6 Facts on Tax Refunds & Offsets
By: Gary M. DellaPosta, CPA
Certain financial debts from your past may affect your current federal tax refund. The law allows the use of part or all of your federal tax refund to pay other federal or state debts that you owe.
Here are six facts that you should know about tax refund 'offsets.'
1. A tax refund offset generally means that the U.S. Treasury has reduced your federal tax refund to pay for certain unpaid debts.
2. The Treasury Department's Financial Management Service (FMS) is the agency that issues tax refunds and conducts the Treasury Offset Program.
3. If you have unpaid debts, such as overdue child support, state income tax or student loans, FMS may apply part or all of your tax refund to pay that debt.
4. You will receive a notice from FMS if an offset occurs. The notice will include the original tax refund amount and your offset amount. It will also include the agency receiving the offset payment and that agency's contact information.
5. If you believe that you do not owe the debt or you want to dispute the amount taken from your refund, you should contact the agency that received the offset amount, not the IRS or FMS.
6. If you filed a joint tax return, you may be entitled to part or all of the refund offset. This rule applies if your spouse is solely responsible for the debt.
If you need to request your part of a refund, you can file Form 8379, Injured Spouse Allocation, for you.
Gary DellaPosta is a CPA and founder of the firm: Gary M DellaPosta, CPA's & Business Advisors. A graduate of Bryant
By: Gary M. DellaPosta, CPA
Although the 2012 tax season is officially over, tax scams unfortunately are not, which is why the IRS issues an annual "Dirty Dozen" list that includes common tax scams affecting taxpayers.
Taxpayers should be aware of these tax scams so they can protect themselves against claims that sound too good to be true, and because taxpayers who buy into illegal tax scams can end up facing significant penalties and interest and even criminal prosecution.
Here are the tax scams that made the IRS "Dirty Dozen" list this filing season:
1. Identity Theft. Tax fraud through the use of identity theft tops this year's "Dirty Dozen" list. Combating identity theft and refund fraud is a top priority for the IRS. The IRS's ID theft strategy focuses on prevention,
detection and victim assistance. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft. This compares to $14 billion in 2011. Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should immediately contact the IRS so the agency can take action to secure their tax account. If you have received a notice from the IRS, call the phone number on the notice.
2. Phishing. Phishing typically involves an unsolicited email or a fake website that seems legitimate but lures victims into providing personal and financial information. Once scammers obtain that information, they can commit identity theft or financial theft. 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. If you receive an unsolicited email that appears to be from the IRS, send it to firstname.lastname@example.org.
3. Return Preparer Fraud. Although most return preparers are reputable and provide good service, you should choose carefully when hiring someone to prepare your tax return. Only use a preparer who signs the return they prepare for you and enters their IRS Preparer Tax Identification Number (PTIN).
4. Hiding Income Offshore. One form of tax evasion is hiding income in offshore accounts. This includes using debit cards, credit cards or wire transfers to access those funds. While there are legitimate reasons for
maintaining financial accounts abroad, there are reporting requirements taxpayers need to fulfill. Failing to comply can lead to penalties or criminal prosecution.
5. "Free Money" from the IRS & Tax Scams Involving Social Security. Beware of scammers who prey on people with low income, the elderly and church members around the country. Scammers use flyers and ads with bogus promises of refunds that don't exist. The schemes target people who have little or no income and normally don't have to file a tax return. In some cases, a victim may be due a legitimate tax credit or refund but scammers fraudulently inflate income or use other false information to file a return to obtain a
larger refund. By the time people find out the IRS has rejected their claim, the promoters are long gone.
6. Impersonation of Charitable Organizations. Following major disasters, it's common for scam artists to impersonate charities to get money or personal information from well-intentioned people. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds. Taxpayers need to be sure they donate to recognized charities.
7. False/Inflated Income and Expenses. Falsely claiming income you did not earn or expenses you did not pay in order to get larger refundable tax credits is tax fraud. This includes false claims for the Earned Income Tax Credit. In many cases the taxpayer ends up repaying the refund, including penalties and interest. In some cases the taxpayer faces criminal prosecution. In one particular scam, taxpayers file excessive claims for the fuel tax credit. Fraud involving the fuel tax credit is a frivolous claim and can result in a penalty of $5,000.
8. False Form 1099 Refund Claims. In this scam, the perpetrator files a fake information return, such as a Form 1099-OID, to justify a false refund claim.
9. Frivolous Arguments. Promoters of frivolous schemes advise taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These are false arguments that the courts have consistently thrown out. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.
10. Falsely Claiming Zero Wages. Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, scammers use a Form 4852 (Substitute Form W-2) or a "corrected" Form 1099 to improperly reduce taxable income to zero. Filing this type of return can result in a $5,000 penalty.
11. Disguised Corporate Ownership. Scammers improperly use third parties form corporations that hide the true ownership of the business. They help dishonest individuals underreport income, claim fake deductions and avoid filing tax returns. They also facilitate money laundering and other financial crimes.
12. Misuse of Trusts. There are legitimate uses of trusts in tax and estate planning. But some questionable transactions promise to reduce the amount of income that is subject to tax, offer deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits.
By: Gary M. DellaPosta, CPA
Children who receive investment income are subject to special tax rules that affect how parents must report a child's investment income. Some parents can include their child's investment income on their tax return, while other children may have to file their own tax return. If a child cannot file his or her own tax return for any reason, such as age, the child's parent or guardian is responsible for filing a return on the child's behalf. Here's what you need to know about tax liability and your child's investment income.
1. Investment income normally includes interest, dividends, capital gains and other unearned income, such as from a trust.
2. Special rules apply if your child's total investment income is more than $2,000 ($1,900 in 2012). The parent's tax rate may apply to part of that income instead of the child's tax rate.
3. If your child's total interest and dividend income is less than $10,000 ($9,500 in 2012), then you may be able to include the income on your tax return. If you make this choice, the child does not file a return. Instead, you file Form 8814, Parents' Election to Report Child's Interest and Dividends, with your tax return.
4. If your child received investment income of $10,000 or more in 2013 ($9,500 or more in 2012), then he or she will be required to file Form 8615, Tax for Certain Children Who Have Investment Income of More Than $2,000, with the child's federal tax return for tax year 2013.
If you have any questions about tax rules for your child's investment income in 2013, don't hesitate to send us an email or give us a call.
By: Gary M. DellaPosta, CPA
More than 52 percent of businesses today are home-based. Every day, people are striking out and achieving economic and creative independence by turning their skills into dollars. Garages, basements and attics are being transformed into the corporate headquarters of the newest entrepreneurs - home-based businesspeople. And, with technological advances in smartphones, tablets, and iPads as well as a rising demand for "service-oriented" businesses, the opportunities seem to be endless.
Is a Home-Based Business Right for You?
Choosing a home business is like choosing a spouse or partner: Think carefully before starting the business. Instead of plunging right in, take time to learn as much about the market for any product or service as you can. Before you invest any time, effort, and money take a few moments to answer the following questions:
- Can you describe in detail the business you plan on establishing?
- What will be your product or service?
- Is there a demand for your product or service?
- Can you identify the target market for your product or service?
- Do u have the talent and expertise needed to compete successfully?
Before you dive head first into a home-based business, it's essential that you know why you are doing it and how you will do it. To succeed, your business must be based on something greater than a desire to be your own boss: an honest assessment of your own personality, and understanding of what's involved, and a
lot of hard work. You have to be willing to plan ahead, and then make improvements and adjustments along the road. While there are no "best" or "right" reasons for starting a home-based business, it is vital to have a very clear idea of what you are getting into and why. Ask yourself these questions:
- Are you a self-starter?
- Can you stick to business if you're working at home?
- Do you have the necessary self-discipline to maintain schedules?
- Can you deal with the isolation of working from home?
Working under the same roof that your family lives under may not prove to be as easy as it seems. It is important that you work in a professional environment; if at all possible, you should set up a separate office in your home. You must consider whether your home has the space for a business, and whether you can successfully run the business from your home.
Compliance with Laws and Regulations
A home-based business is subject to many of the same laws and regulations affecting other businesses and you will be responsible for complying with them. There are some general areas to watch out for, but be sure to consult an attorney and your state department of labor to find out which laws and regulations will affect your business.
Be aware of your city's zoning regulations. If your business operates in violation of them, you could be fined or closed down.
Restrictions on Certain Goods
Certain products may not be produced in the home. Most states outlaw home production of fireworks, drugs, poisons, sanitary or medical products, and toys. Some states also prohibit home-based businesses from making food, drink, or clothing.
Registration and Accounting Requirements
You may need the following:
- Work certificate or a license from the state (your business's name may also need to be registered with the state)
- Sales tax number
- Separate business telephone
- Separate business bank account
If your business has employees, you are responsible for withholding income, social security, and Medicare taxes, as well as complying with minimum wage and employee health and safety laws.
Money fuels all businesses. With a little planning, you'll find that you can avoid most financial difficulties. When drawing up a financial plan, don't worry about using estimates. The process of thinking through these questions helps develop your business skills and leads to solid financial planning.
Estimating Start-Up Costs
To estimate your start-up costs, include all initial expenses such as fees, licenses, permits, telephone deposit, tools, office equipment and promotional expenses.
Business experts say you should not expect a profit for the first eight to 10 months, so be sure to give yourself enough of a cushion if you need it.
Projecting Operating Expenses
Include salaries, utilities, office supplies, loan payments, taxes, legal services and insurance premiums, and don't forget to include your normal living expenses. Your business must not only meet its own needs, but make sure it meets yours as well.
It is essential that you know how to estimate your sales on a daily and monthly basis. From the sales estimates, you can develop projected income statements, break-even points and cash-flow statements. Use your marketing research to estimate initial sales volume.
Determining Cash Flow
Working capital--not profits--pays your bills. Even though your assets may look great on the balance sheet, if your cash is tied up in receivables or equipment, your business is technically insolvent. In other words, you're
Make a list of all anticipated expenses and projected income for each week and month. If you see a cash-flow crisis developing, cut back on everything but the necessities.
Gary DellaPosta is a CPA and founder of the firm: Gary M DellaPosta, CPA's & Business Advisors. A graduate of Bryant
By: Gary M. DellaPosta, CPA
Are you one of the millions of Americans who haven't filed (or even started) your taxes yet? With the April 15th tax filing deadline less than two weeks away, here's some last minute tax advice for you.
1.) Stop Procrastinating. Resist the temptation to put off your taxes until the very last minute. Our office needs time to prepare your return, and we may need to request certain documents from you, which will take additional time.
2.) Include All Income. If you had a side job in addition to a regular job, you might have received a Form 1099-MISC. Make sure you include that income when you file your tax return because you may owe additional taxes on it. If you forget to include it you may be liable for penalties and interest on the unreported income. Remember: Get your documents to us as soon as you can, and we'll help you take care of whatever comes up.
3.) File on Time or Request an Extension. This year's tax deadline is April 15. If the clock runs out, you can get an automatic six-month extension, bringing the filing date to October 15, 2013. The extension itself
does not give you more time to pay any taxes due. You will owe interest on any amount not paid by the April deadline, plus a late-payment penalty if you have not paid at least 90 percent of your total tax by that date.
If you need to file for late-penalty relief, we can help with that to. See Late-Penalty Relief for Late Filers under Tax Tips below
4.) Don't Panic If You Can't Pay. If you can't immediately pay the taxes you owe, consider some alternatives. You can apply for an IRS installment agreement, suggesting your own monthly payment amount and due date, and getting a reduced late-payment penalty rate. You also have various options for charging your balance on a credit card. There is no IRS fee for credit card payments, but the processing companies charge a convenience fee. Electronic filers with a balance due can file early and authorize the government's
financial agent to take the money directly from their checking or savings account on the April due date, with no fee.
5.) Sign and Double Check Your Return. The IRS will not process tax returns that aren't signed, so make sure you sign and date your return. You should also double check your social security number, as well as any electronic payment or direct deposit numbers, and make sure that your filing status is correct.
Late-Penalty Relief for Extended Filers
Due to delays at the start of the tax season, the IRS is providing late-payment penalty relief to individuals and businesses requesting a tax-filing extension because they are attaching forms to their returns that couldn't be filed until after January.
The relief applies to the late-payment penalty, normally 0.5 percent per month, charged on tax payments made after the regular filing deadline. This relief applies to any of the forms delayed until February or March, primarily due to the January enactment of the American Taxpayer Relief Act.
Taxpayers using forms claiming such tax benefits as depreciation deductions and a variety of business credits, including the Work Opportunity Credit qualify for this relief, as well as the following:
~ Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits
~ Form 8908, Energy Efficient Home Credit
~ Form 8839, Qualified Adoption Expenses
Individuals and businesses qualify for this relief if they properly request an extension to file their 2012 returns. Eligible taxpayers need not make any special notation on their extension request, but as usual, they must properly estimate their expected tax liability and pay the estimated amount by the original due date of
The return must be filed and payment for any additional amount due must be made by the extended due date. Interest still applies to any tax payment made after the original deadline.
Gary DellaPosta is a CPA and founder of the firm: Gary M DellaPosta, CPA's & Business Advisors. A graduate of Bryant
Who Should File A 2012 Tax Return?
By: Gary M. DellaPosta, CPA
If you received income during 2012, you may need to file a tax return in 2013. The amount of your income, your filing status, your age and the type of income you received will determine whether you're required to file. Even if you are not required to file a tax return, you may still want to file. You may get a refund if you've had too much federal income tax withheld from your pay or qualify for certain tax credits.
Even if you've determined that you don't need to file a tax return this year, you may still want to file. Here are five reasons why:
1. Federal Income Tax Withheld. If your employer withheld federal income tax from your pay, if you made estimated tax payments, or if you had a prior year overpayment applied to this year's tax, you could be due a refund. File a return to claim any excess tax you paid during the year.
2. Earned Income Tax Credit. If you worked but earned less than $50,270 last year, you may qualify for EITC. EITC is a refundable tax credit; which means if you qualify you could receive EITC as a tax refund. Families with qualifying children may qualify to get up to $5,891. You can't get the credit unless you file a return and claim it. Give us a call if you're not sure you qualify for the EITC.
3. Additional Child Tax Credit. If you have at least one qualifying child and you don't get the full amount of the Child Tax Credit, you may qualify for this additional refundable credit. You must file and use new Schedule 8812, Child Tax Credit, to claim the credit. If you need help filling out this form, please give us a call.
4. American Opportunity Credit. If you or someone you support is a student, you might be eligible for this credit. Students in their first four years of postsecondary education may qualify for as much as $2,500 through this partially refundable credit. Even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student. You must file Form 8863, Education Credits, and submit it with your tax return to claim the credit. Don't hesitate to give us a call if you need help with this form.
5. Health Coverage Tax Credit. If you're receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, you may be eligible for a 2012 Health Coverage Tax Credit. Spouses and dependents may also be eligible. Email or call us today to see whether you're eligible for a 72.5 percent tax credit on payments you made for qualified health insurance premiums.
Want more information about filing requirements and tax credits? Give us a call. We're here to help.
By: Gary DellaPosta, CPA
Confused about which credits and deductions you can claim on your 2012 tax return? You're not alone. Even in an ordinary tax year, it's hard to remember which tax breaks you can take, but the fiscal cliff fiasco this year made it even more difficult to keep everything straight. With that in mind here are six tax breaks for 2012 that you won't want to overlook.
1. State Sales and Income Taxes
Thanks to the fiscal cliff deal, the sales tax deduction, which expired at the end of 2011, was reinstated retroactive to 2012 (it expires at the end of 2013). As such, IRS allows for a deduction of either state income tax paid or state sales tax paid, whichever is greater.
If you bought a big ticket item like a car or boat in 2012, it might be more advantageous to deduct the sales tax, but don't forget to figure any state income taxes withheld from your paycheck just in case. If you're self-employed you can include the state income paid from your estimated payments. In addition, if you owed taxes when filing your 2011 tax return in 2012, you can include the amount when you itemize your state taxes this year on your 2012 return.
2. Child and Dependent Care Tax Credit
Most parents realize that there is a tax credit for daycare when their child is young, but they might not realize that once a child starts school, the same credit can be used for before and after school care, as well as day camps during school vacations. This child and dependent care tax credit can also be taken by anyone who pays a home health aide to care for a spouse or other dependent. The credit is worth a maximum of $1,050 or 35% of $3,000 of eligible expenses per dependent.
3. Job Search Expenses
Job search expenses are 100% deductible, whether you are gainfully employed or not currently working--as long as you are looking for a position in your current profession. Expenses include fees paid to join professional organizations, as well as employment placement agencies that you used during your job search. Travel to interviews is also deductible (as long as it was not paid by your prospective employer) as is paper, envelopes, and costs associated with resumes or portfolios. The catch is that you can only deduct expenses
greater than 2% of your adjusted gross income (AGI).
4. Student Loan Interest Paid by Parents
Typically, a taxpayer is only able to deduct interest on mortgages and student loans if he or she is liable for the debt; however, if a parent pays back their child's student loans the money is treated by the IRS as if the child paid it. As long as the child is not claimed as a dependent, he or she can deduct up to $2,500 in student loan interest paid by the parent. The deduction can be claimed even if the child does not itemize.
5. Medical Expenses
Most people know that medical expenses are deductible as long as they are more than 7.5% of AGI for tax year 2012 (10% in 2013). What they often don't realize is what medical expenses can be deducted such as medical miles (23 cents per mile) driven to and from appointments and travel (airline fares or hotel
rooms) for out of town medical treatment.
Other deductible medical expenses that taxpayers might not be aware of include: health insurance premiums, prescription drugs, co-pays, and dental premiums and treatment. Long-term care insurance (deductible dollar amounts vary depending on age) is also deductible, as are prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers, and wheelchairs.
6. Bad Debt
If you've loaned money to a friend, but were never repaid, you may qualify for a non-business bad debt tax deduction of up to $3,000 per year. To qualify however, the debt must be totally worthless, in that there is no reasonable expectation of payment.
Non-business bad debt is deducted as a short-term capital loss, subject to the capital loss limitations. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine whether it is worthless. Any amount you are not able to deduct can be carried forward to reduce future tax liability.
Are you getting all of the tax credits and deductions you are entitled to? Maybe you are...but maybe you're not. Why take a chance? Make an appointment with us today and we'll make sure you get the tax breaks you deserve.
By: Gary M. DellaPosta, CPA
Consumers should protect themselves against online identity theft and other scams that increase during--and after--the filing season. Such scams may appropriate the name, logo, or other appurtenances of the IRS or U.S. Department of the Treasury to mislead taxpayers into believing the communication is legitimate.
The Internal Revenue Service receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the IRS. Many of these scams fraudulently use the IRS name or logo as a lure to make the communication appear more authentic and enticing. The goal of these scams, referred to as phishing, is to trick you into revealing your personal and financial information. The scammers can then use your information -- like your Social Security number, bank account or credit card numbers -- to commit identity theft or steal your money.
Scams involving the impersonation of the IRS usually take the form of e-mails, tweets, or other online messages to consumers. Scammers may also use phones and faxes to reach intended victims. Some scammers set up phony Web sites.
The IRS and E-mail
Generally, the IRS does not send unsolicited e-mails to taxpayers. Further, the IRS does not discuss tax account information with taxpayers via e-mail or use e-mail to solicit sensitive financial and personal information from taxpayers. The IRS does not request financial account security information, such as passwords and PIN numbers, from taxpayers.
Most Scams Impersonating the IRS are Identity Theft Schemes In this type of scam, the scammer poses as a legitimate institution to trick consumers into revealing personal and financial information - such as passwords and Social Security, PIN, bank account and credit card numbers - that can be used to gain access to their bank, credit card, or other financial accounts.
Attempted identity theft scams that take place via e-mail are known as phishing. Other scams may try to persuade a victim to advance sums of money in the hope of realizing a larger gain. These are known as advance fee scams.
How an Identity Theft Scam Works
Typically, a consumer will receive an e-mail that claims to come from the IRS or Treasury Department. The message will contain an enticing or intimidating subject line, such as "Tax Refund," "Inherited Funds," or "IRS Notice." Usually, the message will state that the recipient needs to provide the IRS with information to obtain the refund or avoid some penalty. The message will instruct the consumer to open an attachment or click on a link in the e-mail. This may lead to an official-looking IRS Web site. The look-alike site will then contain a phony but genuine-looking online form or interactive application that requires personal and financiaL information, which the scammer then uses to commit identity theft.
Alternatively, the clicked link may secretly download malware to theconsumer's computer. Malware is malicious code that can take over the computer's hard drive, giving the scammer remote access to the computer, or it could look for passwords and other information and send them to the scammer.
Phony Web or Commercial Sites
In many IRS-impersonation scams, the scammer sends the consumer to a phony Web site that mimics the appearance of the genuine IRS Web site, IRS.gov. This allows the scammer to steer victims to phony interactive forms or applications that appear genuine but require the targeted victim to enter personal and
financial information that will be used to commit identity theft.
The official Web site for the Internal Revenue Service is IRS.gov, and all IRS.gov Web page addresses begin with http://www.irs.gov/.
In addition to Web sites established by scammers, there are commercial Internet sites that often resemble the authentic IRS site or contain some form of the IRS name in the address but end with a .com, .net, .org, or other designation instead of .gov. These sites have no connection to the IRS. Consumers may unknowingly visit these sites when searching the Internet to retrieve tax forms, publications, and other information from the IRS.
Frequent or Recent Scams
There are a number of scams that impersonate the IRS. Some of them appear with great frequency, particularly during and right after filing season, and recur annually. Others are new.
Refund Scam: This is the most frequent IRS-impersonation scam seen by the IRS. In this phishing scam, a bogus e-mail claiming to come from the IRS tells the consumer that he or she is eligible to receive a tax refund for a specified amount. It may use the phrase "last annual calculations of your fiscal activity." To claim the tax refund, the consumer must open an attachment or click on a link contained in the e-mail to access and complete a claim form. The form requires the entry of personal and financial information. Several
variations on the refund scam have claimed to come from the Exempt Organizations area of the IRS or the name and signature of a genuine or made-up IRS executive. In reality, taxpayers do not need to complete a special form to obtain their federal tax refund. Refunds are triggered by the tax return they submitted to
Lottery winnings or cash consignment: These advance fee scam e-mails claim to come from the Treasury Department to notify recipients that they'll receive millions of dollars in recovered funds, lottery winnings, or
cash consignment if they provide certain personal information, including phone numbers, via return e-mail. The e-mail may be just the first step in a multi-step scheme in which the victim is later contacted by telephone or further e-mail and instructed to deposit taxes on the funds or winnings before they can receive any of it. Alternatively, they may be sent a phony check of the funds or winnings and told to deposit it but pay 10 percent in taxes or fees. Thinking that the check must have cleared the bank and is genuine, some people comply. However, the scammers, not the Treasury Department, will get the taxes or fees. In reality, the Treasury Department does not become involved in notification of inheritances or lottery or other winnings.
Beneficial Owner Form: This fax-based phishing scam, which generally targets foreign nationals, recurs periodically. It's based on a genuine IRS form, the W-8BEN, Certificate of Foreign Status of Beneficial Owner
for United States Tax Withholding. The scammer, though, invents his or her own number and name for the form. The scammer modifies the form to request passport numbers, information that is often used for account security purposes (such as mother's maiden name), and similar detailed personal and financial information,
and states that the recipient may have to pay additional tax if he or she fails to immediately fax back the completed form. In reality, the real W-8BEN is completed by banks, not individuals.
Other Known Scams
The contents of other IRS-impersonation scams vary but may claim that the recipient will be paid for participating in an online survey or is under investigation or audit. Some scam e-mails have referenced Recovery-related tax provisions, such as Making Work Pay, or solicited for charitable donations to victims of natural disasters. Taxpayers should beware an e-mail scam that references underreported income and the recipient's "tax statement," since clicking on a link or opening an attachment is known to download malware onto the recipient's computer.
How to Spot a Scam
Many e-mail scams are fairly sophisticated and hard to detect. However, there are signs to watch for, such as an e-mail that:
~ Requests detailed or an unusual amount of personal and/or financial information, such as name, SSN, bank or credit card account numbers, or security-related information, such as mother's maiden name, either in the e-mail itself or on another site to which a link in the e-mail sends the recipient;
~ dangles bait to get the recipient to respond to the e-mail, such as mentioning a tax refund or offering to pay the recipient to participate in an IRS survey;
~ threatens a consequence for not responding to the e-mail, such as additional taxes or blocking access to the recipient's funds;
~ gets the Internal Revenue Service or other federal agency names wrong;
~ uses incorrect grammar or odd phrasing (many of the e-mail scams originate overseas and are written by non-native English speakers);
~ uses a really long address in any link contained in the e-mail message or one that does not start with the actual IRS Web site address (http://www.irs.gov). The actual link's address, or url, is revealed by moving the mouse over the link included in the text of the e-mail.
What to Do
Taxpayers who receive a suspicious e-mail claiming to come from the IRS should take the following steps:
~ Do not open any attachments to the e-mail, in case they contain malicious code that will infect your computer.
~ Do not click on any links, for the same reason. Alternatively, the links may connect to a phony IRS Web site that appears authentic and then prompts for personal identifiers, bank or credit card account numbers, or PINs.
~ Do not respond to the email. Instead, visit the IRS website to use the "Where's My Refund?" interactive tool to determine if you are really getting a refund.
~ Forward the suspicious e-mail or url address to the IRS mailbox email@example.com, and then delete the e-mail from your inbox. Alternatively, you can visit the IRS website and click on "Report Phishing" at the bottom of the home page.
~ Consumers who believe they are or may be victims of identity theft or other scams may visit the U.S. Federal Trade Commission website for guidance on what to do. The IRS is one of the sponsors of this site.
If you've received an email claiming to be from the IRS, call us to talk it over before taking any action. We don't want you to fall victim to a scam.
Don't Fall For Phony IRS Websites
The Internal Revenue Service is issuing a warning about a new tax scam that uses a website that mimics the IRS e-Services online registration page.
The actual IRS e-Services page offers web-based products for tax preparers, not the general public. The phony web page looks almost identical to the real one. The IRS gets many reports of fake websites like this. Criminals use these sites to lure people into providing personal and financial information that may be used to steal the victim's money or identity.
The address of the official IRS website is www.irs.gov. Don't be misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov.
If you find a suspicious website that claims to be the IRS, send the site's URL by email to firstname.lastname@example.org. Use the subject line, 'Suspicious website'.
Be aware that 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.
If you have any questions, don't hesitate to contact us and be sure to report any unsolicited email that appears to be from the IRS by sending it to email@example.com.
By now, everyone has heard about the "fiscal cliff" bill signed into law on January 2, 2013, but what you might not understand is how it affects you. With that in mind, let's take a closer look.
What is the "Fiscal Cliff"?The term "fiscal cliff" refers to the $503 billion in federal tax increases and $200 billion in spending cuts (according to recent Congressional Budget Office projections) that took effect at the end of 2012 and beginning of 2013--before Congress passed ATRA. It is the abruptness of these measures and possible negative economic impacts such as an increase in unemployment and a recession that has resulted in the use of the metaphor "fiscal cliff".
What Could Have Happened?
According to the Tax Policy Center the arrival of the fiscal cliff would have meant that nearly 90% of all households would see their taxes rise. The top 20 percent of Americans would see their effective tax rate rise about 5.8 percentage points on average, while the bottom 20 percent of Americans would see their tax rate rise about 3.7 percentage points as a result of the Bush-era tax cuts to income, estate, and capital gains tax.
Further, in addition to a rise in tax rates, middle class and the lower-income working families are affected by the fiscal cliff in other ways--among them child-related credits and deductions for dependent care and education, and the EITC.
What Actually Happened: The "Fiscal Cliff" Deal
On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, which President Obama signed into law the following day. The "fiscal cliff" bill, as it's referred to, extended a number of tax provisions that expired in 2011 and 2012, as well as increasing taxes on higher income individuals.
All Wage Earners
Personal tax rate. Marginal tax rates remained the same for most taxpayers (10%, 15%, 25%, 28%, 33%, and 35%) except for those taxpayers with taxable income greater than $400,000 (single filers) or $450,000 for married filers, whose rate increased to 39.6%.
Payroll taxes. The payroll tax holiday expired at the end of 2012 and was not extended. This means that you'll see 6.2% taken out of your paycheck for Social Security for the first $113,700 in wages for 2013 instead of 4.2%. For the average family making $50,000 a year, this amounts to $1,000 less in their pocket. The self-employed tax rate reverts to 15.3% up from 13.3% in 2012.
Unemployment Insurance. Federally funded unemployment insurance (UI) benefits, scheduled to end on December 29, 2012, were extended for another year, through December 29, 2013.
Middle Income Families
Child-Related Tax Credits. Child-related tax credits, used by families to offset their tax burden, have been extended under ATRA. The child tax credit remains at $1,000 and is still refundable. It is phased out for married couples who earn over $110,000 and single filers who earn more than $75,000. The dependent care tax credit is equal to 35% of the first $3,000 ($6,000 for two or more) of eligible expenses for one qualifying child.
Education. The American Opportunity Tax Credit, which was scheduled to revert to the Hope Credit ($1,500), has been extended through 2017. The credit is used to offset education expenses and is worth up to $2,500.
EITC. The EITC or Earned Income Tax Credit, which benefits low to middle income working families, is extended for five years through the end of 2017. In 2013 the maximum credit is $5,981.
Higher Income Earners
AMT. The AMT (Alternative Minimum Tax) “patch” (exemption amounts) was made permanent and indexed for inflation for tax years beginning in 2013 and made retroactive for 2012. In addition, nonrefundable personal credits can be used to offset AMT liability. For 2012, the exemption amounts are $78,750 for married taxpayers filing jointly and $50,600 for single filers.
Marriage Penalty. The larger standard deduction for married couples filing joint tax returns is retained ($12,200 in 2013) as is the increased size of the 15% income tax bracket. Generally, each spouse would need to earn income in excess of $80,000 (with no itemized deductions) in order to be hit with the marriage penalty; however, the higher your income, the harder you get hit with the penalty. Despite this, it usually makes more sense to file joint tax returns and not married filing separately. If you're not sure which filing status to use, give us a call.
Long Term Capital Gains and Dividends. For retirees (and others) whose investment income is at or above $400,000 (single filers) or $450,000 (married filing jointly), long term capital gains and dividends are both taxed at 20%. However, taxpayers in the lower brackets (10% and 15%) however, the tax rate is zero. For middle tax brackets, long-term capital gains and dividends are taxed at 15%.
Even if that dividend income is part of an IRA or other retirement plan (and not in and of itself subject to taxes), retirees in the highest tax bracket ($400,000 for single filers) will still be affected by higher income tax rates in 2013 of 39.6%.
Estate and Gift Taxes. The exclusion for a decedent's estate remains at $5 million (adjusted for inflation) and the top tax rate increases to 40% for taxpayers with income of $400,000 ($450,000 married filing jointly). The "portability" election of exemptions between spouses remains in effect for decedents dying after 2012. The gift tax is increased to $14,000.
Pease amendment and PEP. The Pease amendment, which enabled wealthier taxpayers to get the full value of their itemized deductions, expired in 2012. As a result, taxpayers with incomes of $250,000 $300,000 married filing jointly) will see higher taxes, especially when taking into account higher personal tax
rates, Medicare tax increases (see Higher Income Earners above), and the return of the personal exemption phaseout (PEP) provision in 2013 as well. Threshold amounts for PEP are $250,000 for single filers and $300,000 married filing jointly.
If you have questions or need help understanding how the fiscal cliff impacts you, don't hesitate to give us a call. We'll help you figure it out and plan ahead for the future.
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