General Information

Protect Your Computer Online

Protect Your Computer Online

The Internal Revenue Service, the states and the tax industry urge you to be safe online and remind you to take important steps to help protect yourself against identity theft.

Scammers, hackers and identity thieves are looking to steal your personal information – and your money. But there are simple steps you can take to help protect yourself, like keeping your computer software up-to-date and giving out your personal information only when you have a good reason.

We all have a role to play to protect your tax account. There are just a few easy and practical steps you can take to protect yourself as you conduct your personal business online.

Here are some best practices you can follow to protect your tax and financial information:

  1. Understand and Use Security Software.  Security software helps protect your computer against the digital threats which are prevalent online. Generally, your operating system will include security software or you can access free security software from well-known companies or Internet providers. Other options may have an annual licensing fee and offer more features. Essential tools include a firewall, virus/malware protection and file encryption if you keep sensitive financial/tax documents on your computer. Security suites often come with firewall, anti-virus and anti-spam, parental controls and privacy protection. File encryption to protect your saved documents may have to be purchased separately. Do not buy security software offered as an unexpected pop-up ad on your computer or email! It’s likely from a scammer.Security Lock
  2. Allow Security Software to Update Automatically. Set your security software to update automatically. Malware – malicious software – evolves constantly and your security software suite is updated routinely to keep pace.
  3. Look for the “S” for encrypted “https” websites. When shopping or banking online, always look to see that the site uses encryption to protect your information. Look for https at the beginning of the web address. The “s” is for secure. Unencrypted sites begin with an http address. Additionally, make sure the https carries through on all pages, not just the sign-on page.
  4. Use Strong Passwords. Use passwords of at least 10 to 12 characters, mixing letters, numbers and special characters. Don’t use your name, birthdate or common words. Don’t use the same password for several accounts. Keep your password list in a secure place or use a password manager. Don’t share your password with anyone. Calls, texts or emails pretending to be from legitimate companies or the IRS asking you to update your accounts or seeking personal financial information are generally scams.
  5. Secure your wireless network.  A wireless network sends a signal through the air that allows you to connect to the Internet. If your home or business wi-fi is unsecured it also allows any computer within range to access your wireless and steal information from your computer. Criminals also can use your wireless to send spam or commit crimes that would be traced back to your account. Always encrypt your wireless. Generally, you must turn on this feature and create a password.
  6. Be cautious when using public wireless networks. Public wi-fi hotspots are convenient but often not secure. Tax or financial Information you send though websites or mobile apps may be accessed by someone else. If a public Wi-Fi hotspot does not require a password, it probably is not secure. If you are transmitting sensitive information, look for the “s” in https in the website address to ensure that the information will be secure.
  7. Avoid phishing attempts. Never reply to emails, texts or pop-up messages asking for your personal, tax or financial information. One common trick by criminals is to impersonate a business such as your financial institution, tax software provider or the IRS, asking you to update your account and providing a link. Never click on links even if they seem to be from organizations you trust. Go directly to the organization’s website. Legitimate businesses don’t ask you to send sensitive information through unsecured channels.

Information from IRS Security Awareness Tax Tips was used in this blog post

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Medicare Changes for 2016

Medicare Update 2016

Social Security beneficiaries will not have a benefit increase in 2016. Inflation has declined over the past year, fueled primarily by a large drop in the price of gasoline during that period. This means the Social Security wage base will remain flat for 2016 (staying at $118,500). By law, if beneficiaries get no increase, the wage base can’t rise.

The benefit freeze will also have an impact on Medicare 2016Medicare Part B premiums. About 30% of Part B users will face large premium hikes over 2015 levels. This applies to those who first enroll in 2016 or don’t have premiums deducted from monthly Social Security benefits, plus anyone subject to the Part B surcharge. For 2016, that levy will kick in for singles with 2014 modified adjusted gross incomes over $85,000 and couples with 2014 modified AGIs over $170,000. The premium boosts on all three of these groups may be as high as 50% unless the Obama administration takes steps to ease the pain. Other Part B users will continue to pay $104.90 a month.

Additional information regarding 2016 Medicare laws can be found here: Medicare & You 2016

Information from The Kiplinger Tax Letter Vol. 90, No. 18 was used in the blog post.

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Scam Targets Taxpayers

Disappearing “Service” at the IRS

Don’t expect much in the way of service from the IRS this filing season. Budget cuts have forced the agency to pare back on services that filers have relied upon in the past. Folks who call the IRS don’t have a great chance of speaking to a person, even after a wait of 20 minutes or more. And if you finally reach someone, you’ll get no help with complicated questions. The IRS will answer only basic queries, such as those regarding filing status, dependents and whether income is taxable. Those with tougher issues will be sent to IRS publications or its Web site.

It’s Not the IRS Calling

A phone scam is targeting taxpayers across the nation. Callersphone scam claiming to be IRS officials (and altering caller ID information to make it appear as if the IRS is calling) are telling their victims that they owe taxes and must pay up fast with a prepaid debit card or wire transfer. Unsuspecting victims are being threatened with arrest, deportation or loss of their driver’s license if they fail to comply. The fraudsters sometimes follow up with bogus e-mails, and often will use fake names and IRS badge numbers. Don’t be tricked. The IRS never makes unsolicited calls to people to tell them that they owe more taxes. The agency normally contacts people first by mail. And it doesn’t ask for personal or financial information via e-mail or on social media sites.

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

  • If you know you owe taxes or you think you might owe taxes, call the IRS at 800-829-1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.
  • If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484
  • If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at www.FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Remember, the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the email to phishing@irs.gov

The Scam Continues to Grow

In a new effort to take money from unsuspecting website scamvictims, fraudsters are sending out phony tax bills on what purports to be official IRS letterhead. They are also sending out emails from false websites that contain “IRS” in the Web address.

Keep your guard up and don’t fall victim to any of these scams.

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Tax Return Due Dates

Tax Return Due Dates

The Senate and the House passed a short-term highway funding extension that contains several important tax provisions. The bill modifies tax return due dates for several common tax returns starting for tax year 2016 (filed in 2017).

Partnership tax returns are due March 15, NOT April 15 as in the past. If your partnership isn’t on a calendar year, the return is due on the 15th day of the third month following the close of your tax year. A six month extension is still available.

C corporation tax returns are due April 15, NOT March 15. An automatic 5 month extension is available. For non-calendar years, it is due on the 15th day of the fourth month following the close of the tax year. In addition, C corporations with tax years ending on June 30 will continue to have a due date of September 15 until 2025. For years beginning after 2025, the due date for these returns will be October 15.

Individual and S corporation due dates remain at April 15 and March 15, respectively, and a six month automatic extension is still available for both.

If you have any questions about this blog post or other accounting topics, please contact one of our tax professionals.

Information from Forbes and the Journal of Accountancy was used in this blog post.

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Assisting Victims of Tax-Related Identity Theft

Assisting Victims of Tax-Related Identity Theft

Anyone – regardless of whether they are required to file a tax return or not or whether they are a minor, an adult or even deceased can be impacted by identity theft. According to the Federal Trade Commission, 2014 marked the fifth consecutive year that tax-related identity theft was the number one identity theft complaint filed by consumers.

Tax identity theft typically happens when someone uses a person’s stolen identifying information to file a fraudulent tax return and obtain a refund. Practitioners should be alert for signs that identity theft has occurred. Telltale signs for individuals often include a return being rejected because the client’s SSN already has been used or a client receiving an IRidentity theft notice or letter, such as Notice CPOlB or Letter 5071C, requesting your client to verify their identity.

Chapter 12 of the IRS Response Library has everything practitioners need to assist their clients who are victims of tax identity theft. Here are some immediate steps that can be taken to assist clients.

  1. Obtain proper authorization from the client via a signed power of attorney (Form 2848).
  2. Report the identity theft to the local police department and the FTC at identitytheft.gov or 877.438.4338.
  3. Contact the major credit bureaus to place a “fraud alert’ on the account at: equifax.com or 800.525.6285, experian.com or 888.397.3742 or transunion.com or 800.680.7289.
  4. Report the identity theft to the IRS by contacting the Identity Protection Specialized Unit at 800.908.4490.
  5. Contact the Social Security Administration at ssa.gov or 800.772.1213.
  6. Respond to any IRS notices and submit a completed Form 14039 (Identity Theft Affidavit). This form allows the IRS to put an identity theft indicator on the client’s tax account.

A client whose return is rejected because someone else already filed under that SSN will have to file a paper return for the current year with the Form 14039 and Form 8948 (Preparer Explanation for Not Filing Electronically) attached.

Unfortunately, identity theft issues can take many months to correct. In an audit report dated March 20, 2015, the Treasury Inspector General for Tax IRS Identity TheftAdministration (TIGTA) indicated that the timeline the IRS provides to identity theft victims for processing and resolving the case can be misleading. The IRS tells taxpayers their identity theft case will be resolved within 180 days; however, TIGTA found that on average the IRS took 278 days to resolve identity theft cases.

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How Much to Save for an Emergency

How Much to Save for an Emergency

A new tool can help you nail down how much to save in an emergency fund, based on your personal profile. At www.hellowallet.com/emergencysavings, you’ll enter information including your take-home Emergencypay, regular monthly expenses, whether you rent or own your home, and your health insurance policy’s annual deductible and out-of-pocket maximum. The tool estimates the amount of easily accessible savings you should have in the event of a minor emergency, a major emergency or a layoff from work. It is important to take into consideration things like take-home income, vehicles, monthly expenses, insurance deductibles, and irregular expenditures.

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Late Filing and Late Paying Penalties

Late Filing and Late Paying Penalties

April 15 was the tax day deadline for most people. If you are due a refund there is no penalty if you file a late tax return. But if you owe tax, and you failed to file and pay on time, you will usually owe interest and penalties on the tax you pay late. You should file your tax return and pay the tax as soon as possible to stop them. Here are eight facts that you should know about these penalties.

1.    Two penalties may apply.  If you file your federalPenalties tax return late and owe tax with the return, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.

2.    Penalty for late filing.  The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes.

3.    Minimum late filing penalty.  If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.

4.    Penalty for late payment.  The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes.

5.    Combined penalty per month.  If the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is 5 percent.

6.    File even if you can’t pay.  In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can’t pay in full, you should file your tax return and pay as much as you can. Use IRS Direct Pay to pay your tax directly from your checking or savings account. You should try other options to pay, such as getting a loan or paying by debit or credit card. The IRS will work with you to help you resolve your tax debt. Most people can set up an installment agreement with the IRS using the Online Payment Agreement tool on IRS.gov.

7.    Late payment penalty may not apply.  If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.

8.    No penalty if reasonable cause.  You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time. There is also penalty relief available for repayment of excess advance payments of the premium tax credit for 2014.

Information from IRS tax tip 2015-63 was used in this blog post.

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Tips for Filing an Amended Return

Have you found that you made an error on your federal tax return? If so, you may need to file an amended return. Here are ten tips that can help you file.

1.    Tax form to amend your return.  Use Form 1040X, 1040XAmended U.S. Individual Income Tax Return, to correct your tax return. You must file a paper Form 1040X; it can’t be e-filed.

2.    Amend to correct errors.  You should file an amended tax return to correct errors or make changes to your original tax return. For example, you should amend to change your filing status, or to correct your income, deductions or credits.

3.    Don’t amend for math errors, missing forms.  You normally don’t need to file an amended return to correct math errors. The IRS will automatically correct those for you. Also, do not file an amended return if you forgot to attach tax forms, such as a Form W-2 or a schedule. The IRS will mail you a request for them in most cases.

4.    Most taxpayers don’t need to amend to correct Form 1095-A, Health Insurance Marketplace Statement, errors.  Eligible taxpayers who filed a 2014 tax return and claimed a premium tax credit using incorrect information from either the federally-facilitated or a state-based Health Insurance Marketplace, generally do not have to file an amended return regardless of the nature of the error, even if additional taxes would be owed. The IRS may contact you to ask for a copy of your corrected Form 1095-A to verify the information.

5.    Time limit to claim a refund.  You usually have three years from the date you filed your original tax return to file Form 1040X to claim a refund. You can file it within two years from the date you paid the tax, if that date is later. That means the last day for most people to file a 2011 claim for a refund is April 15, 2015. See the Form 1040X instructions for special rules that apply to some claims.

6.    When to file for second refund.  If you are due a 1040 crumpledrefund from your original return, wait to get that refund before filing Form 1040X to claim an additional refund. Amended returns take up to 16 weeks to process. You may spend your original refund while you wait for any additional refund.

7.    Track your amended return.  You can track the status of your amended tax return three weeks after you file with ‘Where’s My Amended Return?’ This tool is on IRS.gov or by phone at 866-464-2050. It is available in English and in Spanish. The tool can track the status of an amended return for the current year and up to three years back. To use ‘Where’s My Amended Return?’ enter your taxpayer identification number, which is usually your Social Security number. You will also enter your date of birth and zip code. If you have filed amended returns for multiple years, you can check each year one at a time.
Information from IRS Tax Tip 2015-64 was used in this blog post.

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Factors Affecting IRS Audit Risk

Factors Affecting IRS Audit Risk

Ever wonder why some tax returns are audited by the Internal Revenue Service while most are ignored? Short on personnel and funding, the IRS audited only 0.86% of all individual tax returns in 2014. And the 2015 audit rate will definitely fall even lower as the agency’s resources continue to shrink. For example, funding for enforcement in the IRS’s current budget is 5% less than last year. So the odds are pretty low that your return will be picked for review.

That said, your chances of being audited or otherwise1040 Audit hearing from the IRS escalate depending upon various factors, including your income level, the types of deductions or losses claimed, the business in which you’re engaged and whether you own foreign assets. Math errors may draw IRS inquiry, but they’ll rarely lead to a full-blown exam. Although there’s no sure way to avoid an IRS audit, these 9 red flags could increase your chances of unwanted attention from the IRS.

  1. Making lots of moneyOverall individual audit rate is 1 in 116
    1. Individuals with $200k or more audit rate is 1 in 37
    2. Individuals with $1 Million or more audit rate is 1 in 13
  2. Underreporting income
  3. Taking higher than- average deductions
  4. Claiming 100% business use of a vehicle
    1. This is especially high risk when no other vehicle is available for personal use
    2. Keep detailed mileage logs with a date and purpose for every trip
    3. Actual expenses OR mileage may be deducted
  5. Writing off a hobby loss
    1. If your activity generates profit 3 out of 5 years it is considered a business and losses can be deducted
  6. Reporting large charitable deductions
  7. Running a small business
    1. Additional IRS scrutiny given to cash-intensive businesses
    2. IRS focusing away from large corporations and towards
  8. Deducting Business Meals, Travel and Entertainment
    1. Be prepared to provide records that document amounts, places, people, and purpose.
  9. Claiming the home office deduction
    1. The space must be used exclusively and regularly as your principle place of business

Information from Kiplinger’s Personal Finance Adviser May 2015 was used in this blog post. For specific questions about your audit risk, please contact us.

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Home Mortgage Debt Cancellation

Tax Tips about Home Mortgage Debt Cancellation

If your lender cancels part or all of your debt, you normally must pay tax on that amount. However, the law provides for an exclusion that may apply to homeowners who had their mortgage debt cancelled in 2014. In most cases where the exclusion applies, the amount of the cancelled debt is not taxable. Here are the top 10 tax tips about mortgage debt cancellation:

  1. Main Home.  If the cancelled debt was a loan short saleon your main home, you may be able to exclude the cancelled amount from your income. You must have used the loan to buy, build or substantially improve your main home to qualify. Your main home must also secure the mortgage.
  2. Loan Modification.  If your lender cancelled part of your mortgage through a loan modification or ‘workout,’ you may be able to exclude that amount from your income. You may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt cancelled in a foreclosure.
  3. Refinanced Mortgage.  The exclusion may apply to amounts cancelled on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. Amounts used for other purposes don’t qualify.
  4. Other Cancelled Debt.  Other types of cancelled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion. On the other hand, there are other rules that may allow those types of cancelled debts to be nontaxable.
  5. Form 1099-C.  If your lender reduced or 1099-ccancelled at least $600 of your debt, you should receive Form 1099-C, Cancellation of Debt, in January of the next year. This form shows the amount of cancelled debt and other information.
  6. Form 982. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. File the form with your federal income tax return.
  7. Exclusion extended. The law that authorized this exclusion had expired at the end of 2013. The Tax Increase Prevention Act extended it to apply for one year, through Dec. 31, 2014.

IRS Tax Tip 2015-32 was used in this blog post.

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