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8 posts from January 2016

01/27/2016

Warning Signs of Tax-Related Identity Theft

ENews 2016 pic Identify theft Most people don’t know they’ve been a victim of tax-related identity theft until they try to file their legitimate income tax return. Then they discover that a tax return has already been filed using their Social Security number, usually claiming a fraudulent tax refund.

In other cases, the taxpayer receives a letter from the IRS saying it has identified a suspicious return and needs more information. You may be a victim of tax-related identity theft if the IRS notifies you that more than one tax return was filed under your Social Security number, the IRS reveals you received income from an employer for whom you did not work, or the IRS notifies you that you owe additional tax, have had collection actions taken against you or have a refund offset for a year that you did not work.

There are steps to follow if you think you’ve been a victim of tax-related identity theft. First, the Federal Trade Commission (FTC) requests you file a complaint through their website dedicated to fighting identity theft crimes at www.identitytheft.org. You will also be requested to contact one of the three major credit bureaus to place a ‘fraud alert’ on your credit records to prevent anyone (including yourself until things get sorted out) from opening a bank or credit card account or applying for a loan under your Social Security number. You should then close any financial or credit accounts that may have been opened by identity thieves.

You should respond to any IRS notice immediately, either by contacting the IRS directly or connecting with a tax preparation expert to determine your next steps. You will need to complete an IRS Form 14039 Identity Theft Affidavit in order to continue to file your legitimate tax return.

All of this sounds ominous; and it is. You should not consider responding to potential tax-related identity theft alone. If you suspect you may be a victim of tax-related fraud, contact one of our tax preparation experts at McRuer CPAs for more information.

Note: "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."  Quote from IRS Publication 5027

01/26/2016

New ACA-Related Tax Forms on Their Way

Your 2015 individual income tax return may need to include new documentation to meet the requirements of the Affordable Care Act (ACA).  For the first time,   Taxpayers may need to file the new forms with their 2015 federal income tax returns or keep the information with their tax records.

Enews pic affordable-care-act-logo-obamacareThis requirement is part of the ACA mandate that all Americans have “minimum essential coverage” under the federal health insurance law. If you do not have the minimum required coverage, you will need to prove you qualify for an exemption or pay a shared responsibility payment when you file your tax return.

What’s new for the filing of 2015 individual federal income tax returns is that qualifying taxpayers should be receiving the new tax information Forms 1095-A, 1095-B, or 1095-C. Taxpayers who may qualify for a premium tax credit should wait to receive a Form 1095-A before filing their tax return. Other taxpayers who are not seeking a credit are not required to submit the forms they may receive, but should keep the records on hand in case they need to verify their health insurance coverage if audited.

Businesses, the Marketplace (which is government managed) and employers who are providing health coverage plans or options to employees bear the responsibility of completing and sending new forms.

Form 1095-A

The new Form 1095-A is called the Health Insurance Marketplace Statement. Taxpayers who are enrolled in coverage through the Marketplace must file a tax return using Form 1095-A if they qualify for a premium tax credit and reimbursement of any advance payments made in 2015. This new form is created and sent from the Marketplace and should be sent by mail to qualifying taxpayers by early February.

It is possible that a taxpayer’s household will receive more than one Form 1095-A. This may happen if more than one policy covers people in the same household, if any household member switched plans in 2015, or had a life change after their coverage began (such as getting married or the addition or deletion of a dependent). Make certain the dates reflected on the form(s) include the correct start and end dates of coverage as well as the correct number of people in the household.

Form 1095-B

The new Form 1095-B is a form that is compiled and sent from health care insurance providers to individuals documenting the nature and duration of coverage. Though for the first time providers are required to send these forms, the forms are not yet required to be included with a federal income tax return. Taxpayers are urged not to wait to receive this new form before filing their return, but rather to file on time and then keep the Form 1095-B with their tax records should the documentation be needed later.

As with 2014 individual federal tax returns, other documents may be used to prove a taxpayer has the minimum essential health insurance coverage. Among statements that may prove a taxpayer and/or a member of the taxpayer’s family has health care coverage are:

  • Insurance cards
  • Explanation of benefits
  • Statements from an insurer
  • W-2 reflecting health insurance deductions
  • Payroll statement reflecting health insurance deductions

Form 1095-C

The new Form 1095-C is a form that is compiled and sent by employers who provide health insurance and coverage to certain employees. The form includes details about the type of coverage, the insured who were covered and for how long. This form can be used to determine whether a person qualifies for a premium tax credit, and to prove whether an employer offered that person and/or family members “self-insured coverage”.

For now, you should wait for one of these new forms to arrive before preparing and filing your tax return only if you wish to receive a tax credit. For more information on gathering your health insurance coverage documentation, click here.

If you need more information, please contact one of our tax preparation experts at McRuer CPAs.

01/25/2016

Tips to Keep Tax Records Safe

Imagine a burglar breaks into your home while you’re at work. The thief doesn’t steal jewelry, your TV or your favorite collectible. Instead, the thief heads directly to the home office files and steals your tax documents and bills where you’ve organized your records alphabetically to make them easier to find. The thief checks out your basement, closet and upstairs attic for boxes that look like they contain financial records. The thief walks out with paper. Tax_related_identity_theft

All in all, the paper value of the loss is negligible, but the thief has stolen all of your and your family members’ personal information and private financial data. The end result is that you and your loved ones could suffer hundreds of thousands of dollars or more in identity-theft related damages that may follow you the rest of your lives. It could also affect your taxes.

Tax documents in particular contain your and your dependent’s tax and personal information including receipts, old W-2 forms and bank account information. Experts point out that all documents containing your financial, health and tax information, especially records with your Social Security number on them, should be kept securely.

Most of us are being more diligent about using passwords and keeping digital connections and information about our personal data secure online. However, many taxpayers may have forgotten about the old paper copies that remain unprotected and vulnerable. Almost daily the IRS uncovers new scams using stolen identities. These scammers file fake tax returns under legitimate taxpayer Social Security numbers seeking refunds. The stolen IDs come from online and paper copy sources.

The issue is that taxpayers are supposed to keep records but doing so may provide an opportunity for someone else to take advantage. Regulations mandate that we keep a record of our tax returns and their supporting documents (receipts, statements, etc.) for a minimum of three years to a maximum of seven years. Additionally, we are to keep records related to a property we own for three to seven years after disposing of it.

To keep things safe, if you keep paper tax records, make certain they are stored in a locked and secure area such as a locked desk drawer, locked file or safe. Consider scanning your records instead and saving them electronically in encrypted files, both on your computer and your hard drive back-up. This also applies to all financial and health records that contain your personal and account information.

Converting paper files to digital files takes time and may require a scanner and a small investment in software to accept scanned documents (though many printers today serve that function). Remember that you’ll need encryption software. Make certain you keep your passwords in a secure place as well. You may also request electronic versions of your tax documents from your tax preparer, who should already be submitting your records in an electronic version to the IRS.

Dispose of paper tax records by shredding them first. If you are disposing of an old computer or any other product with a hard drive, remember that just “deleting” a file does not erase it completely from the computer. Electronic products that can hold data should be “wiped” to ensure all data is wiped out. This will require specialized disk utility software. Your computer, your mobile phones and tablets, most printers, copiers and all other electronic devices that can save files should be wiped before disposal.

To keep your computer files secure from an online thief, experts recommend you use reputable security software that updates automatically with essential tools including a firewall, virus and malware protection and file encryption options for sensitive data. Use strong passwords, protect them and back up your files regularly.

An IRS publication sums it up this way, “Treat your personal information like cash, don’t leave it lying around.”

01/20/2016

IRS Releases ID Theft Videos

ENews 2016 pic tax theif graphicA series of new videos titled “Taxes. Security. Together.” is being released on YouTube to provide more information about how to protect your identity online. The information includes tips for properly handling the online exchange of tax and financial data.

The videos are a joint effort between the IRS, state revenue departments and tax preparation professionals. The information campaign follows last year’s “Security Summit” where experts gathered to exchange ideas and tactics to fight online tax-related identity theft and tax refund fraud.

IRS Commissioner John Koskinen says, “We are jointly implementing major new procedures to protect taxpayers on our end, but people can help by taking some precautionary steps themselves to help us work to prevent identity theft.”

Many new IRS identity-theft protection steps may be invisible to taxpayers, but you may notice updates for the 2016 tax season that include new password standards for tax software admissions, faster information sharing about tax fraud and tax-related identity theft schemes, and updated verification standards.

The number one tip to prevent your identity from being stolen in a tax-related fraud scheme is to remember the IRS NEVER contacts you by email or telephone. The IRS communicates by letter through the US Postal Service. The department already knows your social security number and an authentic letter will not request you to submit that information.

To review the six new videos released by the IRS, click here.

To read more about online tax-related identity theft, click here.

If you need more information or feel you may have been a victim of tax-related identity theft, contact one of our tax planning and preparation experts at McRuer CPAs.

01/18/2016

Deductible Per-Mile Auto Rates Decrease

The standard mileage rates used to calculate allowable auto expense tax deductions have decreased for the first time in six years, reflecting the lower price of gasoline. The new rates apply to federal and state individual income tax calculations for 2016.

The new 2016 rates have dropped from 57.5 to 54 cents per mile for business purposes and from 23 to 19 cents per mile for miles driven for medical or moving purposes. The deductible rate for miles driven in service of charitable organizations remains at 14 cents per mile.

ENews pic auto mileage 4The ability to deduct a qualifying portion of automobile operating costs for business, charitable and medical or moving purposes has been helping individual taxpayers, especially the self-employed, for nearly two decades. The new rate for the 2016 tax year is the first time in six years that the deductible rate per mile has been reduced.

Since 1997, when the current allowable standard mileage deduction methodology was enacted, the rate allowed per mile has been increased 17 times and decreased five times. The allowable deduction rate per mile was at its lowest in 1999 at 31 cents and at its highest rate in the second half of 2008, providing for a deduction of 58.5 cents per mile for the business use of a personal vehicle.

If you have any questions or need more information, please don't hesitate to contact us at McRuer CPAs.

01/17/2016

Tax Filing Dates and Deadlines 2015 Income Taxes

ENews picture tax time January 19, 2016 is the first day you’ll be able to file your prepared 2015 individual federal income tax returns for processing. The IRS says processing for this tax season is starting on time partly due to the new tax extenders legislation quietly signed into law before the Christmas season.

You may remember last year’s tax season was delayed more than a week due to late tax law changes, disagreement over extending tax law provisions and setbacks blamed on IRS budget cuts. This also led to a delay by many businesses in calculating and sending various Forms 1099 to taxpayers causing more slowdowns in completing income tax returns. This year, things are scheduled to be starting on time and that should make tax season smoother.

This year's income tax filing deadline is April 18th.

Meanwhile, there is a change to the traditional April 15th tax filing deadline day that will give you at least three additional days to file. This year because of the Emancipation Day holiday on Friday, April 15, the filing deadline to submit your individual tax return will now be Monday, April 18. Additionally, because Maine and Massachusetts also celebrate Patriots Day on April 18, the federal and state tax filing deadlines in those two states will be Tuesday, April 19.

If you have any questions, please don't hesitate to contact us at McRuer CPAs.

01/15/2016

Tax Extenders & The Deficit Dilemma

Though Congress has received some applause for reviving a set of more than 50 tax breaks, called “tax extenders,” there is as much dismay-driven head shaking over the fact that the bipartisan agreement and the now signed budget bill dig the federal deficit hole even deeper.

The new tax law, entitled the Protecting Americans from Tax Hikes (PATH) Act of 2015, and the newly signed funding bill provide $1.1 trillion to cover spending for most government agencies to the end of fiscal year 2016, perhaps coincidentally past the upcoming presidential election. The defense sector, NASA, the Food and Drug Administration and the National Institutes of Health received a bit of a boost with most other agency funding remaining flat. ENews 2016 pic tax-credit3

IRS funding restrictions remain, so it’s expected that taxpayers will continue experiencing communication and customer service problems and an increase in computer-generated correspondence audits throughout 2016 and 2017. The new National Taxpayer Advocate Annual Report to Congress blasts the IRS for planning to “substantially reduce telephone and face-to-face interaction with taxpayers,” turning that job over to tax return preparers and tax software companies.

Meanwhile, the good news for taxpayers is that the PATH Act makes permanent several charitable tax provisions, indicating that lawmakers support using tax incentives to encourage charitable giving. For example, those 70 ½ or older may contribute up to $100,000 from an IRA directly to a charity with the contribution qualifying for their required minimum distribution (also known as Qualified Charitable Distribution (QCD) rules).

Other permanently renewed tax provisions include the American Opportunity Tax Credit for college expenses and the deduction for state and local sales taxes. The schoolteacher expense deduction has been enhanced and made permanent, as has the child tax credit.

The mortgage insurance premiums and qualified residence interest deductions have been extended for another year. Taxpayers who suffered losses from selling their home for less than the outstanding mortgage will also be able to avoid the tax consequences from debt cancellation under the Mortgage Debt Relief Act for another year.

Companies that utilize bonus depreciation like those involved in the telecommunications industry or who invest in capital-intensive projects will continue enjoying this helpful tax provision for a few more years. The tax law also makes permanent the research and development tax credit, which encourages important business R&D like that in the pharmaceutical and defense sectors.

The solar investment tax credit (ITC) and the wind production tax credit (PTC) are being phased out but will remain active through 2019 and 2021 respectively. The energy industry overall has received both tax incentives and funding resources, adding a boost of confidence to alternative energy producers.

Tax increases levied on individuals and businesses to pay for the Affordable Care Act (Obamacare) continue to be unpopular, and some were not enacted. Now it’s possible the two most controversial taxes may be repealed. These are the proposed tax on medical devices and the 40% excise “Cadillac” taxes on higher-priced employer-sponsored health plans that compete with government-sponsored plans.

The 2015 year-end budget battle, which starts our new tax year without delays, was a fistfight compared to the combative, destructive delay-causing 2014 debate. Yet, even as lawmakers are cooling to budget debates, the looming budget deficit has not disappeared and continues to grow. Our 2016 budget will add to the deficit, rather than reduce it. The Congressional Budget Office reports that overall US Treasury debt has grown to 74% of GDP that “could have serious negative consequences for the nation, including restraining economic growth in the long term ... and eventually increasing the risk of financial crisis.”

Overall, the bipartisan tax bill was passed with the understanding that Congress is committed to comprehensive tax reform that will simplify the tax code, eliminate temporary provisions and lower tax rates by broadening the tax base. Lawmakers who supported the PATH Act stated in a news release, “Americans deserve a simpler, fairer and flatter tax code that’s built for growth, and this bill will help make that possible.” The 2016 election year will likely determine how far that ship will sail.

If you have any questions about how the current tax law affects your individual and/or business tax obligation, please contact us now at McRuer CPAs for a tax planning session.

01/14/2016

IRS Mistake On New PIN Letters About Identity Theft

Pic identity-theft11_11576849The IRS has issued a statement admitting it made a mistake regarding a recent letter mailed to millions of taxpayers.  The letter has to do with requesting taxpayers who participate in the IRS' income tax electronic filing and information exchange system online.  The letters are notifying taxpayers that they have been assigned a new PIN number as part of the implementation of the new 2016 IRS identity theft prevention program.  The problem is the letter states the PIN applies to the tax year 2014 when it should have said the PIN applies to the 2015 tax year.  

Here is part of the admission of error from the IRS:

"The IRS IP PIN is a 6-digit number assigned to eligible taxpayers to help prevent the misuse of their Social Security number on fraudulent federal income tax returns. The IP PIN helps us verify a taxpayer’s identity and accept their electronic or paper tax return.

Due to an error, taxpayers are receiving Identity Protection PIN letters with an incorrect year listed. Taxpayers and tax professionals should be advised the IP PIN listed on the CP01A Notice dated January 4, 2016 is valid for use on all individual tax returns filed in 2016.

The notice incorrectly indicates the IP PIN issued is to be used for filing the 2014 tax return when the number is actually to be used for the 2015 tax return.  The IRS emphasizes the IP PIN listed on the CP 01A notice is valid for the 2015 returns. Taxpayers and their tax professionals should use this PIN number for 2015 tax returns, which the IRS will begin accepting from taxpayers starting Jan. 19, 2016.

The IRS apologizes for the confusion and any inconvenience."

For more information, click here for a link to the entire news release.

If you have any questions, please don't hesitate to contact one of our tax experts at McRuer CPAs.

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