, in fact, the most important limit on what Congress can do with its power to tax. In the wake of the Obamacare ruling, defining “tax” is defending our liberty – or, from the opposite perspective, attacking it.

This is not a minor point. Definitions are central to the idea of constitutionalism. We have let government dig into our pockets in so many different ways that many Americans have lost sight of the importance of definitions, but it is fatal to our liberty if we accept that any old way the government might make us spend money is a “tax.” It’s not. Taxes produce revenue for the government as their primary purpose and first-order effect.

I recommend reading Federalist 30-36 to discern the prevailing view of taxes at the time of our founding, as a revenue-production measure for the expenses of government. Count the number of times you see the word “revenue.” In Federalist 30, Alexander Hamilton makes an illuminating distinction between having power over the people’s lives and having the power to tax:

In the Ottoman or Turkish empire, the sovereign, though in other respects absolute master of the lives and fortunes of his subjects, has no right to impose a new tax. The consequence is that he permits the bashaws or governors of provinces to pillage the people without mercy; and, in turn, squeezes out of them the sums of which he stands in need, to satisfy his own exigencies and those of the state. In America, from a like cause, the government of the Union has gradually dwindled into a state of decay, approaching nearly to annihilation. Who can doubt, that the happiness of the people in both countries would be promoted by competent authorities in the proper hands, to provide the revenues which the necessities of the public might require?

Read the whole paper; it is clear that Hamilton viewed federal taxation as a revenue-raising measure, and not as a means of exercising mastery over the people’s lives and fortunes (e.g., regulating, penalizing, or social- or environmental-engineering the people). If we have come to see federal taxation in the latter light, it is not because such a purpose can be read into the Constitution or the Framers’ intent. We have a choice to accept the statist-interventionist mentality on taxes, or not. The most important thing we can do today is affirm limits on Congress’s power to tax, by requiring narrow definitions.

Eyes on the Ball, Folks: SCOTUS has Ruled Congress Can Make Us Buy Stuff

Sunday, July 1st, 2012

A surprising number of conservative commentators have come out cheering the ObamaCare decision because it ruled that the Commerce clause in the Constitution – Congress’s power to regulate commerce across the 50 states – doesn’t empower our legislators to force us to buy things (in this case, health insurance).

Of course, Congress can require those who propose to engage in regulated activities to purchase things, as a price of doing business.  But ObamaCare forces us to buy insurance just because we woke up one day and were citizens of the United States (and earning a certain income and not covered by insurance our employers have to buy).

The real decision

SCOTUS has said Congress can do that.  Focusing on SCOTUS’s repudiation of the Commerce clause justification is pursuing a gigantic red herring.  Who cares what the Commerce clause allows, if SCOTUS says Congress can make us buy stuff anyway?

The Commerce clause has been made irrelevant by this ruling.  Chief Justice Roberts found another way to justify Congress making us buy stuff.  No one will ever have to invoke the Commerce clause again to propose a law that makes us buy stuff.  Regardless of what stuff we have to buy today, any Congress in the future can make us buy other stuff.  All Congress has to do is impose a monetary penalty if we don’t buy the mandated stuff, and SCOTUS will call it a “tax.”

The victory for the Commerce clause is the Pyrrhic one here.  Another such victory, and we are lost.

Tax versus mandate

A purchase mandate and a tax are two different things.  It seems silly to have to lay this out, but apparently there are a lot of people who are confused.  What distinguishes a tax from all other requirements is that its first-order effect is producing revenue for the government – not because the citizens engage in any particular activity, but because the government needs revenue, and chooses one or another basis for levying a tax to produce it.  To gain tax revenue, the government surveys what the citizens do and chooses to tax some of it.  A tax is not something that arises from government-mandated activity, nor is it levied because of what people choose to do.  You may choose to buy milk and have to pay a sales tax on it (in some states), but the tax isn’t imposed because you buy milk, it’s imposed because the state or local government needs revenue.

There are other ways – non-tax ways – in which we send money to the government for various things.  We pay fees, for example, to operate businesses or get driver’s licenses.  We pay speeding fines.  We buy hunting licenses.  We pay fees to register private vehicles and boats.  We get fined for particular transgressions, such as littering or polluting.  All of these ways of handing money over to the government are contingent on us choosing to do something.  If we don’t choose to do it, we don’t fork over money to the government.

Taxes are a different matter.  Their existence doesn’t depend on us wanting to “do” things, or doing wrong things, for which a fine is imposed; they exist because government needs revenue.  Taxing income, sales, cigarettes, liquor, gasoline, property, etc is intended to produce revenue, on a regular and somewhat predictable basis.

The purpose of the ObamaCare insurance-purchase mandate is not to produce revenue for the government.  It is not a tax, by any valid definition of “tax.”  It doesn’t tax sales.  It doesn’t tax goods.  It doesn’t tax income.  It doesn’t tax property.  It doesn’t tax activity (e.g., federal taxes on commercial airline flights or landline services).  It mandates that certain citizens buy something from commercial vendors, and it fines them if they don’t.  In that way, its closest analogue is the requirement of the various states that drivers maintain auto insurance.  That’s not a tax, and has never been held to be one.  And even that analogue is imperfect, since no one who doesn’t own a vehicle has to maintain the insurance.

I really wish Republicans would stop cynically chanting that Obama has broken his pledge on taxes with the ObamaCare legislation.  (And for the Republicans doing it foolishly, because they don’t understand or care that there is a significant difference in law and our philosophy of government between a tax and a purchase mandate:  you guys stop it too.)  This battle can’t be won if we concede that any old way of being ordered to send money somewhere at the government’s direction equals a “tax.”

Printed from: http://www.jewishpress.com/indepth/analysis/j-e-dyer/eyes-on-the-ball-folks-scotus-has-ruled-congress-can-make-us-buy-stuff/2012/07/01/

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