The new 2009 client organizer is now available online at www.palazzocpa.com. Returning clients and new clients are encouraged to review, complete and return as soon as possible. The organizer can be used for current tax assistance as well as prior years. Personal assistance is available by emailing or calling our professional staff.

Extensions

If you think you’ll need an extension for your 2009 tax return, please send us your information as soon as possible. We’ll file the extension for you, and complete your return as soon after April 15 as possible. Any client information received after March 16, 2010 will most likely be placed on extension.

New Client Referral Program

Thanking U.S. Expats for their personal sacrifices never grows old for the staff and families at Palazzo & Company. Therefore we have gone a step further by creating a new client referral cash back program. It’s simple and easy. For every new client we will send the referring person $25.00. To provide adequate credit to the referring person the new client only has to mention the referring person by name in the client tax organizer. Payment will be made after June 15th of each year. There is no limit to the number of new client referrals and the referring person does not have to be a client, it can be anyone. Non clients should provide name and email.

Good News!

Foreign Earned Income Exclusion has increased to $91,400 for tax year 2009, and $91,500 for tax year 2010. The 2006 TIPRA Act had some good news and some bad news for Expats. The good news was the Foreign Earned Income Exclusion would increase annually. The bad news was your tax rates would also increase. But of course that is also old news. Many U.S. Expats are paying FICA tax for the first time because of an out-of-control liberal Congress, that took aim to punish U.S. Defense Contractors but instead only hurt U.S. Expats and America’s global competitiveness. Once again, good news and bad news for you. The good news is that you are now being credited for Social Security and you are helping fund Medicare. The bad news is you took a 7.65% pay cut. Keep in mind the Foreign Earned Income Exclusion along with the pay and opportunity is much better than what can be expected in CONUS.

Bad News!

To receive the foreign earned income exclusion, the IRS requires that you file within 1 year from the original due date of the return (determined without regard to any extension). Worst-case scenario – if you file your tax return late and owe a balance, the IRS can disallow your foreign earned income exclusion, even if you have earned it, thus making 100% of your earnings taxable without any benefit of exclusion. The bottom line here is that you should file your tax return as soon as possible, even if you are still working overseas.

The new 2008 client organizer is now available online at www.palazzocpa.com. Returning clients and new clients are encouraged to review, complete and return as soon as possible. The organizer can be used for current tax assistance as well as prior years. Personal assistance is available by emailing or calling our professional staff .

New Client Referral Program

Thanking U.S. Expats for their personal sacrifices never grows old for the staff and families at Palazzo & Company. Therefore we have gone a step further by creating a new client referral cash back program. It’s simple and easy. For every new client we will send the referring person $25.00. To provide adequate credit to the referring person the new client only has to mention the referring person by name in the client tax organizer. Payment will be made after June 15th of each year. There is no limit to the number of new client referrals and the referring person does not have to be a client, it can be anyone. Non clients should provide name and email.

Good News!

Foreign Earned Income Exclusion has increased to $87,600 for tax year 2008. The 2006 TIPRA Act had some good news and some bad news for Expats. The good news was the Foreign Earned Income Exclusion would increase annually. The bad news was your tax rates would also increase. But of course that is also old news. Many U.S. Expats are paying FICA tax for the first time because of an out-of-control liberal Congress, that took aim to punish U.S. Defense Contractors but instead only hurt U.S. Expats and America’s global competitiveness. Once again, good news and bad news for you. The good news is that you are now being credited for Social Security and you are helping fund Medicare. The bad news is you took a 7.65% pay cut. Keep in mind the Foreign Earned Income Exclusion along with the pay and opportunity is much better than what can be expected in CONUS.

Bad News!

The IRS is now beginning to disallow the Foreign Earned Income Exclusion for late filers, even if earned. Where some Expats think they have 180 days to file from the date you leave a combat zone, this is absolutely FALSE. What could happen as a result of new compliance efforts being taken on behalf of a soft economy and an unfriendly Congress. Is that you could see your exclusion denied. On top of that you will have to pay full taxes on all income earned plus pay interest and penalty from the original due date until paid in full.

ECONOMIC STIMULUS PAYMENT – To receive the stimulus payment by the end of the year you must file by 10/15/08. If you have not filed by 10/15/08, don’t panic, taxpayers who do not receive economic stimulus payment in 2008 can still qualify in 2009.

IRS CRACKS DOWN ON LATE FILING EXPATS – To receive the FEI exclusion, the IRS requires that you file within 1 year from due date of the return (determined without regard to any extensions). The IRS has recently issued guidance to begin enforcing this long overlooked tax rule. If you have not filed your Expat tax returns for 2006 and earlier years, please contact us ASAP to discuss your options. Worse case scenario - if you owe taxes the IRS can disallow your FEI exclusion, even if you have earned it, thus making 100% of all of your earnings taxable without any benefit of the FEI exclusion. Working in a combat zone does not guarantee Expats any relief from the IRS.

PER DIEM – TAXABLE TO EXPATS – The taxability of per diem is determined whether or not an assignment is considered Temporary or Indefinite. Per diem received on contracts lasting 12 months or less (Temporary) are typically tax free. Per diem received on contracts lasting 12 months or more (Indefinite) are typically NOT tax free. Per diem is always taxable at your IRS defined Tax Home. Typically, the first 365 of an assignment has tax free per diem and per diem then becomes taxable on day 366. Keep in mind not all companies pay per diem and not all companies treat per diem the same.

EOC R&R IN THE US – End of contract (EOC) R&R’s in the US count against your 35 days allowed in the US for the Physical Presence Test (PPT), if they fall in the twelve month period you are using to calculate the PPT.

• The Rule of Thumb is that you MUST have 330 full days in a foreign country every twelve months. So this gives you in essence 35 days to be in the US, possessions or territories. You can pick the twelve-month period that benefits you the most; it does not always have to be a calendar year or contract to contract period (although those are the most common test periods).
• Full day defined - starts at midnight and runs 24 hours.
• There are NO WAIVERS or SPECIAL PRO-RATIONS for Expats who do not meet the minimum 330 day rule.
• There are NO COMBAT ZONE SPECIAL treatment.

The number ONE tax saving strategy while working overseas is to maximize your contributions to your employer-provided 401(k) retirement account.

• If your company offers a 401(k) plan, I recommend the following: contribute the maximum annually; do catch-up
• contributions to the max. If you are unsure whether your company has a plan – Ask your HR or Payroll department.
• Seeing is believing! Tax dollars saved per tax bracket could be – 15%:$2,250, 25%:$3,750, 28%:$4,200 and 33%:
• $4,950. That’s cash in your pocket and savings for a comfortable future.
• In addition to the tax savings mentioned above most companies match your contribution. This is like getting free money and it all grows tax deferred until you reach retirement age. No other investment provides the kind of returns on initial investment like a 401(k) plan.
• Traditional IRA – if your employer doesn’t offer a 401(k) plan a Traditional IRA could save you $750-$1,650 per year.
• Roth IRA – not recommended for Expats due to income limitation rules – consult your advisor.

Cruises

In the past, cruises from US ports were acceptable as foreign days abroad. Now they count against your days in the US. If you must go on a cruise, make sure it departs from a foreign port-of-call and returns to a foreign port-of-call with no stops in USA, US possessions or US territories. The IRS puts more weight on the 330 foreign day rule than they do on 35 days or less in the US.

Remember - a foreign day starts at midnight and runs 24 hours.

Did You Bust Your Presence Test?

Many clients contact me this time of the year to tell me “Steven I busted my days”. Keep in mind that although you may have exceeded 35 days in the US in a calendar year, that doesn’t necessarily mean you busted your days and lost all of your exclusion.

• The Rule of Thumb is that you must have 330 full days in a foreign country every twelve months. You can pick the twelve- month period that benefits you the most; it does not always have to be a calendar year or contract to contract period (although those are the most common periods). However, keep in mind, that you will want to maximize the qualifying foreign days in the current tax year, as those are the only ones that provide exclusion of income for tax purposes.
• Next month’s Expat Tax Alert will cover the presence test in much more detail. In the meantime, contact us if you have any questions. FICA TAXES - Mid-year 2008 brought serious changes for employees of foreign subsidiaries of US companies with USG contracts. In the past, a majority of Expats have not had to pay Social Security and Medicare taxes (FICA), but they do now. Prior to us emailing a FICA update most Companies sent out guidance on the subject, therefore our update was no longer necessary, however, if you still have questions or concerns please email us.

FICA Taxes

Mid-year 2008 brought serious changes for employees of foreign subsidiaries of US companies with USG contracts. In the past, a majority of Expats have not had to pay Social Security and Medicare taxes (FICA), but they do now. Prior to us emailing a FICA update most Companies sent out guidance on the subject, therefore our update was no longer necessary, however, if you still have questions or concerns please email us.

• Non-Clients – if you received a W-2 with no FICA withholding, but paid FICA taxes with your tax return, then you may be able to amend prior years and seek a refund. Typically the refund will be several thousand dollars. If you know a co-worker who unknowingly, may have paid this tax, please share this alert with them.

Date: December 31, 2009
To: US Expats
From: Steven Palazzo, Expat CPA
Re: $25 Cash – New Client Referral Fee

Good news just keeps getting better. No fee increase for 2009, and now you have a chance to earn cash just for doing what many of you already do: referring Palazzo & Company Expat CPAs to your coworkers.

It’s truly quite simple to earn the $25. All you have to do is refer an Expat to us and if he or she becomes a current tax year client, I will send you $25 for each referral.  Any Expat can earn the referral fee; just have the referral mention your name at tax time and I will record it.

PS - Please don’t send me the project roster and claim them all as referrals or a mass email. The person referred must provide me with your name through email, website, or client organizer.

One of the most easy ways for them to learn about us and see why we are the preferred provider of Expat tax services is to browse our website.

This is just another way Palazzo & Company CPAs can show our gratitude for all that you do.

Please contact me if you have any questions.

Regards,
Steven M. Palazzo, CPA

(Note: this will be the only email you receive from Palazzo & Company unless you request to be added to our email list or unless you are already a current client)

Foreign Earned Income Exclusion
Most important change affecting Expats is the maximum foreign earned income exclusion is now adjusted annually for inflation. For tax year 2007, the maximum exclusion has increased to $85,700. For 2008 it will increase again and each year thereafter.

State Specific
Mississippi will now recognize the foreign earned income exclusion effective January 1, 2007. Palazzo & Company has worked tirelessly for over two years to bring about this change in Mississippi’s tax law.

States that do not allow the foreign earned income exclusion are NJ, MA, PA and AL.

Self Employment Tax
Employees paid from overseas payrolls (ie Dubai) are not required to pay self employment taxes. If you have been required to pay self employment taxes you should consider amending your return for a refund. Self Employment taxes can be as high as 15.3% of your net earnings. To make sure you were not assessed this tax go to page 2 of your form 1040 tax return and on line 58 the amount should be zero.

Employees paid from US based payrolls are required to have social security and medicare taxes withheld from paychecks because this entity is a US based company. This comes out of your pay automatically.

330 Day Requirement
The 330 full days in a foreign country during a twelve month period is still a requirement to earn the foreign earned income exclusion. Contrary to rumors there has been no change to this rule and there are no exceptions. It can be any twelve month period that gives you the greatest tax benefit. In addition you can have up to two presence tests in the same year that may allow you to maximize your exclusion if you are working contract to contract instead of on a calendar year basis.

Filing Requirement
Even if your earnings fall below the $85,700 exclusion all US Taxpayers are still required to file a tax return to claim the exclusion of income if they meet the exclusion requirements.

Combat Zone
There are no combat zone tax exclusions for civilian contractors. Again contrary to rumors the only exclusion of income is the foreign earned income exclusion and the max for 2007 is $85,700. And you must meet the 330 day requirement and in very limited circumstances you may qualify for this under bona fide residence (not allowed in Iraq or Afghanistan). There are no IRS memos or secret waivers this is just wishful thinking and could be very harmful to Expats if relied upon.

Housing Exclusion
Employees in some countries may live on the economy and not in tent cities or man camps and they receive a housing and utility allowance, which is included in their gross pay. This could increase your exclusion of income thus reducing your taxable income.

Cash Back Referral Program
New for 2007 tax year any Expat is eligible to earn a $50 cash payment if they refer three Expats to our firm that become clients. If interested just email me.

Please contact us directly with any Expat questions you may have.

Thank you for your time but more importantly thank you for what you are doing for our troops abroad and your country.

Have a safe and blessed Holiday Season!

Steven M. Palazzo, CPA

As previously promised there will be no increase in fees for 2007 tax year. All basic rates will remain the same as last year.

Keep in mind the basic package includes: federal and state (where applicable) planning and tax return preparation; efiling, extensions, correspondence and most importantly year round planning and support.

No where can you find a firm with our experience in Expat planning, knowledge and ability for such a low fee.

Also for 2007 we will finally begin offering referral discounts and more details will be provided in a week or two.

Regards,
Steven Palazzo, CPA

Everyone I know working overseas in a combat zone probably has seen this memo. Let me tell you once and for all this memo does not apply to civilian contractors working in combat zones. This memo was released for a very small group of Coalition Provisional Authority Personnel and the only thing it did was allow them additional time to file their tax returns. It did not provide a full Combat Zone tax exclusion. There is no such thing. It did not waive their 330 day overseas requirement. This still must be met every twelve months. The only exclusion of income must be earned by meeting the presence test or in some instances the bona fide residence test.

Can you imagine the number of people who have erroneously relied on this and are now facing audits, liens and tax seizures. Do you also know that you can’t even use this memo as a defense because it does not tell you your income is excluded, it does not tell you are tax free, it does not tell you can come and go to the US and not meet the 330 overseas requirement.

This memo has been grossly misinterpreted. It does not provide you any tax relief whatsoever and I’ve confirmed this on several occasions with the Office of Chief Counsel (International) Internal Revenue Service.

This link http://www.palazzocpa.com/bogusmemo.php will provide you with the only authority you need to know for working overseas as a civilian in a combat zone and it also provide you with the link to the Robert Hunt IRS memo.

Please help others by emailing to your Human Resources department so they can distribute Theater wide and share with your coworkers. I’m also available to assist and answer any questions that may arise.

Regards,
Steven Palazzo, CPA

Latest activity in phishing scams now involve counterfit IRS emails. Many Expats have contacted me about this because it appears to be an officially sanctioned IRS email. It’s not and it’s false.

Here is the IRS report on the new phishing scam please read and provide to your coworkers -

http://www.irs.gov/newsroom/article/0,,id=170894,00.html

And how to report and protect yourself can be viewed at -

http://www.irs.gov/newsroom/article/0,,id=155682,00.html

Wikipeida definition of phishing –

In computing, phishing is an attempt to criminally and fraudulently acquire sensitive information, such as usernames, passwords and credit card details, by masquerading as a trustworthy entity in an electronic communication. eBay, PayPal and online banks are common targets. Phishing is typically carried out by email or instant messaging,[1] and often directs users to enter details at a website, although phone contact has also been used.[2] Phishing is an example of social engineering techniques used to fool users.[3] Attempts to deal with the growing number of reported phishing incidents include legislation, user training, public awareness, and technical measures.

Please protect yourselves,

Regards,
Steven Palazzo, CPA

As part of the process to implement tax cuts within a limited budget, lawmakers have proposed the repeal of the foreign earned income and housing exclusions available to certain US citizens and residents working outside the US. The repeal of these exclusions would have a significant impact on the US tax costs of international assignments.

“The Bottom Line”

It’s recognized that Section 911 affects US citizens and residents working in low-tax and high-tax countries alike, and that the repeal of the exclusion could place foreign individuals on international assignments (or permanent posts outside their home countries) at a competitive advantage over US citizens and residents working outside the US.

BACKGROUND

On May 15th the Senate approved the Economic Growth Bill and $441B tax package. Within the package it contained a provision that will repeal Section 911 of the tax code, which you know as your foreign earned income exclusion. Bottom line - this means in the near future all your foreign earned income will become taxable and there will no longer be an $80,000 income exemption.

The previous Economic Growth Bill passed by the House did not contain this provision and it is now going into the House/Senate Conference to reconcile the differences in dollars, language and the such. Congress hopes to have this worked out by Memorial day.

Initially the original proposal would have repealed the exclusion effective January 1, 2005 but during committee the Senate adopted an amendment to accelerate the effective date by one year, to January 1, 2004.

NUTS & BOLTS

The reason I’m notifiying everyone of this is that there may be one last chance to repeal this provision. Senator Breaux of Lousisiana has already tried one amendment to repeal the provision and it failed to pass by a narrow vote of 51 to 49. He’s not alone in his opposition of the proposal. The Associated General Contractors of America, the largest and oldest national construction trade association representing over 35,000 firms has petitioned the Senate Finance Chairman to repeal the provision as well.

The AGC has done the following - “Delivered a letter to Sen. Charles Grassley opposing the proposed tax increase on Americans working overseas, signed by some of the largest construction and engineering companies in the industry…They stated section 911 of the tax code, levels the playing field between Americans working abroad and their foreign counterparts…allows Americans to compete fairly for overseas jobs…Repealing section 911 denies US companies utilizing US workers the same opportunities as their foreign counterparts, restricts their ability to bid fairly on jobs, and ultimately damages the US economy…they urged the Senate to strike this provision from the tax bill and help stimulate the economy by leveling the playing field for Americans all over the world.”

SPEAK UP OR PAY UP!

The vast majority of Americans and elected leaders don’t have a clue what Sect. 911 is and what it does for Americans and the Economy. Proof of this is that the so called economists and congressional beancounters think they are going to make a windfall in revenue by taxing 100% of the US citizens foreign earned income. What they don’t see is by leaving Sect. 911 alone and striking the proposal from the bill it will do more for the economy financially and in job growth. But by repealing the exclusion they will lose billions more.

For individuals the income exclusion helps States as well as the US Gov’t by employing US citizens in assignments around the world. Financially, these taxypayers make good money and they spend a majority of the money in the US. This money generates jobs in the US, sales tax revenue, demand for products, new businesses and much more. In qualitative terms it opens up local communities in the US to a global perspective and allows US citizens to interact around the world building friendships and improving other countries quality of life. In a sense, each US Expat is like a diplomat representing America doing probably more good then our own State Department. Because Expats are not political the rest of the world actully sees the true values and principles of what makes America great. And many foreigners emulate the US Expats they meet.

On the other hand the income exclusion helps US companies compete with foreign companies for not only US contracts but foreign as well. This generates corporate profits and taxes that our States and USG can use to fund its budgets. Repealing this exclusion will hurt the competivieness of US companies and it will also reduce their revenue, recruitment and employment of US citizens overseas. If they have to rely on greater numbers of foreign workers to replace and backfill the US positions that can no longer be filled billions of dollars will now be going to foreign workers and back to their countries and not one penny will be spent in the US.

TAKE ACTION

This proposal was inserted into the bill by staffers (not our elected leaders) because they thought it would not get any attention or debate. For the most part they were right. But many of us are hoping it’s not to late to reverse the pending damage it will do. And now you can help regardless of which political party you identify with you need to contact your US Senators and Congressman and tell them you disapprove of the repeal of Section 911 and you do not agree with the taxation of US citizens working overseas. You need to act now by calling, faxing, and emailing. Get your family, friends and co-workers to do the same. If we can not get this proposal taken out of the Economic Growth Bill then all your earnings for 2004 will be taxable. If you choose to leave your overseas assignment you will have to come back to the US and work just as hard not only finding a job but if your lucky finding employment getting paid much less to support yourself and family. The bill is good the proposal is bad. The proposal is a lose lose situation for everyone.

Be sure and copy all of your emails sent to your Congressman

BOTTOM LINE

The repeal of the Sect. 911 and the foreign earned income exclusion is bad for you, your family, your company and America. Don’t delay because we only have days to convince your Congressman that this is a bad move on their part and for them to stand up and be accountable. Keep in mind most of them probably didn’t even know what they were voting on so it’s up to you now to educate them on how you feel and how it will affect you, your community, their State and America.

Good luck!

- Steven

WEBSITE FOR MORE INFORMATION ON THE ECONOMIC GROWTH BILL.

http://www.agc.org