New FASB Accounting for Revenue Recognition

New FASB Guidance on Lease Accounting

FASB Foreign Currency Accounting

When did you become a resident of the US for tax purposes?

Establishing you as a resident or non resident of the US can make a big difference to your US tax liability and the amount of work you and your CPA have to do.

Citizens and residents are taxed on worldwide income and allowed a credit for foreign taxes. Income subject to tax is determined under tax accounting rules, not financial accounting principles, and includes almost all income from whatever source

The US is one of only two countries in the world tax that tax non-resident citizens on their worldwide income.

Let’s deal with the simple issues first

If you are citizen or green card holder of the US, you are subject to US tax on worldwide income and it doesn’t matter if you ever set foot in the US.

If you are undocumented in the US you are still subject to the tax laws that apply to residents with a requirement to report income from all sources worldwide.

Now it starts getting complicated

Substantive Presence Test

You are also a resident of the US if you meet the “substantive presence test”.  You meet this test if you have been resident in the US for 31 days in the current year AND 183 days in the immediate previous two years.  These 183 days are calculating the actual days in the current year, plus 1/3 of the days in the preceding year and 1/6 of the days in the year before that.

OK so far, now lets deal with some exemptions

There are special rules if you are a resident of Canada or Mexico and compute regularly to the US to work.

You do not count days if you are in the US working as an exempt individual such as an employee of a professional government, teacher or a professional athlete. This also applies to immediate family members of these people.

Closer Connection to a Foreign Country

Even if you meet the substantial presence test, you can be treated as a nonresident alien if you:

• Are present in the United States for less than 183 days during the year,
• Maintain a tax home in a foreign country during the year, and
• Have a closer connection during the year to one foreign country in which you have a tax home than to the United

Tax home.  

Your tax home is the general area of your main place of business or employment, regardless of where you maintain your family home. Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual.

If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work.

Establishing a closer connection. 

You will be considered to have a closer connection to a foreign country than the United States if you or the IRS establishes that you have maintained more significant contacts with the foreign country than with the United States.

In determining whether you have maintained more significant contacts with the foreign country than with the United States, the facts and circumstances to be considered include, but are not limited to, the following.

1. The country of residence you designate on forms and documents.
2. The types of official forms and documents you file, such as Form W-9, Form W-8BEN, or Form W-8ECI.
3. The location of:
1. Your permanent home,
2. Your family,
3. Your personal belongings, such as cars, furniture, clothing, and jewelry,
4. Your current social, political, cultural, professional, or religious affiliations,
5. Your business activities (other than those that constitute your tax home),
6. The jurisdiction in which you hold a driver's license,
7. The jurisdiction in which you vote, and
8. Charitable organizations to which you contribute.

It does not matter whether your permanent home is a house, an apartment, or a furnished room. It also does not matter whether you rent or own it. It is important, however, that your home be available at all times, continuously, and not solely for short stays.

When you cannot have a closer connection. 

 You cannot claim you have a closer connection to a foreign country if either of the following applies:

• You personally applied, or took other steps during the year, to change your status to that of a permanent resident, or
• You had an application pending for adjustment of status during the current year.
• 
  

Effects of Tax Teaties

The rules given here to determine if you are a U.S. resident do not override tax treaty definitions of residency. If you are a dual-resident taxpayer, you can still claim the benefits under an income tax treaty. 

A dual-resident taxpayer is one who is a resident of both the United States and another country under each country's tax laws. 

The income tax treaty between the two countries must contain a provision that provides for resolution of conflicting claims of residence (tie-breaker rule). 

If you are treated as a resident of a foreign country under a tax treaty, you are treated as a nonresident alien in figuring your U.S. income tax. 

First Year of Residency

If you are a U.S. resident for the calendar year, but you were not a U.S. resident at any time during the preceding calendar year, you are a U.S. resident only for the part of the calendar year that begins on the residency starting date. You are a nonresident alien for the part of the year before that date.

There are also certain rules that apply to specifying the actual date of residency.

Deciding if you are resident or non-resident of the US can make significant changes to the preparation of your tax return.

Contact us at www.mottramcpas.com for help with resident and non-resident tax services.

Business’ fail because the right questions are not asked and researched.

It's often said that more than half of new businesses fail during the first year. According to the Small Business Association (SBA), this isn't necessarily true. The SBA states that only 30% of new businesses fail during the first two years of being open, 50% during the first five years and 66% during the first 10. The SBA goes on to state that only 25% make it to 15 years or more. However, not all of these businesses need to fail. With the right planning, funding and flexibility, businesses have a better chance of succeeding.

We know the facts and we’ve seen the lists but you have to be a detail freak to avoid being a failed business statistic.

Let’s suppose you have the right personality, you have proven management and leadership qualities and on top of that you understand that cash control is critical. 

With all these important attributes in-place what can go wrong?

Well, honest errors in decision-making can go wrong. 

These errors have their origin in the following areas.

1.    Not investigating the market

2.    Business Plan Problems

3.    Too little financing

4.    Bad location, Internet Presence, Marketing

5.    Rigidity

6.    Expanding too fast.

It is easy to keep this list in your mind but each item can stretch into a very broad topic and leave everything very mushy in your mind..

It seems to me, you make the list work when you take a narrower view of each item on the list, at least initially, and then dig very, very deep into each one.. 

The list doesn’t attempt to explain what you can do to avoid the pitfalls of each. You have to do challenge yourself to ask all the questions and promise yourself to answer all the questions fully.

You often need a trusted mentor or advisor to help you with this part. Not to tell you want the answer is, but to help you formulate the questions and then sign-off on the completeness of the information you need to collect. This will form the basis of your  decision-making.

Asking the penetrating questions and not stopping until you have gotten all the facts that counts.

For example, when a business fails you can go back and ascribe broad causes from the list above. For sure you will see the cracks in the foundations of the business were clear well before the business succumbed.

Take “too little financing”. When the business finally closes, of cause there was “too little financing” to keep the doors open. However, was the demise set in motion much, much earlier when a plan to commit funds to an investment hadn’t been thought through well enough and the business could not afford to have lost that money when the project partially or completely failed.   Well the unfortunate decision to proceed resulted from insufficient depth of study.  The company was weakened by not going into sufficient detail in a combination of  areas incluing  “not investigating the market”, “business plan problems “and probably “too little financing”.

It’s asking the right questions at a detailed enough level that really counts, exhaustively collecting information and then completing the decision-making work implied in each item on the list.

We know how much your business means to you, your family and the employees, vendors and customers that relay on you.

It is our passionate mission to have your small business survive and prosper and not be an early statistic to failure.

We have a wide range of tools including decision-making processes that will keep your company healthy and alive.

Contact us for a free consultation.