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Are You Protecting Yourself from Tax Identity Theft?

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The IRS has thwarted some identity theft attempts, but thieves are still stealing billions of dollars every year from taxpayers.

Another annual income tax deadline has come and gone. Maybe you had to pay in, but perhaps you were owed a refund. If the latter is true, did you receive it?

A lot of taxpayers didn’t because hackers swooped in and stole their sensitive tax-related information. Tax identity theft is a serious problem, despite the IRS’s efforts to stop it.

But there are steps you can take to keep from being a victim, some of which are simply a matter of common sense. For example, consider the security of any wireless network you use when you’re working on your taxes. Don’t ever do so on a public network, and make sure your home or office wireless is password protected.

Offline Risks

You don’t have to be online to be at risk for tax identity theft. Hackers can grab your personal information in other ways. For example, do you ever carry your tax-related papers back and forth to work or some other location? Know where they are at all times; don’t ever leave them laying around where someone can copy your Social Security number and other details.

Always be aware of your surroundings. If there are other people around when you’re working on your taxes—if you’re in a coffee shop or library, for example—make sure no one is reading over your shoulder.

Phone calls can be risky. A good rule of thumb is never provide someone who calls you with any sensitive personal data – unless you can verify it was a call you were expecting, like one from your bank or a medical office. When you place a call to a legitimate number, it’s generally okay.

Other Traps

You’d think that a call from the IRS would be safe. In reality, the IRS doesn’t ask for personal information over the phone. They send letters through the U.S. Mail. If you ever get a phone call from someone who claims to be from the agency and is demanding some sort of payment immediately, hang up. This is a popular phone scam. You can always contact the IRS directly to see if there is some sort of issue.

Don’t make a practice of carrying your Social Security card with you. Keep it in a safe place unless you absolutely need it away from home for some reason. Also:

  • File your return early to keep a hacker from getting in line for your refund in front of you.
  • Reduce your refund by adjusting your withholdings at work. It’s nice to get that big payment after you file, but couldn’t you use that money throughout the year?
  • Request direct deposit of your refund. That way, no one can steal your check out of your mailbox or somehow re-route a paper payment.

Online Thieves

Be especially careful if you’re preparing your taxes on a website. Before you even begin, investigate the publisher’s security protocols to ensure that your very sensitive tax-related data will be treated with great care. Also, update any applications that will be involved, including your browser and antivirus/anti-malware tools.

The IRS will never send you an email out of the blue asking you to click a link or download an attachment or fill in fields to update personal information. In fact, it’s a good idea to avoid taking those actions anytime unless you’re expecting an email and can verify the sender’s address.

Finally, use a very strong, unique password, one you don’t use anywhere else. You’re probably tired of hearing that piece of advice, but it’s absolutely critical when you’re working with a tax preparation application.

Take Action Quickly

It’s possible to get stung by a tax identity thief even if you’re being careful. If it happens to you, you’ll need to complete and submit IRS Form 14039, Identity Theft Affidavit, and watch for responses from the agency. Contact your credit bureaus and financial institutions to apprise them of the situation. Tax identity thieves sometimes try to open new credit cards, for example. You should also file a report with the FTC.

Recovering from tax identity theft isn’t a quick process nor an easy one. If you have questions about it or simply want to talk to us about your year-round tax planning and preparation process, be sure to contact us.

Can You Deduct Your Vacation?

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How would you like Uncle Sam to pay for part of your vacation? Sound unlikely? If you combine your vacation with a business trip, you may be able to deduct some of your expenses. Pay attention to the rules, though. Expenses must meet certain requirements before they’re tax deductible.

General Guidelines

As long as your primary reason for making the trip is business, you generally can deduct the cost of your transportation to and from your destination. You’ll generally be able to deduct food (within limits) and lodging costs only for the days you actually spend on business.

Bring the Family

You can bring your family along, too. While you can’t deduct their food, lodging, or airfare, you can write off your own expenses, including the single-occupancy rate for lodging on days when you’re conducting business. If you and your family travel by car, you can also deduct the full cost of transportation. Just be sure to keep detailed records.

To learn more about tax rules and regulations, give us a call today. Our knowledgeable and trained staff is here to help.

An Easier Way to Avoid IRS Penalties

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The IRS may remove tax penalties if the taxpayer has reasonable cause (e.g., serious illness) for failing to comply with tax filing and payment requirements.  This penalty relief is not automatic and may require filing with the IRS Appeals Office before it succeeds.  In effect, the IRS rewards typically compliant taxpayers with one-time penalty amnesty, which can save the taxpayer hundreds—sometimes thousands—of dollars.

There is a hidden gem in the IRS penalty abatement policy known as the First Time Abatement (FTA) policy.  This provision allows normally compliant taxpayers a chance to escape penalties.

The FTA provision applies if:

  • No penalties have been added to or removed from the taxpayer’s account for the previous 3 years, or the taxpayer was not previously required to file a return.
  • The taxpayer is current in filing all required tax returns (including extensions)
  • The client has paid or made payment arrangements to pay any outstanding tax due (including being current on an installment agreement).

FTA applies to the following penalties:

  • Failure to file
  • Failure to pay (income tax)
  • Failure to deposit (payroll tax)

The taxpayer will not be disqualified from receiving an FTA based on lack of a clean penalty history if the client:

  • Had a penalty assessed more than three tax years prior to the tax return in question.
  • Had an estimated tax penalty assessed in the past three years. 
  • Received reasonable-cause relief from penalties at any point in the past.
  • Received an FTA more than three tax years prior to the tax return in question.
  • Has penalties on subsequent tax years.

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

Four Major Life Events that can Affect Your Tax Bill

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Even after you’ve filed your income-tax return, you’ll want to keep thinking about your tax situation. For example, if you experience any of the “life events” listed below in the past year, it may be a good time for some tax planning.

A job change. If you are eligible for a distribution from your former employer’s retirement savings plan, consider rolling the money into another tax-favored plan or an individual retirement account (IRA) to avoid the receipt of currently taxable income.

A home sale. You may exclude profit — within limits — on the sale of your principal residence from your taxable income if you meet the tax law’s requirements.

A marriage or divorce. File a new W-4 withholding allowance certificate with your employer or, if you pay quarterly estimated taxes, review the amount you are paying.

A new child arrives. As a parent, you may be eligible for various tax breaks. Ask us for details.

To learn more about how life events affect your taxes, give us a call today. Our staff of professionals are always happy to help.

IRS Announces Increases to 2018 Retirement Plan Dollar Limits

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The IRS announced the 2018 cost-of-living adjustments to retirement plan limits.  The following plan limits are increased effective January 1, 2018:

  • Employee Contributions to 401(k) and 403(b) Plans: the contribution limit is increased from $18,000 to $18,500.
  • Defined Contribution Plans: the limit on annual additions to a participant’s defined contribution account increases from $54,000 to $55,000.
  • Defined Benefit Plans: the limitation on the annual benefit under a defined benefit plan increases from $215,000 to $220,000.
  • Annual Compensation Limit: the maximum amount of annual compensation that can be taken into account for various qualified plan purposes increases from $270,000 to $275,000.
  • Government Deferred Compensation Plans: the limit on deferrals under Section 457 (concerning deferred compensation plans of state and local governments and tax-exempt organizations) increases from $18,000 to $18,500.

Some limitations are not increased for 2018, including:

  • The limitation for catch-up contributions to an applicable employer plan other than a SIMPLE 401(k) plan or SIMPLE IRA for individuals age 50 and over remains unchanged at $6,000.
  • SIMPLE Plans: the maximum amount of compensation an employee may elect to defer remains at $12,500.
  • IRS and Roth IRA Limits: the deductible amount for an individual making a deductible IRA contribution remains at $5,500.  The Roth IRA limit of $5,500 remains unchanged as well.

If you have any questions on how these rules apply to give, please give us a call.

What You Need to Know About Taxes when You Divorce

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Tax planning is an important step in finalizing a divorce agreement. Here are some issues divorcing couples may want to consider.

What’s in a Name?

Alimony and child support both involve one spouse making payments to the other, but that’s where the similarity ends. Alimony payments are tax deductible to the payer and taxable to the recipient. Child support is not deductible and can be received tax free.

Dependent — or Not?

Generally, the custodial parent claims the dependency exemption, although couples can make other arrangements. Parents with more than one child may decide to split the exemptions between them. Parents might also decide to alternate claiming the exemption.

Who Gets the Credit?

The parent who claims the child as a dependent typically is entitled to claim tax credits such as the child tax credit and the credit for higher education expenses. However, a custodial parent paying work-related child care expenses can claim the child care tax credit even if the other parent claims the dependency exemption.

 Assets To Transfer?

No taxes are owed on the transfer of assets between spouses. However, when dividing assets, it’s important to consider how taxes, such as capital gains, may come into play in the future.

How About Retirement Benefits?

Where retirement plan benefits have been made payable to a former spouse under a court-issued qualified domestic relations order (QDRO), subsequent distributions will be taxable to the former spouse.

For more information about divorce and taxes, give us a call today.

How to Determine the Value of Your Property Before You Donate

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The tax deduction available for making a charitable donation of property may be no more than the fair market value of the property on the date of the gift. Fair market value is the price that a willing buyer and seller would agree to when neither is required to act and both have reasonable knowledge of the relevant facts.

The IRS lists several factors that may be considered in determining fair market value.*

Cost or selling price can be an accurate measure of fair market value when the transaction and the donation dates are close and there has been no change that would affect the item’s value.

Sales of comparable properties may be useful for determining value where the properties sold and the property donated are similar and the sales occurred reasonably close in time to the date of the donation.

Replacement cost may be a good indicator of value in some situations, provided that depreciation is subtracted from the cost to reflect the property’s physical condition and obsolescence.

Expert opinion is relevant to the extent the expert has the appropriate education and experience and has thoroughly analyzed the transaction.

* IRS Publication 561, Determining the Value of Donated Property

Who Qualifies as an Appraiser?

Generally, where a charitable deduction of more than $5,000 is claimed for donated property, the IRS requires a qualified appraisal by a qualified appraiser. A qualified appraiser is someone who:

  • Has earned an appraisal designation from a recognized professional organization or has met certain education and experience requirements
  • Regularly prepares appraisals for a fee
  • Is not an “excluded individual,” such as the donor, the donee, or a party to the transaction in which the donor acquired the property being appraised (Other exclusions apply.)

The qualified appraisal must be signed and dated and can be made no earlier than 60 days before the valued property is donated.

To learn more about tax rules and regulations for donations, give us a call today. Our knowledgeable and trained staff is here to help.

Do You Have a Business Continuity Plan? You Should

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What if disaster strikes your business? An estimated 25% of businesses don’t reopen after a major disaster strikes.* Having a business continuity plan can help improve your odds of recovering.

The basic plan

The strategy behind a business continuity (or disaster recovery) plan is straightforward: Identify the various risks that could disrupt your business, look at how each operation could be affected and identify appropriate recovery actions.

Make sure you have a list of employees ready with phone numbers, e-mail addresses and emergency family contacts for communication purposes. If any of your employees can work from home, include that information in your personnel list. You’ll need a similar list of customers, suppliers and other vendors. Social networking tools may be especially helpful for keeping in touch during and after a disaster.

Risk protection

Having the proper insurance is key to protecting your business — at all times. In addition to property and casualty insurance, most small businesses carry disability, key-person life insurance and business interruption insurance. And make sure your buy-sell agreement is up to date, including the life insurance policies that fund it. Meet with your financial professional for a complete review.

Maintaining operations

If your building has to be evacuated, you’ll need an alternative site. Talk with other business owners in your vicinity about locating and equipping a facility that can be shared in case of an emergency. You may be able to limit physical damage by taking some preemptive steps (e.g., having a generator and a pump on hand).

Protecting data

A disaster could damage or destroy your computer equipment and wipe out your data, so take precautions. Invest in surge protectors and arrange for secure storage by transmitting data to a remote server or backing up daily to storage media that can be kept off site.

Protecting your business

If you think your business is too small to need a plan or that it will take too long to create one, just think about how much you stand to lose by not having one. Meet with your financial professional for a full review.

For more tips on how to keep business best practices front and center for your company, give us a call today. We can’t wait to hear from you.

* www.sba.gov/content/disaster-planning

You’ve Been Provided with Free Identity Theft Protection. Is it Taxable?

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Identity theft occurs when a person wrongfully obtains and uses another person’s personal information (such as name, social security number, bank account information, etc.) in a way that involves fraud or deception, usually for economic gain.  It has become the number one consumer complaint to the Federal Trade Commission for 15 consecutive years.

Businesses, government agencies, and other organizations make significant efforts to secure the personal information of customers and employees.  Even though significant effort is put forth to combat identity theft, criminals are becoming increasingly sophisticated.  A data breach can expose personal information to criminals causing harm to their victims.  In response to such breaches, organizations often provide credit reporting and monitoring services, identity theft insurance policies, identity restoration services, or other similar services to customers and employees whose information may have been breached.

When Identity Theft Protection Services are Tax-Free

The IRS has received questions regarding the taxability of identity protection services provided at no cost to customers and employees whose personal information may have been compromised.   The IRS issued an announcement that it will NOT assert that an individual whose personal information may have been compromised in a data breach must pay tax on the value of the identity protection services provided by the organization that experienced the data breach.

Additionally, the IRS will not assert that an employer providing identity protection services to an employee whose personal information may have been breached must include the value of identity protection services in the employee’s taxable compensation.

When Identity Theft Protection Services are Taxable

The IRS also states that this tax-free provision does NOT apply to cash received in lieu of identity protection services, or to identity protection services received for reasons other than as a result of a data breach, such as identity protection services received in connection with an employee’s compensation benefit package.  This announcement also does not apply to proceeds received under an identity theft insurance policy.

What if Identity Theft Protection Services are Provided before a Breach Occurs?

The IRS received comments stating that an increasing number of businesses are combating data breaches by providing identity theft protection services to employees and other individuals before a data breach occurs in order to help detect any occurrence of a breach in their information systems, and to minimize the impact of their operations.

Accordingly, the IRS will NOT assert that an individual must pay tax on the value of identity protection services provided by the individual’s employer or by another organization to which the individual provided personal information.  Similarly, employees will not have to include in taxable income the value of such services provided by their employers.

Again, this announcement does not apply cash received in lieu of identity protection services or proceeds received under an identity theft insurance policy.

Comments or questions about this post?  Please let us know through the comment area below!

If you found this article informative, subscribe to our Tax Newsletter.

Contact us for a Free Initial Consultation

Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

Current Status of Tax Reform

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The President recently reaffirmed his desire for a 15% business tax rate that applies to all business entities (C corporations, S corporations, LLCs, etc).  However, most analysts do not believe that a 15% tax rate is possible with a $20 trillion national debt.  The House Republican plan called for a 25% tax rate.

Service Businesses May Not Benefit

According to a recent piece in the Wall Street Journal, Secretary Mnuchin stated that the lower 15% tax rate would NOT apply to service businesses such as accounting (boo!!!) or law firms.  The idea is to tax these services businesses at a rate between the lower business tax rate and the tax rate that applies to wages.  That new rate would apply to pass-through service businesses but with boundaries to prevent it from being used by services businesses where the pass-through income more closely resembles wages…sounds perfectly workable!

Principles of Tax Overhaul

The President outlined four principles as guiding his tax reform efforts:

  • A fair and simple tax Code
  • A tax Code that is competitive with other nations’ tax Codes
  • Tax relief for middle-class families
  • Repatriation of overseas profits (i.e., lowering the tax on profits corporations bring back to the U.S. from foreign corporations).

What to Expect Next

Outside of general principles, details are still unknown.  Republicans plan to release details of tax overhaul on September 25.  If a tax cut is passed, it is expected to take effect retroactively to January 1, 2017.

 

Comments or questions about this post?  Please let us know through the comment area below!

If you found this article informative, subscribe to our Tax Newsletter.

Contact us for a Free Initial Consultation

Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

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