Whether you had a good or bad year, there are still many things you should be doing in the final run-up to December 31, 2016 to position yourself for 2017 and reporting the 2016 tax year. Timing may not be everything, but it is important.
- Expenses (Self-employed). If you had a bad year, try putting off expenses to next year, especially if you can buy annualized goods/service at a discount. If you had a good year and you are not too certain where you will be next year, you might try making those purchases this year.
- Income(Self-employed). If you can get your customer to make payment on your December invoices in the first week of January (as opposed to December), you can push taxation of that income a year into the future. If you are expecting a big year next year, it might not make a difference unless you are short on cash now.
- Health Insurance. If you are self-employed in the Czech Republic and have not yet registered for public health insurance, you may be on the hook for making monthly minimum payments since May 1, 2016, penalties and interest may apply. Earlier Americans who did not have permanent residence were not eligible for Czech public health insurance; since May your visa status is irrelevant if you have a trade licen with the location of work Czech Republic. Call me if this describes your predicament.
- Capital gains. You have even more leeway to schedule taking capital gains or losses. With the stock market at considerable highs, it might be the right time to take those gains – especially if you have large carry-forward losses.
- If you purchased silver a few years back when the price was at $50/ounce, you might consider selling it to a dealer today at its market price of $18 and buying it right back. Depending on the commission you can negotiate, you could be looking at a realized loss of $32/coin that is not subject to wash sale rules and will offset realized gains on the sale of securities. Modifications of this structure could leave you with the same silver coins in your pocket on the same day of sale, and even the same securities you sold 30 days later.
- Itemized deductions. If you are resident abroad, this probably will not impact you unless you have significant U.S. source income. If you think it will apply to you, total up your itemized deductions: mortgage interest, local taxes, safety deposit boxes, tax preparer expenses, health insurance expenses; total up your adjustments: educator expenses, moving expenses, HSA contributions, timber expenses, self-employed health insurance premia. If you need help understanding these, call me.
- If you made investments into a non-U.S. corporation (ie, s.r.o., a.s. in the Czech Republic), mutual fund, retirement plan or insurance policy with a cash value, or alternatively, derived income of any kind from one of these as an owner – call me, you may have additional filing obligations!
- Roth/IRA/SEP contributions. WARNING! If you are resident abroad, your ability to make Roth and IRA contributions is tightly-regulated and many will NOT be eligible to make them. If you make a contribution you are not allowed to you could easily incur a 6% excess contributions penalty. The rules for SEPs are far more generous. Contact me if you have questions about these.
- Roth/IRA/401(k)/SEP distributions. WARNING! Even if the distribution will be tax-free in the U.S. and not subject to early withdrawal penalties (ie, Roth or non-deductible IRA), this income WILL be reportable and taxable in your local tax return abroad. Taxpayers turning 70-1/2 are obligated to start taking Required Minimum Distributions from their IRAs and 401(k)s between the year they turn 70-1/2 or the following year; if they do not, they can be hit with a penalty equal to 50% of the require distribution. Your custodian will probably start trying to reach you the day after your turn 70; make sure they have your current address and make sure you have access to your online account with them. Contact me if you have questions about these.
- Make sure to download all 2016 monthly foreign financial account statements to your storage device so you have no trouble completing the FinCen114, 8938 (Specified Foreign Assets), 8621 (Passive Foreign Investment Company), or 3520/3520A (Foreign trust )returns. Make sure that you foreign financial institution has your current address on hand.
- Foreign Earned Income Exclusion. If you do not file a local tax return and rely on the physical presence test to claim the exclusion, add up those days to make sure you spent less than 30 days in the U.S. If you are self-employed and earn a living on the border between two European states, make sure you know how many days you spent in each State – the burden to prove your tax residence is on you. Make sure to keep train, plane and ship J tickets to prove when you arrived and left the country.
For more information or assistance with this and other Czech tax and reporting issues, please contact me directly. Please consider friending me on FaceBook or linking with me on Linked-In.