Category Archives: Taxes

Are Tax Havens Illegal for Canadians?

 

When I first heard the words “tax haven,” like many Canadians my immediate reaction was, “aren’t those illegal?” Certainly, the connotation seems to be that tax havens are places that enable you to hide money from the government and therefore from taxation, so they must be shady operations. Actual laws and rules surrounding tax havens aren’t always common knowledge, and the unknown can be worrisome.

Hiding money from Canada Revenue Agency is against the law, although tax havens themselves are not illegal, if you follow certain rules carefully. Like many things in life, tax havens are a “use at your own risk” proposition that you should research fully before attempting.

What Is a Tax Haven?

A tax haven is a country and place where money can be sheltered so that the owner of the money can avoid paying taxes on it in his or her home country (i.e., Canada). Many tax havens are countries with low taxation rates, that don’t share information effectively with other countries. However, any country can be a tax haven, even one you wouldn’t necessarily suspect, such as the US.

Under Canada’s taxation laws, residents are required to declare worldwide income. Canada Revenue Agency seems to discourage the use of tax havens because of their use for complete tax avoidance or evasion (which, of course, is illegal).

Author and cross-border financial advisor Robert Keats of KeatsConnelly explains in his book A Canadian’s Best Tax Haven: The US, that as long as a taxpayer is not lying about income and the location of it, tax havens are not illegal, and can in fact save you on taxes legally if you follow the rules and know how to use the system to your advantage.

Where Should You Look for Tax Advice and Tax Haven Assistance?

Protect yourself and your hard-earned money by doing your research. Beware of any tax haven arrangements requiring secrecy or the concealing of income, or that promise unusual benefits or huge returns on investment. As with any financial dealings, there are people who are out to take advantage of those with little knowledge of tax havens and investments.

Tax information for Canadian residents can be found on CRA’s website at www.cra-arc.gc.ca; CRA recommends that those looking for tax haven help get independent advice from a tax professional who is not connected to the tax haven scheme or promoter with which they are considering investing.

For more information about tax havens for Canadians, see A Canadian’s Best Tax Haven: The US , a Cross-Border Series title by Robert Keats, internationally renowned cross-border finance expert from KeatsConnelly. 

Ten 2014 Tax Tips For Newlyweds – Part 2

Our US Tax author Scott M. Estill celebrates Americans finding their life partner with ten ways to maximize your financial union at tax time. This is part 2, to find his first five tips, see Part 1.

6. Conscious Coupling

It may be easier for you and your spouse to itemize tax deductions after marriage given that you both can combine your deductions if you file a joint tax return. These deductions include charitable donations, state and local taxes, mortgage interest, investment expenses, unreimbursed employee business expenses and many other possible expense deductions.

7. How marriage could increase your salary

It is important to review your income tax withholdings at your W-2 job. In some instances, it may be beneficial to claim an extra exemption for income tax withholding purposes (for your new spouse), resulting in less taxes being withheld and a pay increase to you! You should use this strategy only if you anticipate a tax refund at the end of the year. If you owe taxes, you may be liable for additional interest and/or penalties if you are under-withheld in the tax department.

8. How marriage could increase your savings

You should also review retirement the plan options for both spouses, as in some instances contributions to a Roth IRA or other tax-favored plan may now be available to newly-married couples.

9. Home sweeter home

For couples who each owned a personal residence before the marriage, there may be some tax breaks available when selling one of the homes. For instance, if a home is sold as a result of combining two households, newlyweds may be able to exclude some or all of the capital gains. If the seller owned and used the home as a main residence for at least two of the past five years before selling it, he or she can exclude $250,000 of capital gains. Once married, the amount doubles to $500,000 if the couple files jointly and meets certain ownership and use tests. This is one area in which a small amount of tax planning can reap very large financial rewards via tax savings.

10. Move it or lose it

If one or both spouses change addresses following the marriage, it is important to file a change of address (Form 8822) with the IRS so that you are kept aware of any notices, refund checks or other tax matters.

Scott M. Estill is the author of TAX THIS! An insider’s Guide To Standing Up to the IRS. He is a tax attorney and former IRS Senior Trial Attorney who operates out of Denver. Follow Scott on twitter at @TaxThis.

Ten 2014 Tax Tips For Newlyweds – Part 1

Our US Tax author Scott Estill celebrates Americans finding their life partner with ten ways to maximize your financial union at tax time.

  1. When to do your I do’s

For tax purposes, your marital status is determined as of December 31, 2014. As such, it is possible to time the marriage to produce the lowest possible tax results (i.e. should we marry in 2014 or 2015).

  1. What’s in a name change?

If either spouse changed his/her name as a result of the marriage, make sure the name(s) has been changed at the Social Security Administration (Form SS-5) and the name matches the name used on your first tax return as a married person.

  1. To do or not too do (your taxes together)?

Married couples are permitted to file their taxes one of two ways: married filing jointly or married filing separately. While a joint filing status is usually best of most couples in that it will result in the least amount of taxes being paid, it doesn’t hurt to compute the taxes with each filing status to see which produces the lowest tax bill in your particular situation. You are permitted to change your filing status in the future so any decisions for 2014 are not binding on future tax years.

  1. What’s mine is yours, unless…

If either spouse has a current tax issue pending from prior to the marriage, the couple should consider filing separately, especially if tax refunds are at issue and one spouse has no legal liability for the debts of the other spouse.

  1. Same sex, different taxes?

For same-sex couples, the IRS will view you as legally married for federal tax purposes. Thus, a joint or separate filing status will need to be determined for federal tax purposes. However, there is still uncertainty for same-sex married couples who live in a state that does not recognize their marriage. If this is the case, it may be necessary to file as married at the federal level and single at the state level.

Click here for Part 2.

Scott Estill is the author of TAX THIS! An insider’s Guide To Standing Up to the IRS. He is a tax attorney and former IRS Senior Trial Attorney who operates out of Denver. Follow Scott on twitter at @TaxThis

Five Tax Reasons For Considering Divorce in 2014

Our US Tax author Scott M. Estill walks Americans through five ways that being divorced will improve your tax outlook in 2014. If your conscious uncoupling is getting closer to finalizing, you can take these tips all the way to the bank this year.

Timing is everything

You can wait until December 31, 2014, to determine your tax filing status for 2014. As such, a divorce finalized on New Year’s Eve will have the same effect as one filed on New Year’s Day (for tax purposes). You may thus be able to determine the approximate tax liabilities late in 2014 to consider what the financial differences truly are for being married or single come December 31.

More money, more problems

You may escape the “marriage penalty” with respect to your overall taxes. The tax brackets for married couples are exactly double the amounts for single taxpayers for the 10% and 15% tax brackets. However, once you move up to the 25% bracket (and all tax brackets above this, up to and including the 39.6% bracket), the amounts are nowhere near double for married couples. For instance, two single individuals earning $85,000 each would fall into the 25% tax bracket, but if they were married their combined income ($170,000) would push them both into the 28% tax bracket. There are numerous other examples of the marriage penalty in the current tax laws.

Single file, please

You may pay less in taxes due to the avoidance of the Alternative Minimum Tax (AMT). For instance, a single person gets an exemption of $51,900 for AMT (income not subject to the AMT), while a married couple receives $80,800. Two single taxpayers thus get a combined exemption of $103,800, or $23,000 more than the same couple would obtain if legally married. Similarly, the top AMT tax rate begins at $179,500 for either single or married taxpayers, thus providing another incentive to return to the single life.

All in the family

Alimony/spousal maintenance is tax deductible to the ex-spouse making the payments and is taxable to the ex-spouse receiving the payments. With proper planning, it may be possible to shift income taxes to a person in a lower tax bracket (person receiving the alimony/maintenance) and gain a tax deduction for someone in a higher tax bracket (person making the payments). Please note that payments for child support are not tax deductible and also do not represent taxable income.

Invest in yourself

You (as a couple) have a high amount of investment income. If this is the case and your total income is more than $250,000, you will be facing higher taxes to fund the Affordable Care Act. This includes a 3.8% surtax (in addition to income taxes) on investment income that kicks in at $200,000 for single taxpayers and $250,000 for married taxpayers (another example of the “marriage penalty”). In addition, the highest capital gains taxes are paid by single taxpayers when the income reaches $406,750 and for married couples at $457,600. By way of example, two single individuals could each have $390,000 of income and not be subject to the highest capital gains taxes, while if they were married the combined income of $780,000 would subject them to the highest capital gains tax rates (20% for federal taxes), along with the health care surtax of 3.8% (along with any taxes that may be owed to the state).

Scott M. Estill is the author of TAX THIS! An insider’s Guide To Standing Up to the IRS. He is a tax attorney and former IRS Senior Trial Attorney who operates out of Denver. Follow Scott on twitter at @TaxThis

Tax This!

 

 

 

Avoiding Tax Problems in Canada

A number of Canadians have problems with their income taxes, or corporate or other business returns, whether they haven’t paid them; haven’t filed; unknowingly (or knowingly) filed incorrect information; or have been notified of an audit.


These problems are common, and most can be avoided; if it’s too late for avoidance, they can usually be fixed or at least handled a bit easier with a bit of knowledge.

Note: If unsure of any aspect of your taxes, it is wise to consult professionals such as accountants and tax lawyers.

Unfiled or Unpaid Taxes

Not filing your taxes is illegal. Not paying them is not recommended, but it is not illegal, according to tax lawyer Dale Barrett, author of Tax Survival for Canadians: Stand up to the CRA.

If taxes are owed, but the taxpayer hasn’t filed, Canada Revenue Agency (CRA) will assume the taxpayer wants to evade payment. Tax evasion is a criminal offence, and the easiest way to avoid a criminal record, along with penalties, fines, or imprisonment, is simply to ensure taxes are filed on time and the numbers are correct.

If taxes have been filed but not paid, there are ways to schedule payment and/or request taxpayer relief under the Taxpayer Relief Program.

Incorrect Information

Some people intentionally fail to declare all their income as a way to avoid owing taxes on that income. Some people make unintentional mistakes. CRA makes a decision whether to accept the return as filed, correcting any obvious errors, and sending a Notice of Assessment back to the taxpayer. If the taxpayer agrees with the assessment, everything proceeds as normal. If not, further steps may be taken to appeal.

Audits

Some audits are conducted on people who are chosen at random, and some are conducted on people who meet certain risk criteria through a targeted selection process.

According to Barrett, these risk criteria are factors that increase a taxpayer’s chances of an audit:

  • Professional income
  • Audit of one’s spouse
  • Audit of one’s business
  • Audit of one’s business partner/associate
  • Farming or fishing income
  • Partnership income
  • Investment income or tax credits
  • Real estate purchase or sale
  • Dividends from private corporations
  • Support payments and alimony
  • Moving expenses
  • Clergy residence deduction
  • Adoption expenses
  • Medical expenses
  • Disability support payments or disability tax credits
  • Research and development expenses

Other criteria that may convince CRA to audit include self-employment income, child care deductions, home office deductions, any evidence of criminal activity, prior audits, discrepancies between GST/HST returns and income tax returns, rental income, shareholder loans, and of course, tips from informants.

There is a chance you will be audited if you meet any of the above criteria, so be ready by knowing your rights and obligations. Do not offer more information than the auditor asks for, and always ask why an auditor is asking for certain information or documents. If an auditor is looking for evidence to have you prosecuted, this is no longer a CRA issue and he or she may need a warrant; contact a tax lawyer immediately.

What to Do about Tax Problems

It is never a bad idea to avoid as many problems as possible up front by hiring professionals to do your taxes.

If you have a problem later on, there are processes that can be followed; for example, if a taxpayer disagrees with an assessment, he or she may file a Notice of Objection within 90 days to appeal the decision.

If ever in doubt, consult a tax lawyer.

For more information on tax problems in Canada and how to avoid them or legally deal with them, consult Canadian tax lawyer Dale Barrett’s book Tax Survival for Canadians: Stand up to the CRA.

About Tax Survival for Canadians: Stand up to the CRA by Dale Barrett, tax lawyer, is a helpful resource for Canadian taxpayers, outlining rights and responsibilities for individuals and businesses. Find it in our store:

in print, or

as an ebook.

and visit Visit Dale Barrett’s blog.

Canadians Flocking to Arizona

Last year, more Canadians moved to Arizona than any other year in recent history. A bit ironic given the state is going through one of its worst economic crises since the Great Depression. But it is, in fact, one of the biggest reasons there is such a Canadian boom.

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US Tax Law Changes in 2012

Congress is making some major tax law changes now that will impact American taxes for many years in the future. One of the biggest changes will occur after 2012 and will involve a 3.8 percent Medicare tax on investment income. First, this new tax will apply only to those single taxpayers who earn at least $200,000 and any married couple earning at least $250,000 ($125,000 if filing separately– just another example of a marriage penalty in our tax code). The tax also applies to estates and trusts (but not to any charitable trusts that are otherwise exempt from paying taxes).

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Knowing How to Talk to the IRS Is Key to Avoiding American Tax Problems

Due to the inherent complications of tax legislation, it’s extremely difficult for Americans to fully comprehend how the Internal Revenue Service (IRS) operates and, ultimately, how to deal with tax issues.

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