Am I going to be audited?
August 16, 2012 10:24 AM Subscribe
So I was just wired ~$23,000 into my checking account from a foreign bank. How much (if any) tax do I have to pay on this?
This was money that was put into mutual funds for me by my grandparents. Due to some new US regulations, the foreign (Swedish, if it matters) bank would no longer be able to execute/manage the funds for me after August 31st of this year. So they contacted me and we agreed to liquidate the funds and have them wire it to my account. My question is this: Are these funds taxable as income? Capital gains? Or will they fall under the (lifetime) gift tax exemption? Or is it only the gifter who would worry about the gift tax, and not me, the giftee?
I have, up until this point, always done my own taxes online. Now I am considering going to a pro to help me out, but would like to be somewhat informed about the situation before I do so. And since I'm gonna guess it matters, I live and work in New York City.
Any recommendations for great tax people in NYC would be much appreciated as well!
This was money that was put into mutual funds for me by my grandparents. Due to some new US regulations, the foreign (Swedish, if it matters) bank would no longer be able to execute/manage the funds for me after August 31st of this year. So they contacted me and we agreed to liquidate the funds and have them wire it to my account. My question is this: Are these funds taxable as income? Capital gains? Or will they fall under the (lifetime) gift tax exemption? Or is it only the gifter who would worry about the gift tax, and not me, the giftee?
I have, up until this point, always done my own taxes online. Now I am considering going to a pro to help me out, but would like to be somewhat informed about the situation before I do so. And since I'm gonna guess it matters, I live and work in New York City.
Any recommendations for great tax people in NYC would be much appreciated as well!
Do you want to take the money out to spend as cash or are you putting this back into a new investment device (recommended)?
posted by bitdamaged at 10:29 AM on August 16, 2012
posted by bitdamaged at 10:29 AM on August 16, 2012
Your accountant knows. Don't have an accountant? Get one. Spend the $500 on it and get it set up right. Save yourself potentially thousands in the long run.
posted by gauche at 10:36 AM on August 16, 2012
posted by gauche at 10:36 AM on August 16, 2012
You absolutely want an accountant for this.
(It is the giver that pays gift tax, not the giftee, but that doesn't change the fact that you need an accountant.)
posted by stowaway at 10:55 AM on August 16, 2012
(It is the giver that pays gift tax, not the giftee, but that doesn't change the fact that you need an accountant.)
posted by stowaway at 10:55 AM on August 16, 2012
My first concern would be if you have kept up-to-date with filing your Foreign Bank and Financial Accounts Reporting. Essentially, any US citizen who has foreign accounts valued in excess of $10,000 is required to report these accounts. I know a number of poker players who got smacked around by this rule. It makes a huge difference if you self-report the missing years you didn't file before they catch you. Once they have caught you, the penalties can be substantial.
In terms of the questions of when you assumed control and ownership of the account, you really need to talk to an accountant. The fact that they contacted you and liquidated the account to you implies that you did in fact have control of the account. Essentially, the money was a gift at the time you assumed control and you owed tax on the dividends, gains and interest thereafter. Again, if you failed to pay the tax on the income, you are much better off filing amended returns before the IRS wises up.
On the plus side, they don't usually move that fast, so you can probably hire an accountant and straighten it out before anything bad happens. However, I wouldn't waste any time on getting started.
posted by Lame_username at 10:56 AM on August 16, 2012 [1 favorite]
In terms of the questions of when you assumed control and ownership of the account, you really need to talk to an accountant. The fact that they contacted you and liquidated the account to you implies that you did in fact have control of the account. Essentially, the money was a gift at the time you assumed control and you owed tax on the dividends, gains and interest thereafter. Again, if you failed to pay the tax on the income, you are much better off filing amended returns before the IRS wises up.
On the plus side, they don't usually move that fast, so you can probably hire an accountant and straighten it out before anything bad happens. However, I wouldn't waste any time on getting started.
posted by Lame_username at 10:56 AM on August 16, 2012 [1 favorite]
I am happy to recommend my NYC accountant if you MeMail me. (Though I know you're anon, so if you have a throwaway email you'd rather use, please contact a mod to update and I'll send you his info.)
posted by bedhead at 11:04 AM on August 16, 2012
posted by bedhead at 11:04 AM on August 16, 2012
There isn't enough information to provide you meaningful guidance here. We would need to know details about the ownership of the funds in the account prior to the liquidation and transfer, and, depending on that info, possibly details about the liquidation itself (e.g., how much gain was generated, etc.).
FWIW, I don't agree with Ironmouth's statements that the IRS is necessarily aware of this transaction (the IRS is most certainly not notified of every $10k-plus transaction involving a US person), or that it is likely to cause you to be required to make quarterly estimated tax payments (at least in this year).
posted by dbolll at 11:05 AM on August 16, 2012 [1 favorite]
FWIW, I don't agree with Ironmouth's statements that the IRS is necessarily aware of this transaction (the IRS is most certainly not notified of every $10k-plus transaction involving a US person), or that it is likely to cause you to be required to make quarterly estimated tax payments (at least in this year).
posted by dbolll at 11:05 AM on August 16, 2012 [1 favorite]
This seems pretty simple to me and I wouldn't bother to go to a professional for it, but then again I enjoy understanding and knowing how to do my own taxes, and I wouldn't have had to ask this question in the first place. So if you do, you perhaps are better off going to an accountant.
If you want to inform yourself on this somewhat, relevant IRS publications are Publication 17: Your Federal Income Tax, Publication 950: Introduction to Estate and Gift Taxes, Form TD F 90-22.1, Publication 550: Investment Income and Expenses, and Publication 551: Basis of Assets. The IRS "Publications Online" page has PDFs of all of those which can be easier to read and do keyword searches on. And you can always call the IRS for help.
posted by grouse at 11:07 AM on August 16, 2012
If you want to inform yourself on this somewhat, relevant IRS publications are Publication 17: Your Federal Income Tax, Publication 950: Introduction to Estate and Gift Taxes, Form TD F 90-22.1, Publication 550: Investment Income and Expenses, and Publication 551: Basis of Assets. The IRS "Publications Online" page has PDFs of all of those which can be easier to read and do keyword searches on. And you can always call the IRS for help.
posted by grouse at 11:07 AM on August 16, 2012
I am so not a tax accountant, not even an accountant but I would guess the following: If it is from both of your grandparents it is below the allowable gift of $13,000 per person ( less than $26,000.00 combined). Assuming it is not coming from a "qualified pension plan" of yours then it will not be going into a qualified pension plan. It will also make a difference whether it was in your name or their name before liquidating it. If it was in your name you may have some retroactive tax consequences. It is probably taxable but not as income--it is a gift. I think the only tax you will have to pay is capital gains when you sell any of it ( make sure you know the cost basis ) and perhaps on interest earning it will generate. What ever you do, do not hide it and report any appropriate interest earnings or sales. It should not cost you $500.00 to get tax advice on this. This is a relatively simple matter--I would hope it not cost more than $150.00. Any tax professional should be able to give you the answers in less than 20 minutes. it is either a gift/non gift, qualified/ not qualified, taxable and what manner. I would definitely spend the money if I were you. I would guess the major issue will be in whose name (for purposes of taxes) it was in pror to transfer and liquidation. regardless--enjoy the gift and do not get bogged down by the fact it may take some housework and cleaning up--
posted by rmhsinc at 11:34 AM on August 16, 2012
posted by rmhsinc at 11:34 AM on August 16, 2012
My understanding: In general, a gift to you is not income. Were you an owner of the Swedish account? If so, you are just repatriating the funds, but the capital gains on the sale may be taxable. If you were the beneficiary of the account, rather than the owner, your ownership, and basis, starts now.
The language in the foreign accounts reporting requirements can be rather scary. If you are intimidated, get professional guidance.
posted by Midnight Skulker at 12:53 PM on August 16, 2012
The language in the foreign accounts reporting requirements can be rather scary. If you are intimidated, get professional guidance.
posted by Midnight Skulker at 12:53 PM on August 16, 2012
As lame_username points out, if the account was already in your name, then you should worry about the FBARs you should have already filed (depending on how long ago the money came to you).
As far as paying taxes on the money, if any is due to the IRS (probably not, if it was a gift from the grandparents), then basically it would have been due when you received the money, not when you transfer it to the US. As it's been explained to me (by an accountant experienced in foreign money transfers), under US law any gift tax has to be paid by the giver, not the receiver. If your grandparents were not US persons (i.e., not US citizens or permanent residents), then the IRS would regard it as none of their business -- any taxes due would be a matter between the givers and the Swedish tax authorities. So I wouldn't expect any US tax to be due.
Transferring money that's already yours from a foreign account into a US account should not incur any taxes (it's not income). Just try to get the FBARs straight.
(Disclaimer: IANAAccountant, even though I talked to one once.)
posted by McCoy Pauley at 1:12 PM on August 16, 2012
As far as paying taxes on the money, if any is due to the IRS (probably not, if it was a gift from the grandparents), then basically it would have been due when you received the money, not when you transfer it to the US. As it's been explained to me (by an accountant experienced in foreign money transfers), under US law any gift tax has to be paid by the giver, not the receiver. If your grandparents were not US persons (i.e., not US citizens or permanent residents), then the IRS would regard it as none of their business -- any taxes due would be a matter between the givers and the Swedish tax authorities. So I wouldn't expect any US tax to be due.
Transferring money that's already yours from a foreign account into a US account should not incur any taxes (it's not income). Just try to get the FBARs straight.
(Disclaimer: IANAAccountant, even though I talked to one once.)
posted by McCoy Pauley at 1:12 PM on August 16, 2012
Large (over 10K, last I checked) bank transactions are reported to the IRS, so it's good that you're checking.
posted by theora55 at 1:27 PM on August 16, 2012
posted by theora55 at 1:27 PM on August 16, 2012
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posted by Ironmouth at 10:29 AM on August 16, 2012 [2 favorites]