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TurboTax is probably a fine program for certain types of simple tax returns. For those who are W-2 employees and receive any other income with a 1099, TurboTax may be something that you can use to prepare a reasonably decent 1040.

Where TurboTax gets dangerous

When it comes to foreign income or assets, we are not saying that it is impossible to get the correct result using TurboTax, we are just saying it is unlikely. First, TurboTax does not support the filling of the following forms:

3520: Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
3520-A: Annual Information Return of Foreign Trust With a U.S. Owner
5471: Information Return of U.S. Persons With Respect To Certain Foreign Corporations
8858: Information Return of U.S. Persons With Respect To Foreign Disregarded Entities
FBAR: Report of Foreign Bank and Financial Accounts
Penalties

Speaking of FBAR’s – we came across an error on the software that could potentially cost you a huge penalty. If you file for an extension on your taxes, the system doesn’t alert you to the fact that if you do need to file an FBAR, the extension does not apply to that due date. There is no “late filing” for an FBAR, it’s either filed on the due date or you’re penalized (this year that due date is June 30th). The penalty? Up to 50% of the account value.

Failure to file the other noted forms is $10,000 for each occurrence for every form.

If you fail to file Form 5471 or Form 8938 it also leaves the statute of limitations open forever, or until the form is filed. This is also known as the CSED – Collection Statute Expiration Date.

Taxes can’t be that complicated…right?

Just because there is software created to do your taxes, don’t think that they are simple. Dealing with foreign income and assets is completely unlike a domestic tax return if you make an error. With a regular return, the IRS would simply contact you to alert you to the error. With the above forms, they can penalize you and take your money even if no taxes are due.

We suggest hiring outside help if you have a complicated return like this. If you look at the form directions on www.irs.gov, you’ll see that they give ‘estimates’ on how long it would take to fill out each form. For form 8858 you will need:

17 hours and 56 minutes for record keeping
4 hours and 10 minutes to learn about the law/form
4 hours and 38 minutes to prepare the form

Work with someone who is familiar with the filing process — it could save you your livelihood.

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