Although taxpayers should always be on the lookout for scammers and fraudulent activity, tax season is a time to be especially wary of unknown emails or phone calls. Aggressive phone scams where criminals call posed as IRS officials are extremely common and are a part of the “Dirty Dozen” list of tax-related scams targeting taxpayers. The Dirty Dozen is a list compiled annually by the IRS citing common recent scams taxpayers should be aware of.
How do these scams work? Frauds will make unsolicited calls claiming to be from the IRS and demanding individuals pay counterfeit tax bills. They may also send phishing emails or leave “urgent” phone messages with requests to call back immediately if you do not pick up. If successful, scammers will persuade their victims to send them cash either via prepaid debit card, gift card or wire transfer. Phone scammers often threaten their victims with deportation, arrest or driver’s license repeal in an attempt to bully taxpayers into sending the money.
To further convince their victims, criminals can modify the caller ID number to appear like the IRS or another federal agency and use IRS employee titles and fake badge numbers to make the call appear official. Frauds may also refer to the victim’s name, address or other personal information to persuade individuals of their legitimacy. Since October of 2013, the Treasury Inspector General for Tax Administration (TIGTA) has been made aware of 12,716 individuals who, due to phone scams, have paid over $63 million collectively.
The IRS also wants to remind taxpayers that while aggressive and threatening phone calls will always be a strategy used by scammers, especially during tax season, criminals do change their tactics and employ versions of this scam year round.
As a continued reminder, below are strategies frauds will use that the IRS will never use:
- Call via phone to demand payment using a specific payment method such as wire transfer. The IRS will mail a bill first if taxes are owed.
- Order that taxes be paid without allowing taxpayers to appeal or question what is owed.
- Ask for credit or debit card numbers over the phone.
- Threaten to include local police or other law enforcement for lack of payment.
- Call regarding a refund.
If you receive a call and think you may owe taxes, hang up immediately and call the IRS directly at 800-829-1040. If you know you do not owe taxes or are unsure, do not provide any information over the phone. Hang up and report the call the the TIGTA as well as the Federal Trade Commission. The TIGTA can be reached by phone at 800-366-4484 or on their website on the IRS Impersonation Scam Reporting page. To contact the Federal Trade Commission, go to FTC.gov and visit the FTC Complaint Assistant page and include IRS Telephone Scam in your notes.
In the midst of identity scams and credit card hacking, the IRS has warned against another scam, this time targeted at businesses and employers. There is a growing W-2 email scam threatening sensitive tax information and the IRS wants to alert payroll and human resources officials so they can be on their guard.
A simple email beginning with a casual greeting has quickly become one of the most dangerous phishing attacks. Hundreds of employers fell victim to the scheme last year, which left thousands of employees vulnerable to tax-related identity theft.
Since there have been significant improvements made in curbing stolen identity refund fraud, criminals are now seeking more advanced personal information in order to fraudulently file a return. W-2’s contain a wealth of detailed taxpayer income and withholding information, which is exactly what frauds are searching for and why they are targeting employers to acquire such information.
The scam has only grown larger in recent years, attacking a variety of businesses, from public universities and hospitals to charities and small businesses. The IRS wants to educate employees and employers, particularly payroll and HR associates who are often targeted first, to hopefully limit the number of successful attacks.
The scammer will likely spoof the email of someone high up in the organization or business, sending an email to someone with W-2 access using a subject line similar to “review” or “request.” The “request” will likely be a list of all the employees and their W-2 forms, potentially even specifying the file format. Since the employee believes they are corresponding with an executive of some sort, they may send the information without question, meaning weeks could go by before it is even evident they have been scammed. This gives frauds plenty of time to file numerous fake returns.
Because this scam poses such a major tax threat at both the local and state level, the IRS has set up a specific reporting process to alert the proper individuals, which is outlined briefly below:
- Email firstname.lastname@example.org to notify the IRS of a W-2 data loss and provide contact information. Type “W2 Data Loss” into the subject line so that the email can be routed properly and do not attach any employee personally identifiable information.
- Email the Federation of Tax Administrators at StateAlert@taxadmin.org to get state specific information on reporting victim information.
- Businesses or payroll service providers should file a complaint with the FBI’s Internet Crime Complaint Center (IC3.gov). They may be asked to file a report with local law enforcement as well.
- Notify employees so they are able to take protective steps against identity theft. The Federal Trade Commission website, www.identitytheft.gov, provides guidance on steps employees should take.
- Forward the scam email to email@example.com.
Beyond just educating employees, payroll officials and HR associates about the scam, employers are encouraged to set up policies or practices to avoid being hacked. Suggested policies include requiring verbal communication before sending sensitive information digitally, or requiring two or more individuals to receive and review any sensitive W-2 information before it can be sent out. The IRS is fighting diligently to protect taxpayers and lower the number of tax-related scams, so employers are encouraged to be on the defense as well and safeguard their own tax paying employees.
Although Equifax has yet to reveal specifics about the individuals who were affected by their data breach, as many as 143 million Americans may have been impacted. With that in mind, anyone with credit should consider taking measures to protect their identity and funds. Many experts are suggesting individuals freeze their credit, but this may not be the most effective method. While freezing your credit is not a bad decision, it only protects you from new accounts being opened in your name, a form of identity theft that is actually quite rare.
While many taxpayers are now deeply concerned about their lives being destroyed from identity theft, there are many other ways to guard your identity and your money that may be more beneficial than freezing your credit:
- Use two-step verification and secure passwords
Most identity theft occurs on existing accounts, so making it difficult for hackers to access your accounts with financial information is one step you can take to safeguard your personal data.
- Choose ID-verification questions and answers cautiously
Consider choosing questions whose answers cannot be easily found online. Questions such as “Where were you born?” or “What was your high school mascot?” could be easily discovered by checking your social media accounts, so be wise when creating those protective measures.
- Monitor current accounts as often as possible
Ideally, you should check your bank accounts daily to ensure all posted charges were made by you or whoever has access to the account. Since most financial institutions today have an app for accessing account information, monitoring your credit can be as simple as a quick log on from your phone. If you notice suspicious activity, you can then notify your bank immediately to avoid racking up more false charges.
- Set up alerts for new credit activity
Although you can set up a fraud alert or credit freeze, there are other free services that monitor your credit and any new account openings or activity.
- Check credit reports regularly
Every individual is allowed one free credit report annually from each of the three major credit bureaus through AnnualCreditReport.com, a site sponsored by the government. You can receive all three reports at once, or request one every 4 months to space out your monitoring tactics.
- File taxes early
One form of fraudulent behavior that is becoming more common is filing for taxes under someone else’s SSN. But, organizing your tax information quickly and filing as early as possible could lower the chances that someone will file in your name. Plus, if you are owed a refund, you will likely get it sooner than April if you file early.
While none of these methods are entirely foolproof, taking precautionary steps to protect your credit are always advised. If you do fall victim to identity theft, check out the Federal Trade Commission’s step-by-step recovery guide for helpful information.
Year-end tax planning is especially challenging this year because Congress has yet to act on a host of tax breaks that expired at the end of 2013. Some of these tax breaks may be retroactively reinstated and extended, but Congress may not decide the fate of these tax breaks until the very end of this year (and, possibly, not until next year).
These breaks include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line-deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those age 70- 1/2 or older; and the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence.
For businesses: tax breaks that expired at the end of last year and may be retroactively reinstated and extended include: 50% bonus first year depreciation for most new machinery, equipment and software; the $500,000 annual expensing limitation; the research tax credit; and the 15-year write off for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.
Higher-income-earners have unique concerns to address when mapping out year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax that applies to individuals receiving wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately).
The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears, a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on his estimated MAGI and net investment income (NII) for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than NII, and other individuals will need to consider ways to minimize both NII and other types of MAGI.
The additional Medicare tax may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward year end to cover the tax. For example, an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year. He would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don’t exceed $200,000. Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be overwithheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple’s income won’t be high enough to actually cause the tax to be owed.
We have compiled a checklist of additional actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make:
Year-End Tax Planning Moves for Individuals
- Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.
- Postpone income until 2015 and accelerate deductions into 2014 to lower your 2014 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2014 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2014. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year or where lower income in 2015 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit.
- If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2014.
- If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the assets in the Roth IRA account may have declined in value, and if you leave things as is, you will wind up paying a higher tax than is necessary. You can back out of the transaction by recharacterizing the conversion, that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA, if doing so proves advantageous.
- It may be advantageous to try to arrange with your employer to defer a bonus that may be coming your way until 2015.
- Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2014 deductions even if you don’t pay your credit card bill until after the end of the year.
- If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2014 if doing so won’t create an alternative minimum tax (AMT) problem.
- Take an eligible rollover distribution from a qualified retirement plan before the end of 2014 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding isn’t viable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2014. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2014, but the withheld tax will be applied pro rata over the full 2014 tax year to reduce previous underpayments of estimated tax.
- Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2014, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses, are calculated in a more restrictive way for AMT purposes than for regular tax purposes in the case of a taxpayer who is over age 65 or whose spouse is over age 65 as of the close of the tax year. As a result, in some cases, deductions should not be accelerated.
- You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions (i.e., certain deductions that are allowed only to the extent they exceed 2% of adjusted gross income), medical expenses and other itemized deductions.
- You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
- You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
- Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70- 1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70- 1/2 in 2014, you can delay the first required distribution to 2015, but if you do, you will have to take a double distribution in 2015—the amount required for 2014 plus the amount required for 2015. Think twice before delaying 2014 distributions to 2015—bunching income into 2015 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2015 if you will be in a substantially lower bracket that year.
- Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
- If you are eligible to make health savings account (HSA) contributions in December of this year, you can make a full year’s worth of deductible HSA contributions for 2014. This is so even if you first became eligible on Dec. 1, 2014.
- Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $14,000 in 2014 to each of an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.
Year-End Tax-Planning Moves for Businesses & Business Owners
- Businesses should buy machinery and equipment before year end and, under the generally applicable “half-year convention,” thereby secure a half-year’s worth of depreciation deductions for the first ownership year.
- Although the business property expensing option is greatly reduced in 2014 (unless legislation changes this option for 2014), don’t neglect to make expenditures that qualify for this option. For tax years beginning in 2014, the expensing limit is $25,000, and the investment-based reduction in the dollar limitation starts to take effect when property placed in service in the tax year exceeds $200,000.
- Businesses may be able to take advantage of the “de minimis safe harbor election” (also known as the book-tax conformity election) to expense the costs of inexpensive assets and materials and supplies, assuming the costs don’t have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit-of-property can’t exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA’s report). If there’s no AFS, the cost of a unit of property can’t exceed $500. Where the UNICAP rules aren’t an issue, purchase such qualifying items before the end of 2014.
- A corporation should consider accelerating income from 2015 to 2014 where doing so will prevent the corporation from moving into a higher bracket next year. Conversely, it should consider deferring income until 2015 where doing so will prevent the corporation from moving into a higher bracket this year.
- A corporation should consider deferring income until next year if doing so will preserve the corporation s qualification for the small corporation alternative minimum tax (AMT) exemption for 2014. Note that there is never a reason to accelerate income for purposes of the small corporation AMT exemption because if a corporation doesn’t qualify for the exemption for any given tax year, it will not qualify for the exemption for any later tax year.
- A corporation (other than a “large” corporation) that anticipates a small net operating loss (NOL) for 2014 (and substantial net income in 2015) may find it worthwhile to accelerate just enough of its 2015 income (or to defer just enough of its 2014 deductions) to create a small amount of net income for 2014. This will permit the corporation to base its 2015 estimated tax installments on the relatively small amount of income shown on its 2014 return, rather than having to pay estimated taxes based on 100% of its much larger 2015 taxable income.
- If your business qualifies for the domestic production activities deduction for its 2014 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2014 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2014, even if the business has a fiscal year.
- To reduce 2014 taxable income, consider deferring a debt-cancellation event until 2015.
- To reduce 2014 taxable income, consider disposing of a passive activity in 2014 if doing so will allow you to deduct suspended passive activity losses.
- If you own an interest in a partnership or S corporation consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.
These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you. We also will need to stay in close touch in the event Congress revives expired tax breaks, to assure that you don’t miss out on any resuscitated tax saving opportunities.
Do not hesitate to call us to set up an appointment before end of the year to make sure you are taking the right steps for year-end tax preparation. You are also always welcome to give us a call with any questions. 317-549-3091 or email us at firstname.lastname@example.org
In response to the new requirements imposed by the Foreign Account Taxpayer Compliance Act (FATCA) and the proposed regulations promulgated thereunder, the IRS has prepared two new withholding certificates:
Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (Individual).
Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding (Entities).
While the withholding forms provide a first look at the actual new reporting requirements that FATCA ultimately will impose on virtually all non-US persons receiving passive income from US sources, the IRS has not yet published draft instructions for the new certificates. As a result, certain important implementation issues raised under the Proposed Regulations and FATCA generally remain unanswered.
For now . . .
Until the new withholding forms are released in final form by the IRS in December, you should continue to use the existing Form W-8BEN where required under current law.
The new withholding certificates effectively divide the information reporting requirements between two classes of payees: nonresident alien individuals and all foreign entities other than individuals.
New W-8BEN will simplify the declarations required to be made by foreign individuals. It will only require basic identifying information, declarations with respect to treaty status (as relevant), and a general certification as to foreign status.
New W-8BEN-E will require each foreign entity to make two distinct declarations:
The foreign entity’s status for purposes of the US outbound withholding tax regime (e.g., the 30 percent withholding tax generally imposed on US-source dividends paid to non-US persons unless reduced by an applicable income tax treaty). This will be the same as the declaration required in the current IRS Form W-8BEN, as last revised in 2006.
The FATCA-related declaration, which will require an entity to provide substantial detail by declaring its overall status for FATCA purposes from among twenty-four different categories (all described in detail in the Proposed Regulations).
In addition, new W-8BEN-E will require a foreign entity to provide its Foreign Financial Institution Employer Identification Number and FATCA ID, as applicable (both are discussed in the Proposed Regulations).
Full Article: http://www.accountingweb.com/article/irs-posts-draft-revised-withholding-forms-conforming-fatca/219273
A new survey conducted by Rasmussen Reports for the Consumer Federation of America ? the COUNTRY Financial Security Index – shows a gap between what Americans think they’re spending and what’s happening in reality.
Only 9 percent of the 3,000 respondents of the survey said their lifestyle is more than they can afford, yet 21 percent say they spend more than they make at least a few months every year.
The survey suggests the so-called “perception gap” could shrink if more people used a household budget. Those who budget are more likely to set monthly savings goals (61 percent) than those who don’t (30 percent), COUNTRY Financial says.
Review your spending behavior. Take a look at where the money goes every month and make adjustments where needed, Brannan says.
Start a spending and savings plan. Put money in jars or envelopes or start a Christmas fund. When the money’s gone, stop spending. Some people are even stashing their extra cash under their mattress or in a bedframe outfitted with a safe. In fact, safe sales are up 40 percent from a few years ago, SmartMoney reported.
Rethink expenses. When Joe Mihalic earned an MBA from Harvard Business School that resulted in more than a $100,000 debt, he vowed to repay his debt quickly. He blogged about giving up dinner dates and movies, missing parties and weddings, ending 401(k) contributions, and staying home for Christmas. He stopped buying clothes, sold a second car and motorcycle, rented a spare bedroom, and started a side business. He told Fortune magazine, “A lot of people in this country – regardless of socioeconomic status – have an unhealthy obsession with things and experiences and statuses. We shop brands; we drop names. We try to keep up with the Joneses. We comfortably tolerate an unhealthy level of debt.”
Involve your children in your financial plan. Explain your goals for retirement savings and other things you value, Laura Scharr, principal of Ascend Financial Planning LLC in Columbia, South Carolina, told Fox Business. “Be honest and upfront with your children,” she said.
The COUNTRY Financial survey says budgeters and those who don’t budget do have one thing in common: They miss the mark on their savings goals. Of budgeters, 57 percent achieve their savings goals half the time or less, while the number is 54 percent for the non-budgeters.
How are Americans making ends meet when the budget runs out?
- 36 percent raid their savings accounts.
- 22 percent use credit cards.
- 14 percent adjust their spending next month.
Full Article: http://www.accountingweb.com/topic/cfo/survey-shows-americans-need-spend-less-save-more-set-budget