Alert (Apr. 26, 2012): Post-Tax-Return Planning
Now is the time to start preparing for the major tax changes that seem likely to occur when the current tax law expires at the end of 2012. This alert summarizes some of the related issues involving stock compensation, along with updates on other topics at myStockOptions.com. See also the full list of recent additions and revisions throughout the website.
Taxocalypse Now? Prepare For "Taxmageddon"
Now that (hopefully) tax returns are behind us, attention is shifting toward the sunset of the current tax law at the close of 2012. The post-2012 tax treatment of equity compensation will be swept along amid a comprehensive flood of necessary new legislation affecting all areas of the tax system—an upheaval that Washington insiders (and The New York Times) are already calling "Taxmageddon." A report recently published by the Joint Committee on Taxation in Congress lists the mighty number of tax provisions that are set to expire at the end of this year.
The search for a compromise in Congress will not be easy, however. A recent tax update by Deloitte shows the political posturing in Washington that is already taking place around the "Buffett rule" that would impose a new minimum tax on incomes over $1 million, along with other tax provisions.
With tax increases in mind, now may be a good time to re-evaluate your current financial-planning strategy. Should you take action with equity awards and company shares now or wait for a clearer view of new rates? See our article series How Tax Rate Changes Impact Your Stock Grant Strategies, in the section Financial Planning: Advanced. The articles provide an analytical framework to help you determine the impact of a tax increase. With your filed tax return in hand, you can base planning projections on possible new tax rates in 2013, as explained in another article series at myStockOptions.com.
Facebook's Stock Compensation: What Its SEC Registration Reveals
If you have ever wondered what it would be like to be one of the fortunate Facebook employees with stock compensation, read our latest entry in The myStockOptions.com Blog. As Facebook prepares to go public soon, the company's S-1 registration statement is worth perusing for details about its stock plans and some of the tax issues the company and its employees will face after the IPO. For more on stock comp at privately held companies preparing to go public, see the articles and FAQs in the section Pre-IPO at myStockOptions.com.
IRS Keeps Up Pressure On Audits...
It's a fact: the more you make, including income from stock compensation, the more likely you are to be audited by the IRS. The IRS Data Book for the fiscal year 2011 discloses that for taxpayers with annual incomes between $100,000 and $200,000, the audit rate was 1%, but the rate jumped to 2.7% for those with incomes between $200,000 and $500,000. For taxpayers earning between $500,000 and $1 million yearly, the audit rate rose from 2.77% in 2009 to 5.4% in 2011. Annual incomes between $5 million and $10 million are under even more intensive scrutiny: 21% of those taxpayers were audited in 2011, up from just 7.52% in 2009. Among those fortunate enough to make more than $10 million during 2010, the audit rate was 30% in 2011.
An FAQ at myStockOptions.com has details about what you can expect from an IRS audit, and looks at the increasing number of corporate audits focusing on executive compensation.
...And On Taxpayers With Foreign Financial Accounts
For US taxpayers who hold foreign financial accounts, including those participating in a stock plan of a non-US company, there are now two strict reporting requirements to consider. In addition to IRS Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (commonly called "FBAR"), a new filing requirement came into effect this tax season for the 2011 tax year. The Foreign Account Tax Compliance Act (FATCA) recently introduced IRC Section 6038D, which requires you to report any overseas accounts that hold "specified foreign financial assets." Reporting occurs on IRS Form 8938, and you file this form with your annual tax return. In many cases, FATCA reporting will duplicate FBAR reporting, but you still have to file Form 8938 along with Form TD F 90-22.1 if you trigger both filing requirements.
To read more about these requirements, and to find out whether your foreign financial holdings or stock compensation may trigger them, see our FAQ on this topic, among other FAQs in the section Financial Planning: High Net Worth.