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Notes on Auto and Medical Expenses, and Foreign Income

The depreciation on new cars purchased in 2013 has been announced as:

The 2013 mileage allowance for business use is 56.5 cents per mile in lieu of depreciation, insurance, gas, tires, licenses and all repairs, and those using it must never have taken actual expenses on that auto in prior years.The above includes a “bonus” depreciation of $8,000 in the first year which is not available for “pre-owned” cars. It will also not be available to autos in 2014 without an extension from Congress.

To deduct medical expenses as an itemized deduction (Schedule A) in 2013, the total will need to exceed 10 percent of Adjusted Gross Income. In previous years the floor was 7.5 percent. People who were 65 years of age or older on December 31, 2012 can continue to use the 7.5 percent limit through the year 2016.

The totals for Health Savings Accounts (HSA) have already been announced for 2014. The 2013 maximum deduction figures are as follows: Single coverage $3,250, family coverage $6,450. The new 2014 figures are: single coverage $3,300 and family coverage $6,550. This is for taxpayers who only have high deductible medical insurance.

Congress has aided the IRS in going after foreign income which both government entities believe has been seriously underreported in previous years. This article can’t get into great detail on the recently passed requirements, which can get quite technical, but an overview seems appropriate. Generally speaking, the penalty is $10,000 for failing to file any of these reports.

IRS Forms

• Form 90-22.1 is the oldest of the forms. It is for individuals or companies with foreign bank accounts which at any time in the past year had balances in excess of $10,000. It is now only to be filed by June 30th of each year as a separate document and is no longer attached to the income tax return. The June 30th due date cannot be extended.
• Form 8938 is a new return to be filed with the income tax return. It is comprehensive in that the individual is to report all investments abroad if the total of the maximum value during the year of those assets is greater than $50,000 for a single taxpayer at year end, or $75,000 during the year; for married taxpayers $100,000 at year end or $150,000 during the year; and for married taxpayers filing separately $50,000 at year end or $75,000 during the year. Foreign stocks or bonds held in a broker account or by a financial institution (bank) are excluded, but privately held stocks, contracts, bonds and investments are included.
• Form 5471 is to be filed by all U.S. officers and directors of a foreign corporation who own more than 10 percent of the corporation stock, and the form is to be filed with the officer’s tax return. A U.S. person owning more than 50 percent of a foreign corporation has more stringent reporting requirements. The instructions are complex and can’t be enumerated here.
• Form 5472 is an information return filed by a U.S. corporation with foreign ownership of 25 percent or more. It is filed with the corporation income tax return.
• Form 926 is a report of the transfer of tangible or intangible property to a foreign corporation.
• Form 8865 deals with foreign partnerships.

If you have any of these foreign investments, these forms can be financially devastating to ignore.