The start of a new year is a time for fresh starts and new goals, but it’s also the beginning of the oft-dreaded tax season, which means Tax identity thieves are on the lookout for information they can use in order to create fraudulent tax returns. Here are some tips to help protect yourself from tax identity theft during tax season.
File Early to Prevent Tax Identity Theft
Tax-related identity theft most commonly occurs from February to early March because thieves want to beat real taxpayers to the punch by filing fraudulent returns before legitimate ones. Because the IRS allows only one tax return per Social Security number per year, your best defense against identity theft is to file your taxes as early as possible.
Use E-File Instead of Postal Mail
An e-filed tax return arrives instantly at the IRS, which then sends back an acknowledgement receipt. At this point you’ll be notified if there’s any suspicious activity, such as possible identity theft. The quicker you know, the quicker you can deal with it. Before you e-file, however, be sure that your firewall, antivirus, and anti-spyware software are all up to date. If you do send your tax return in by post, think about taking it directly to the post office rather than letting it sit in your mailbox.
Don’t Fall for Scams
The IRS will not contact you by phone, email, or text to ask for personal or financial information. Never give out your Social Security number, passwords, PINs, and credit card or bank information to someone who reaches out via these channels. Official correspondence from the IRS is issued in the form of a letter and sent through the mail. However, scammers are getting increasingly clever, and sometimes phony links can look just like the real IRS website. If you ever have questions about the legitimacy of an IRS related query, your best bet is to call the IRS at 800-829-1040.
Protect Your Financial Accounts
Start by using a different password for each of your financial accounts, preferably one that combines letters, numbers, and special characters. It’s also wise to use a two-factor authentication when available, which requires you to verify your login—typically a code sent via call or text.
How to Report Tax Identity Theft
If you’re a victim of tax-related identity theft, you’ll find out when you try to file your return and learn that a return has already been filed with your Social Security number, or you’ll receive a letter from the IRS stating that a suspicious return using your Social Security number has been identified. If either of these happen, you should do the following:
- Complete a paper return. As shocking as it is to learn that you’ve been the target of identity theft, you still need to file your tax return. In order to avoid tax penalties or late fees, submit a paper return by the filing deadline.
- Go to IdentityTheft.gov to file a report with the FTC and IRS.
- File an Identity Theft Affidavit (Form 14039). Fill out and attach this form to your paper return. It will make its way to the Identity Theft Victim Assistance Organization, which will work on your case. Be prepared to submit various forms of documentation proving your identity.
- Contact the three major credit bureaus—Equifax, Experian, and TransUnion—and ask them to place a fraud alert on your credit records. You should also consider asking them to freeze your credit in case the thief should try to open new credit accounts in your name.
- Request a copy of the fraudulent return via Form 4506-F. Seeing the fraudulent return will help you determine the specifics of the theft, such as what family information has been compromised.
- As a precaution, delete any stored credit card numbers from shopping sites and change saved passwords to online accounts.
If you have questions on tax identity theft or would like to discuss your 2019 tax return, please feel free to email me at email@example.com or call 317.549.3091.
With the learning curve of the first tax filing season in the TCJA era behind us, year-end tax planning is a perfect time to incorporate those lessons learned. Here is a general overview of some steps business owners can take in their year-end tax planning.
If your business has acquired a fixed asset or property (one that you don’t intend to sell for at least one year and will be used to earn long-term income), and it’s placed in service before the end of the year, you can typically write off the cost in 2019. Thanks to changes made by the TCJA, this now applies to both new and used assets. The TCJA boosted the deduction limit to $1.02 million with a phase-out threshold of $2.55 million for 2019. It also increased bonus depreciation to 100% for property placed in service after September 27, 2017 and before January 1, 2023.
The IRS recently clarified that food and beverage costs are deductible by 50% in certain circumstances and when those costs are stated separately from entertainment on invoices or receipts.
One of the most significant changes made by the TCJA affects owners of pass-through entities (partnerships, S corporations, and LLCs) as it authorized a deduction of up to 20% of the owner’s qualified business income (QBI) for the tax years 2018 through 2025. The QBI deduction is reduced for some taxpayers based on the amount of their income, so some individuals may need to consider reducing their taxable income so it falls under the $157,500 threshold ($315,000 for married filing jointly), whether by making contributions to retirement plans or health savings accounts, or even through charitable contributions. Something to keep in mind is that specified service business owners, which includes most personal-service providers, are not eligible for the deduction if their taxable income is above a certain threshold.
It isn’t a bad idea to complete minor repairs by the end of the year because the deductions can offset taxable business income. However, costs of improvements to business property must be written off over time. If you’re unsure whether a specific renovation or upgrade falls under a repair or an improvement, the IRS recently issued regulations that clarify the distinctions.
Estimated Tax Payments
If your corporation is anticipating a small net operating loss for 2019 but a substantial net income in 2020, you might think about accelerating just enough of the corporation’s 2020 income to create a small amount of net income for 2019. You could also choose to defer some 2019 deductions. This way, rather than having to pay estimated taxes based on 100% of your 2020 taxable income, you will be able to base your estimated tax installments on the comparatively small amount of income shown on your 2019 return.
With additional guidance and regulations released consistently since President Trump signed the Tax Cuts and Jobs Act of 2017 into law, one thing remains clear: strategic tax planning is key to lowering a business’s total tax liability. Read on for some moves on lowering your 2019 business tax bill.
Establish Tax-Favored Retirement Plan
Current tax rules allow for significant deductible contributions, so if your business doesn’t already have a retirement plan in place, it’s worth considering. Small business retirement plan options include 401(k), SEP-IRA, SIMPLE-IRA, and the defined benefit pension plan. Some of these plans can be established up until December 31 and allow for a deductible contribution for the 2019 tax year, except for the SEP-IRA and SIMPLE-IRA, which mandate a set-up deadline of October in order to make a contribution for the same year.
Review Your Reports
The end of the year is typically a time for businesses to begin goal setting for the next year, so it’s crucial to have a firm grasp on how your business performed financially this year. Make sure your books are up to date and accurate so you have a clear picture before diving into next year’s plan.
Defer Income If It Makes Sense
Depending on where your income level is, you can potentially cut your tax bill by postponing any end-of-the-year income until January 1 or later. Ask your accountant if shifting receivable income to the new year makes sense for your business.
Purchase Business Essentials to Take Advantage of Deductions
Upgrade equipment and furniture, stock up on office supplies, take care of repairs, and make vendor payments in advance in order to maximize deductions. And thanks to the TCJA, you can claim 100% bonus depreciation for qualified asset additions that were acquired and put in place in 2019.
Make Charitable Contributions
Tis the season for giving…and claiming a deduction for the fair market value of your donations. In addition to money, think outside the box and contact a program that sponsors families for the holidays. They often need food, bedding, toys, cookware, and clothing. It’s a great way for employees to feel like they’re making a difference too. Just don’t forget to get the necessary documentation and receipts to keep with your records.
Start Preparing for Next Year
If you put these tips into action, you’ll be better prepared at this time next year. For instance, you’ll already have a retirement plan in place. By going through the process of tax preparation this year, you have the opportunity to create systems for organization that will expedite the process next year.
As a small business owner, the more you can stay organized, improve daily operations, control business expenses, and generally make life as an entrepreneur run a little more smoothly, the more proficient and prolific your business will become. Below are some top-rated apps and programs available to help you manage your business’s financial situation.
Though it’s intended mainly for individual users, this financial tracking app is effective for businesses too. Aside from tracking bills and cash flow, Mint also has Quicken MyBusiness, a tool for small businesses that helps categorize expenses, and gives you up-front information for tax filing.
With the ability to connect to your bank account, PayPal, Square, credit cards, and more, you can use QuickBooks to track sales and expenses, view financial statements, pay employees and vendors, track unpaid invoices, maximize tax deductions, and more. With QuickBooks Online, you can access QuickBooks on both iOS and Android phones and tablets.
For businesses and freelancers alike, cloud-based FreshBooks helps you create personalized invoices, with an option to automatically bill clients for recurring invoices, and generate customizable business reports, such as profit and loss statements. You can also automate tasks like organizing expenses and receipts, tracking your time, and following up with clients.
Created for businesses with nine or fewer employees, Wave is an accounting software platform that has the ability to track sales and expenses; manage invoices, customer payments, and payroll; scan receipts; and generate accounting reports. With Wave’s free apps for iOS and Android, you can send invoices on the go, and get notified when an invoice is viewed, becomes due, or gets paid. Also available through the platform is a free personal finance software to help small-business owners manage their finances in one place.
Once you connect your accounts to the Truebill app, it will generate a report of where your money is going, categorizing and charting subscriptions and expenses. An added bonus with Truebill is a feature that compares your bills and subscriptions to average service levels, and with your initiation, will call providers and negotiate on your behalf.
Intended for small and mid-sized businesses, this accounting app (accessible by both desktop and mobile platforms) can handle payments and expenses, asset management, bank account reconciliation, invoicing and purchase orders, sales tax calculations, and multi-currency accounting.
If you’re looking for a forecasting program to help with strategic planning and analysis, PlanGuru might be a good fit. It’s pricey, with business plans starting at $99 per month, but with an analytics dashboard, Excel add-on, a budget and forecasting platform, and training, it might be worth the cost to keep business spending in check.
This simple expense tracker uses multiple platforms to keep tabs on expenses and mileage by reading and importing expenses from linked bank accounts and credit cards. And with the ability to scan and upload receipts, expenses can easily be submitted to employers.
This bookkeeping service halts the need to invest in big bookkeepers and implements tax services for small businesses. It also helps with forecasting by syncing with bank accounts and credit cards to predict future cash flow determined by current trends and previous expenses.
What happens when you file your taxes and discover that you owe money to the IRS? What are your options? What about when the amount owed is greater than you can afford at the moment? Luckily, there are several options for both scenarios.
Before we get into the different options for making payments to the IRS, remember that your payment has to be received by the IRS no later than the April 15th tax deadline, or be prepared for IRS-issued tax penalties and interest. This deadline applies to those who filed for a tax extension as well.
Below are the different payment options available to pay the IRS.
If you have the funds available when you file, you can have them automatically withdrawn from your bank account when you e-file and choose the e-pay option. This is available whether you use tax preparation software or an accounting professional to do your taxes.
The IRS has a “Direct Pay” service through its website, where you can pay from your checking or savings account at no cost. In order to track your payment, use the “Look Up a Payment” tool on the website or enable email notifications.
Credit or Debit
The IRS provides three third-party payment processors on its website through which you can pay your balance using a credit or debit card either online or by phone. They do charge a small service fee, which may be tax-deductible, and your credit card company may charge a fee as well.
Check or Money Order
Make checks payable to the United States Treasury and include your social security number or employer identification number, phone number, related tax form or notice number, and the tax year in the memo field. Send your check with a Form 1040-V, which is a payment voucher found on the IRS website, but don’t paperclip or staple your check to the voucher. You’ll find the correct mailing address for your check on page two of Form 1040-V.
Pay in Person
If you want to be absolutely sure that your payment is getting to the IRS on time, you can pay in person at your local IRS Taxpayer Assistance Center, which can be located on the IRS website. You will need to schedule an appointment before you go.
Check with your bank to see if they offer same-day wire transfer payable to the IRS. Be sure to ask about cut-off times and fees for this service.
What if you don’t have the full amount now? Luckily, the IRS offers two installment plans – a short-term plan and a long-term plan – which you can apply for online with the Installment Agreement Request (Form 9465). Which plan you qualify for depends on how much you owe and your specific tax situation. There is an application fee, and once approved the IRS can void the agreement if you don’t stay on schedule with payments.
Another option is to request a temporary delay from the IRS. You might have to fill out a Collection Information Statement and provide transparent information on your personal finances, and penalties and interest will factor in until the amount is paid in full.
Finally, you can offer to settle for a smaller amount than what’s owed, but the IRS encourages taxpayers to consider all other options before submitting an offer to settle. If you decide to go this route, you will need to be current on your tax filings and not involved in an open bankruptcy proceeding. To determine if you qualify, the IRS will take into account your income, expenses, ability to pay, and asset equity.
As you approach retirement you’re probably going to be asking yourself when to collect social security benefits. After all, the longer you wait, the more money you can secure. For instance, as long as you’ve paid into the program for 40 quarters (or roughly 10 years), you can start collecting as early as age 62, though full social security retirement age ranges from 65 to 67 for people born after 1943. If you can hold off a few more years, however, your benefit increases by about 8% every year until age 70.
Experts recommend that one thing to look at is whether or not you can afford to wait. Do you have financial flexibility with other assets that can cover your expenses, or do you need the extra monthly payment to keep with the lifestyle to which you’ve grown accustomed? If it’s the latter, you may be forced to withdraw sooner or make changes to your lifestyle. What about existing investments? If you collect early, your investments can grow longer, but they would have to grow by at least 8% a year just to equalize the loss from collecting early.
As you decide when to start withdrawing social security, take into account the age at which you’re planning to retire. If you’re still in the workforce when you become eligible to receive benefits, you can start collecting social security. However, there are some potential downsides to consider. For example, if you haven’t reached your full retirement age, you lose $1 for every $2 you earn above the $15,480.00 earning limit. Your benefits are recalculated to recover those lost benefits once you reach full retirement age, but it can take up to 15 years just to restore the loss.
Another consideration to look at is your marriage status. If you’re married, experts recommend that the higher earner in the marriage hold off on collecting benefits for as long as possible. However, it’s possible for the higher earner to file for benefits at retirement age and then suspend them, which could allow your spouse to collect a spousal benefit equal to ½ of your full retirement benefit. Meanwhile, your benefit continues to grow until age 70.
Lastly, consider your health. If you’re in poor health, you might be better off taking benefits early. According to the Social Security Administration, if you live to the average life expectancy for your age, you’ll get about the same amount of benefits no matter when you start collecting. The longer you live beyond that age, the more you’ll benefit by delaying payments.
With so many factors to consider, there is no “right” age to start collecting social security benefits, so just be sure that you’re making an informed decision when the time comes.