Should I file form 1040? Or maybe form 1120F is the right choice for me? Do you need to submit a tax report to the U.S. Tax Authority and cannot decide which forms to submit and what should be included with them? The following manual will guide you through all the important forms of the U.S. Tax Authority.
FATCA Reporting Form
In order to cope with the growing deficit in the United State budget, the Foreign Account Tax Compliance Act (or FATCA) came into force in 2013.
The law requires every U.S. citizen and every green card holder who owns, co-owns, or is authorized to sign financial accounts held outside the United States to report these accounts to the U.S. Treasury Department.
The accounts that need to be reported are accounts with an accumulative amount of more than $10,000 at any point in the same tax year.
For this purpose, financial accounts include checking accounts, deposits, and savings, pension funds, securities portfolios, executive insurance, provident funds, study funds, life insurance with a savings component.
The above report is done through the FBAR form (Report of Foreign Bank and Financial Accounts), filed online only. The first part of the form refers to the personal details of the submitter.
The following subsequent sections deal with the details of the financial accounts held by the submitter: first directly owned accounts, then the jointly owned accounts, and finally accounts in which the submitter is authorized to sign.
In each of the sections, the submitter is required to fill in informative details about the accounts, including the amounts of money accumulated in them. After filling in the full details, the submitter signs the form electronically.
The reporting date is April 15. It can be extended until October 15.
Please note that failure to comply with the reporting date may result in civil and/or criminal sanctions: A U.S. citizen who inadvertently fails to report a foreign account is expected to be fined $10,000 per violation. A U.S. citizen who intentionally did not report is expected to be fined $10,000 or 50% of the balance on the account – whichever is higher.
In this context, it is worth noting that the IRS initiated a voluntary disclosure program that enables tax reports to be carried out retroactively, without being subject to sanctions.
Forms W/9 & -W/8
In order to ensure the enforcement of the FACTA act, including the arrangement requiring tax authorities in countries with which the United States has signed an appropriate agreement, to report accounts managed in their country by American citizens/ green-card holders to the IRS.
Since 2016, the State of Israel has signed a financial information exchange agreement with the United States. As part of the agreement, the Israel tax authority transfers information to the U.S. tax authority (the IRS), information about financial accounts managed in Israel by American citizens and green-card holders.
The tax authority is of course assisted by the financial corporations in Israel which report such accounts to it.
If the banking corporation detects indications that the customer is an American citizen or holds a green card, the bank will contact the customer to declare that he is indeed an American citizen and fill out form W/9 – Request for Taxes Payer Identification number and certification.
The form includes the delivery of personal information, among other things:
- type of entity reported (single, company, partnership, fiduciary or an L.L.T.)
- name and last name (or: company name if not an individual)
- TIN identification number (Taxpayer Identification Number)
- If the subject is an American citizen, the required TIN is the SSN (Social Security Number).
- A citizen who does not have such a number but is in the process of issuing it will mention this on the pages of the form.
- If it is a company rather than an individual, it refers to the EIN (Employer Identification Number) – a tax identification number for business entities.
- Financial account information
- Details of the FACTA reporting exemption.
The second part of the form includes a declaration stating that it is indeed a U.S. citizen/entity, that the identification information provided is accurate, and that you are exempt from a tax deduction of 30% of the funds transferred to the account in question.
In this context, it will be noted that there is income that is subject to tax deduction at this rate, including rental income, dividend income, and more.
If despite the indications, this is not a U.S. citizen/entity, the customer will be asked to fill out a W/8BEN form. This is a parallel form, intended for filling out non-citizens.
As with Form W/9, the client will be asked here to fill out personally identifying information, but here the nature of the statement is the opposite: the client declares that he is not an American citizen and that he does not owe a 30% tax deduction. If the subject discussed is not an individual but a company, the relevant form is W/8BENE.
It is important to understand that if the subject does not properly fill out the above forms, he will be subject to sanctions – whether by closing the account by the financial institution or with a 30% tax deduction.
Form 1040
Any U.S. citizen or permanent resident holding a green card that passes the annual income threshold set by law must submit an income tax report. For the self-employed, any income over $400 must be reported. For employees, the income threshold is higher, but its exact rate depends on the personal status of the reporter.
The report is done using form 1040 – U.S. Individual Income Tax Return. The form includes personal identification information and detailed reporting regarding all sources of income.
The report covers all active or passive income, including income from wages, social security benefits, pensions, income from private businesses, dividends, interest, etc.
It will be noted that the place of income generation is not important – the report refers to the taxpayer’s global income. The other parts of the report include reference to possible tax deductions, as well as reference to separate legal entities owned by the submitter of the report.
Foreign citizens who have income originating from the United States will submit a corresponding form – 1040NR. This form also includes personal information, possible deductions, and so on. However, this form applies only to income from the United States.
It should be noted that since foreign citizens do not have identification details such as a Social Security number (SSN), they should apply for an ITIN number – an identification number for tax purposes.
The date for submitting form 1040 is April 15 of the following year. For citizens who do not live within the United States, there is an automatic extension until June 15 of the following year. In both cases, it is possible to get a special extension until October 15 of the following year.
Late reporting, partial reporting, or lack of reporting may result in heavy fines and other severe sanctions.
Form 1120
Naturally, the income tax reporting obligation also applies to corporations. A company incorporated as a C-CORP, that is, incorporation with a separate legal entity from its owners aimed at profit-making will submit its revenue reporting through form 1120 – U.S Corporation Tax Return.
A company that has chosen to be transparent for tax purposes, that is, S-CORP, will report its revenue through form 1120S. It should be noted that, as opposed to the C-CORP, the S-CORP will not bear the tax liability itself, and its shareholders will be liable.
In the above forms, the Company will report its income, expenses, profits, deductions, credits, and other details required to calculate the tax liability. As for a local corporation – whether transparent or discreet – the report will relate to the company’s global revenues.
However, if the company in question is a foreign company, the report will include only revenue generated within the United States.
Local corporations will file their tax reports by April 15 of the following year. Foreign companies will submit the report by June 15 of the following year.
It is possible to apply for an extension until October 15. Foreign companies will be able, if necessary, to apply for an additional special extension to submit the report by December 15.
Form 1065
Partnerships dealing with any trade or business activity must also report annual income taxes. The tax reporting of partnerships will be done through form 1065 – U.S Return of Partnership Income. As part of the form, the Partnership will report income, expenses, profits, losses, credits, and other partnership activities.
Since the Partnership does not bear the tax liability itself but transfers the liability to its members, the Partnership will issue an attachment- Schedule – K, and in it the Partnership will report each partner’s share of the profits (as determined in the Partnership Agreement).
It should be noted that if one of the partners is a foreign entity, the Partnership will withhold tax from its income, and will issue it a form 8805.
As noted above, each partner will report these incomes (according to their share of the partnership), their personal income reporting form (form 1040 or alternatively 1040NR).
A Partnership will report its revenue through form 1065 by March 15 of the following year. If the Partnership is managed outside the United States, an extension will be given on demand until June 15. In any case, an additional extension can be requested until the 15 of September.
Form 8938
Some call form 8938 an expanded FBAR form, this is due to the fact that this form also refers to the cumulative value of financial assets outside the United States. But contrary to popular belief, this is not an extended form but a separate and independent obligation.
Form 8938 – Statement of Specific Foreign Financial Assets – is an accompanying form for the annual income tax form, which, unlike the FBAR form, is submitted to the U.S. Tax Authority (IRS), and not the U.S. Treasury Department.
The applicant must attach this form to the annual income form in case the cumulative value of his financial assets held outside the United States exceeds the following income thresholds:
Application within the United States
Single or married filing separately
The cumulative value of the financial assets exceeds $50,000 on the last day of the tax year or $75,000 at some point in time during the tax year.
Married Filing Jointly
The cumulative value of the financial assets exceeds $100,000 on the last day of the tax year or $150,000 at some point in time during the tax year.
Application outside the United States
Single or married filing separately
The cumulative value of the financial assets exceeds $200,000 on the last day of the tax year or $300,000 at some point in time during the tax year.
Married Filing Jointly
The cumulative value of the financial assets exceeds $400,000 on the last day of the tax year or $600,000 at some point in time during the tax year.
As part of filling out the form, the applicant must refer to all financial assets held by him, including shares, bonds, securities, options, and any other financial derivatives. As part of the report, the application should include the value of the assets and other identifying details regarding the assets.
Failure to comply with the reporting obligation or alternatively impaired reporting may expose the applicant to fines – a $10,000 fine for non-filing, a $50,000 fine for continuing refusal to file, and an extension of the limitation period of assets.
Forms 1099
1099 forms are a series of forms that describe money transfers in a commercial framework between individuals or entities, either by bank transfer or by check. The form is issued by a transfer operation, transferred to both the transfer recipient and the tax authority.
Both the transfere and the receiver submit the form to the tax authority so that the authority can eventually cross-check the information.
This is a series of forms with each form intended for a different type of income – dividend income, interest income, rental income, and so on.
All the forms in the series include details of the transferring side and recipient side, the amounts transferred, the reason for the transfer, and the amount of money transferred.
In light of the fact that the information embodied in the forms enables cross-referencing information in the tax authority, it is of utmost importance to accurately issue 1099 forms to suppliers, as well as to obtain similar forms from customers or other money transfers.
Failure to submit or issue as inadequate or missing reporting will have legal implications.
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Summary
This concludes the review of the most usable taxation forms. However, the information presented here is only an overview and is just the tip of the iceberg.
Besides the forms described here, there are hundreds if not thousands of other forms that may be relevant, and whose failure to submit or submission in an incorrect manner may expose you to a tax investigation and subsequent financial and legal sanctions.
Due to the above, we recommend seeking professional advice.
Our professional and skilled staff will be happy to address any questions you might have and to assist you in locating and filling out the relevant forms for your affairs.
