Phone scams are a serious threat to taxpayers

The IRS has seen a surge of phone scams in recent months as scam artists call unsuspecting taxpayers impersonating an IRS agent and proceed to threaten police arrest, deportation, license revocation and other things if the taxpayer does not pay a tax amount.

The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.

“If someone calls unexpectedly claiming to be from the IRS with aggressive threats if you don’t pay immediately, it’s a scam artist calling,” said IRS Commissioner John Koskinen. “The first IRS contact with taxpayers is usually through the mail. Taxpayers have rights, and this is not how we do business.”

Scammers are able to alter caller ID numbers to make it look like the IRS is calling. They use fake names and bogus IRS badge numbers. They often leave “urgent” callback requests. They prey on the most vulnerable people, such as the elderly, newly arrived immigrants and those whose first language is not English. Scammers have been known to impersonate agents from IRS Criminal Investigation as well.

“These criminals try to scare and shock you into providing personal financial information on the spot while you are off guard,” Koskinen said. “Don’t be taken in and don’t engage these people over the phone.”

The Treasury Inspector General for Tax Administration (TIGTA) has received reports of roughly 290,000 contacts since October 2013 and has become aware of nearly 3,000 victims who have collectively paid over $14 million as a result of the scam, in which individuals make unsolicited calls to taxpayers fraudulently claiming to be IRS officials and demanding that they send them cash via prepaid debit cards.

Protect Yourself

As telephone scams continue across the country, the IRS recently put out a new YouTube video with a renewed warning to taxpayers not to be fooled by imposters posing as tax agency representatives. The new Tax Scams video describes some basic tips to help protect taxpayers from tax scams.

These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you.

The IRS reminds people that they can know pretty easily when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam.

The IRS will never:

  • Call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for credit or debit card numbers over the phone.
  • Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

  • If you know you owe taxes or think you might owe, call the IRS at 1-800-829-1040. The IRS workers can help you with a payment issue.
  • If you know you don’t owe taxes or have no reason to believe that you do, report the incident to the TIGTA at 1-800-366-4484 or at www.tigta.gov.
  • If you’ve been targeted by this scam, also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Remember, too, the IRS does not use email, text messages or any social media to discuss your personal tax issue involving bills or refunds. For more information on reporting tax scams, go to www.irs.gov and type “scam” in the search box.

Additional information about tax scams is available on IRS social media sites, including YouTube http://www.youtube.com/irsvideos and Tumblr http://internalrevenueservice.tumblr.com, where people can search “scam” to find all the scam-related posts.

From: IRS Newswire — January 22, 2015 — Issue Number: IR-2015-5

IRS Six Tips on Who Should File a 2014 Tax Return

Most people file their tax return because they have to, but even if you don’t, there are times when you should. You may be eligible for a tax refund and not know it. This year, there are a few new rules for some who must file. Here are six tax tips to help you find out if you should file a tax return:

  1. General Filing Rules. Whether you need to file a tax return depends on a few factors. In most cases, the amount of your income, your filing status and your age determine if you must file a tax return. For example, if you’re single and 28 years old you must file if your income was at least $10,150. Other rules may apply if you’re self-employed or if you’re a dependent of another person. There are also other cases when you must file. Go to IRS.gov/filing to find out if you need to file.
  2. New for 2014: Premium Tax Credit. If you bought health insurance through the Health Insurance Marketplace in 2014, you may be eligible for the new Premium Tax Credit. You will need to file a return to claim the credit. If you purchased coverage from the Marketplace in 2014 and chose to have advance payments of the premium tax credit sent directly to your insurer during the year you must file a federal tax return. You will reconcile any advance payments with the allowable Premium Tax Credit. You should receive Form 1095-A, Health Insurance Marketplace Statement, by early February. The new form will have information that will help you file your tax return.
  3. Tax Withheld or Paid. Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year and have it applied to this year’s tax? If you answered “yes” to any of these questions, you could be due a refund. But you have to file a tax return to get it.
  4. Earned Income Tax Credit. Did you work and earn less than $52,427 last year? You could receive EITC as a tax refund if you qualify with or without a qualifying child. You may be eligible for up to $6,143. Use the 2014 EITC Assistant tool on IRS.gov to find out if you qualify. If you do, file a tax return to claim it.
  5. Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don’t get the full credit amount, you may qualify for the Additional Child Tax Credit.
  6. American Opportunity Credit.  The AOTC is available for four years of post secondary education and can be up to $2,500 per eligible student.  You or your dependent must have been a student enrolled at least half time for at least one academic period. Even if you don’t owe any taxes, you still may qualify. However, you must complete Form 8863, Education Credits, and file a return to claim the credit. Use the Interactive Tax Assistant tool on IRS.gov to see if you can claim the credit. Learn more by visiting the IRS’ Education Credits Web page.

The instructions for Forms 1040, 1040A or 1040EZ list income tax filing requirements. You can also use the Interactive Tax Assistant tool on IRS.gov to see if you need to file. The tool is available 24/7 to answer many tax questions.

 

* IRS Tax Tips — January 22, 2015 — Issue Number: Revised IRS Tax Tip 2015-03

Common tax return errors

We all make mistakes. It’s a part of life. Sometimes mistakes are something you can laugh off and learn from. In other cases, mistakes can be costly. Errors on your tax return generally land in the last category.

Below are three of the most common mistakes made when filing tax returns.

Getting your Social Security numbers wrong

It’s that 9 digit number you’ve had to use everywhere. Your probably know it as well as the telephone number you had growing up. Nonetheless, the IRS lists wrong and missing Social Security numbers at the top of “most common mistakes” made by tax return filers.

Remember, every member of your household listed on your return needs to have a social security number. Make sure to double check all the numbers before submitting your return to ensure there aren’t any transposed or missing digits.

Spelling your name wrong

Laugh all you want, but this is on the IRS list of common tax mistakes.

There are plenty of scenarios in which people can, and do, misspell their names on their income tax forms. That simple error can lead to rejected returns and delayed refunds.

Remember! You need the name on your forms to match the name listed in Social Security records. So that means you can’t use your nickname, nor can you just use your middle name (if that’s what you go by in your day-to-day life.) Further, if you recently married or divorced and haven’t registered a name change with the Social Security Administration, you must use your old name to file your return.

Failing to claim all your income

A very common mistake is believing you don’t need to claim income unless you receive a W-2 or 1099 form for your work. In reality, you need to claim ALL income for the year, regardless of whether someone paid you $20 or $2,000 for a side job.

While most people are aware they must include wages, salaries, interest, dividends, tips and commissions as income on their tax returns, many don’t realize that they must also report most other income, such as:

  • cash earned from side jobs
  • barter exchanges of goods or services
  • awards, prizes, contest winnings
  • gambling proceeds.

Cheating the IRS may seem like a victimless crime, but you could be seriously hurting yourself if you are ever audited.

Top Four Year-End IRA Reminders

Individual Retirement Accounts are an important way to save for retirement. If you have an IRA or may open one soon, there are some key year-end rules that you should know. Here are the top four reminders on IRAs from the IRS:

1. Know the limits. You can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older) to a traditional or Roth IRA. If you file a joint return, you and your spouse can each contribute to an IRA even if only one of you has taxable compensation. In some cases, you may need to reduce your deduction for traditional IRA contributions. This rule applies if you or your spouse has a retirement plan at work and your income is above a certain level. You have until April 15, 2015, to make an IRA contribution for 2014.

2. Avoid excess contributions. If you contribute more than the IRA limits for 2014, you are subject to a six percent tax on the excess amount. The tax applies each year that the excess amounts remain in your account. You can avoid the tax if you withdraw the excess amounts from your account by the due date of your 2014 tax return (including extensions).

3. Take required distributions. If you’re at least age 70½, you must take a required minimum distribution, or RMD, from your traditional IRA. You are not required to take a RMD from your Roth IRA. You normally must take your RMD by Dec. 31, 2014. That deadline is April 1, 2015, if you turned 70½ in 2014. If you have more than one traditional IRA, you figure the RMD separately for each IRA. However, you can withdraw the total amount from one or more of them. If you don’t take your RMD on time you face a 50 percent excise tax on the RMD amount you failed to take out.

4. Claim the saver’s credit. The formal name of the saver’s credit is the retirement savings contributions credit. You may qualify for this credit if you contribute to an IRA or retirement plan. The saver’s credit can increase your refund or reduce the tax you owe. The maximum credit is $1,000, or $2,000 for married couples. The credit you receive is often much less, due in part because of the deductions and other credits you may claim.

Time to Start Organizing Your Deductions

A deduction is an expenditure that will reduce your taxable income. There are two kinds of deductions: adjustments to income and itemized deductions. The adjustments to income are the better of the two, as they reduce adjusted gross income, or “AGI.” Itemized deductions reduce your taxable income.

 

First, we will look at some adjustments to income.

Educator expenses apply to K – 12th grade educators, and are limited to $250 of documented supplies per qualified taxpayer. Expenses exceeding $250 can be taken as a miscellaneous itemized deduction.

A health savings account is an account set up exclusively for paying the qualified medical expenses of the account beneficiary or the beneficiary’s spouse or dependents.

Moving expenses include qualified out-of-pocket expenses or an employer reimbursement that was included in your W-2 form. If you received a non-taxable reimbursement, you cannot deduct the expenses.

Self-employment tax. If you are a sole-proprietor, active partner or have miscellaneous income subject to self-employment tax, you can deduct half of the self-employment tax.

Self-employed pension plans. You can deduct all qualified contributions to self-employed SEP, SIMPLE, and qualified plans.

Self-employed health insurance deduction. For this deduction you must be a sole proprietor or an active partner with net business income or a more than 2% shareholder of an S-corporation. The deduction is limited to net profit. Qualified long-term care insurance premiums, subject to age limitations, are also deductible.

Penalty on early withdrawal of savings is deductible and you will find this fee on your form 1099-INT. These penalties are typically incurred when you cash in a CD prematurely.

Alimony paid is deductible, but you must include the Social Security number of the recipient.

IRA deduction. Report only deductible traditional IRA contributions. Roth IRA contributions are not deductible.

Student loan interest. Up to $2,500 of the interest paid on a qualified student loan is deductible. There are income limitations. You will receive Form 1098-E from the entity to which you paid the student loan interest.

Tuition and fees deduction. Up to $4,000 of higher education tuition and fees can be deducted by taxpayers with an AGI under $80,000 if single, or $160,000 if married filing jointly.

 

Itemized Deductions

Medical expenses in excess of 10% of AGI are deductible as itemized deductions. If you or your spouse is age 65 or older by year end, you may deduct medical expenses in excess of 7.5% of AGI. Medical expenses are deductible in the year paid.

Taxes. State and local income taxes as well as real estate taxes for all property owned are deductible in the year paid. Most income taxes paid to a foreign country or US possession are either deductible as an itemized deduction or can be taken as a credit against tax.

 Mortgage interest paid is deductible, with limitations. Mortgage interest is deductible on up to two homes with a combined secured acquisition debt of $1.1 million (home equity debt is generally limited to $100,000). Points on the purchase or a refinance to make major improvements are deductible, but they may need to be amortized over the life of the loan.

 Charitable contributions must have written substantiation. If less than $250 is given at one time, the bank draft is sufficient. If the gift is $250 or greater, a written acknowledgement of receipt from the charity is required. In most situations, the charitable deduction is limited to 50% of AGI. Non-cash contributions are limited to the fair market value of the items contributed, if they are used items.

 Casualty and theft losses are subject to a $100 deduction and a reduction of 10% of AGI per casualty loss. A casualty is damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.

 Miscellaneous deductions are subject to a reduction of 2% of AGI. They include expenses for generating and protecting income, job-related expenses, and unreimbursed employee business expenses.

 Other miscellaneous deductions are deductions that are not subject to the 2% of AGI reduction. Some examples are gambling losses up to the amount of gambling winnings, and special job-related expenses of the disabled.

Be sure to let your tax advisor know if you feel you could be eligible for any of these deductions.

As an enrolled agent (EA), your tax professional must take many hours of continuing education each year to stay up-to-date on the constant changes to the tax code. He or she had to pass a stringent three-part exam, or have relevant experience as a former IRS employee in order to qualify for the EA license.  It’s reassuring to know that your tax adviser is an EA: licensed by the US Department of the Treasury, with unlimited rights of representation before the IRS.

TIGTA Warns of “Largest Ever” Phone Fraud Scam Targeting Taxpayers

WASHINGTON — The Treasury Inspector General for Taxpayer Administration (TIGTA) today issued a warning to taxpayers to beware of phone calls from individuals claiming to represent the Internal Revenue Service (IRS) in an effort to defraud them.

“This is the largest scam of its kind that we have ever seen,” said J. Russell George, the Treasury Inspector General for Tax Administration. George noted that TIGTA has received reports of over 20,000 contacts and has become aware of thousands of victims who have collectively paid over $1 million as a result of the scam, in which individuals make unsolicited calls to taxpayers fraudulently claiming to be IRS officials.

“The increasing number of people receiving these unsolicited calls from individuals who fraudulently claim to represent the IRS is alarming,” he said. “At all times, and particularly during the tax filing season, we want to make sure that innocent taxpayers are alert to this scam so they are not harmed by these criminals,” George said, adding, “Do not become a victim.”

Inspector General George urged taxpayers to heed warnings about the sophisticated phone scam targeting taxpayers, noting that the scam has hit taxpayers in nearly every State in the country. Callers claiming to be from the IRS tell intended victims they owe taxes and must pay using a pre-paid debit card or wire transfer. The scammers threaten those who refuse to pay with arrest, deportation or loss of a business or driver’s license.

The truth is the IRS usually first contacts people by mail – not by phone – about unpaid taxes. And the IRS won’t ask for payment using a pre-paid debit card or wire transfer. The IRS also won’t ask for a credit card number over the phone.

“If someone unexpectedly calls claiming to be from the IRS and uses threatening language if you don’t pay immediately, that is a sign that it really isn’t the IRS calling,” he said.

The callers who commit this fraud often:

  • Use common names and fake IRS badge numbers.
  • Know the last four digits of the victim’s Social Security Number.
  • Make caller ID information appear as if the IRS is calling.
  • Send bogus IRS e-mails to support their scam.
  • Call a second time claiming to be the police or department of motor vehicles, and the caller ID again supports their claim.

If you get a call from someone claiming to be with the IRS asking for a payment, here’s what to do:

  • If you owe Federal taxes, or think you might owe taxes, hang up and call the IRS at 800-829-1040. IRS workers can help you with your payment questions.
  • If you don’t owe taxes, call and report the incident to TIGTA at 800-366-4484.
  • You can also file a complaint with the Federal Trade Commission at www.FTC.gov. Add “IRS Telephone Scam” to the comments in your complaint.

TIGTA and the IRS encourage taxpayers to be alert for phone and e-mail scams that use the IRS name. The IRS will never request personal or financial information by e-mail, texting or any social media. You should forward scam e-mails to phishing@irs.gov. Don’t open any attachments or click on any links in those e-mails.

Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes winner) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

Read more about tax scams on the genuine IRS website at www.irs.gov.

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From: http://www.treasury.gov/tigta/press/press_tigta-2014-03.htm

Mid-Year Tax Planning – 2014

Tax Season 2014 has come and gone and now it’s time to think about tax planning for tax year 2014.  Items which could impact your 2014 taxes include certain life events and expired tax provisions.

Certain Life Events

Have you recently had a birth, adoption or death in your family?  Have you gotten married, divorced, retired, or changed jobs this year? If any of these life events occur in 2014, they will have a potential impact on your 2014 taxes.  For example:

1)      For Qualifying Children under the age of 17, a tax credit up to $1,000 per qualifying child may be allowed (which may be refundable.)

2)      If you have retired (or are planning on retiring), we need to analyze how your change in income resulting from receiving IRA or pension distributions, and/or Social Security benefits will impact your tax liability.

3)      A divorce or marriage could impact your tax situation in multiple ways (for example, alimony paid or received, deductions for mortgage interest and real estate taxes on your home, QDROs (qualified domestic relations orders) and potential changes in the standard deduction and personal exemptions allowed.)

Expiring Tax Provisions

Given the current political climate, it is not known if or when an agreement on extending the Expiring Tax Provisions (“extenders”) may be reached. These extenders have made tax planning a challenge for both taxpayers and tax professionals. Therefore, if any of these provisions impact you, it is important that you contact me so that we may discuss the possible tax consequences:

1)      Sales Tax Deduction: Prior to 01/01/2014, taxpayers may have been eligible to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A. This included the sales tax paid on the purchase of a vehicle. This deduction is no longer available to individuals.

2)      Mortgage Insurance Premiums: Prior to 01/01/2014, taxpayers may have been eligible to deduct the amounts paid for qualified mortgage insurance premiums along with their mortgage interest (subject to adjusted gross income limitations). Effective 01/01/2014, no deduction is allowed for these premiums paid or accrued after this date.

3)      Tax-free Distributions from Individual Retirement Plans for Charitable Purposes: Prior to 01/01/2014, taxpayers over 70 ½ may have been eligible to exclude from their gross income distributions up to $100,000 from their IRA to a qualified charitable organization. This permitted taxpayers to satisfy their Required Minimum Distribution (RMD) and not include the amount in their income. As this reduced their Adjusted Gross Income (AGI), which favorably impacted the taxable amount of Social Security benefits received, this was a large tax advantage for taxpayers.This special distribution provision is not available for distributions after 2013.

4)      Qualified Principal Residence Debt Exclusion:  Prior to 01/01/2014, the discharge of principal residence debt (qualified mortgage on a taxpayer’s main home incurred to buy, build or substantially improve his or her main home) was generally excluded from gross income. As many taxpayers are still experiencing financial difficulties resulting inforeclosures, short sales or debt forgiveness on their primary residence, the tax ramifications for 2014 will have major tax consequences.

Other Steps to Consider Before the End of the Year

You should thoroughly review your situation before year end to determine the best tax strategies for 2014 and the impact on 2015 as well. Accelerating income/deferring deductions into 2014 or deferring income/accelerating deductions to 2015 are just a couple of approaches that could benefit you.

If you have any foreign assets, be aware that there are reporting and filing requirements for those assets. Noncompliance carries stiff penalties.

Please call us with any questions you may have.

 

Are Social Security Benefits Taxable?

Are Social Security benefits taxable? Depends on your individual situation! Some people must pay taxes on part of their Social Security benefits. Others find that their benefits are not taxable.

Here are a notes about how Social Security affects your taxes:

  • If you received these benefits in 2013, you should have received a Form SSA-1099, Social Security Benefit Statement, showing the amount.
  • If Social Security was your only source of income in 2013, your benefits may not be taxable. You also may not even need to file a federal income tax return.
  • If you get income from other sources, then you may have to pay taxes on some of your benefits.
  • Your income and filing status affect whether you must pay taxes on your Social Security.
  • A quick way to find out if any of your benefits may be taxable is to add one-half of your Social Security benefits to all your other income, including any tax-exempt interest. Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. The three base amounts are:
    • $25,000 – for single, head of household, qualifying widow or widower with a dependent child or married individuals filing separately who did not live with their spouse at any time during the year
    • $32,000 -for married couples filing jointly
    • $0 – for married persons filing separately who lived together at any time during the year


For more on this topic visit IRS.gov.

New Earned Income Credit (EIC) Documentation Requirement

As the taxpayer claiming a child (or children), you need to provide documentation that the child/children actually live with you.  Below is a list of documents that may be used to support that claim:

  • School records or statement showing the child’s (your) address
  • Landlord or property management statement
  • Health care provider statement
  • Medical records
  • Child care provider records
  • Placement agency statement
  • Social service records or statement
  • Place of worship statement
  • Indian tribal official statement
  • Employer statement

Be sure to include at least one of these things with the documentation you provide to your tax preparer to do your tax return if your income is low enough that you expect to qualify for the EIC.

If you are claiming a disabled child, you will need to prove the disability by providing at least one of the following:

  • Doctor statement
  • Other health care provider statement
  • Social services agency or program statement

Lastly, if a Schedule C for a self-employed business is filed as part of the tax return, the tax preparer must document the existence of the business and document what records were used to determine the business income and expenses claimed for the business.  These records to submit to your preparer include the following:

  • Business license
  • 1099-MISC forms
  • Records of gross receipts
  • Income summary
  • Expense summary
  • Bank statements

These are permanent documentation requirements for 2013 tax returns and beyond for anyone claiming the federal Earned Income Credit.

 

 

Affordable Care Act — Let us help!

As you’ve probably already seen on the news, there is a law that most Americans are required to carry health insurance for themselves and their dependents on January 1, 2014, or pay a penalty when they file their tax return. This is known as the Individual Mandate of the Patient Protection and Affordable Care Act.

But… what exactly does that mean? And does it affect you?

You are only exempt from the mandate if you are:

a. Members of certain religious groups and Native American tribes
b. Undocumented immigrants
c. Incarcerated individuals
d. People whose incomes are so low they don’t have to file taxes
e. People with household income below 100% of the federal poverty level in states that did not expand Medicaid
f. People who are uninsured for a period that is less than 3 months
g. People for whom health insurance is considered unaffordable (where insurance premiums after employer contributions and federal subsidies exceed 8% of family income)

If you have qualified health insurance, you are covered and are not required to take any action. Examples of qualified health insurance are:

a. Medicare
b. Medicaid or Children’s Health Insurance Program (CHIP)
c. TRICARE for Life program
d. Veterans’ health care
e. Health coverage plan available to Peace Corps volunteers
f. Employer-sponsored plans, provided that:

i. The plan covers at least 60% of covered costs.
ii. The employee’s cost for self-only coverage is not more than 9.5% of the employee’s household income. If the cost of the insurance is more than 9.5% of household income, the employee may be eligible for a subsidy if they purchase insurance through a Health Insurance Marketplace (or Exchange). They must opt out of the employer insurance: they cannot be enrolled in qualified insurance and be eligible for the premium assistance credit, even if that insurance is greater than 9.5% of household income.

If you are not exempt and not covered by qualified health insurance, you may qualify for a premium assistance credit to help off set the cost of the insurance if you buy insurance through a government-run Exchange. To do so, household income must be between 100%–400% of the federal poverty level to be eligible for a credit.

Through a reputable program, we are happy to provide to you a reliable site that will provide in-depth calculations of the premium assistance credit as well as list the various health insurance plans available to them within the Exchange and through the private market, and the cost of those plans.

If you are under 65, visit this link to check your eligibility for a government subsidy under the Patient Protection and Affordable Care Act.

For anyone 65 and over, visit this link to shop for medicare insurance.

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