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5 posts from February 2017

02/15/2017

Costs of Free Online Tax Prep Tools

More taxpayers who prepare their own taxes are turning to internet resources versus software, but they should be aware of information-sharing nuances as they sign-up for the growing number of free online services.

A recent Wall Street Journal article took a look at the “free” of free online tax preparation services to identify whether there were any hidden costs.  The article reveals that while the online companies are attracting millions of do-it-yourself tax filers by offering free tax preparation tools, some service providers seek “to collect income and other data from its tax-prep users to make recommendations for credit cards and other financial products to them.”

Online tax software probeThe article confirms that when a customer follows through and buys the recommended products, that’s when the service provider makes money by being paid by a third party financial institution. This doesn’t cost the user upfront, but it’s a type of third party advertising that uses information sharing as its money-making tool.

Free online tax preparation service provider Credit Karma was interviewed in the article about the practice and the Company responded that this year it requires people to become Credit Karma “members” before they can use the free tax preparation services.  On the Company’s website members must provide their name, address, date of birth, mobile phone number and the last 4 digits of their Social Security Number.  Credit Karma says it does not charge third parties to advertise about their products or services, but rather uses a member’s information to suggest products and services that could help the member financially. The members are not charged, and Credit Karma is only paid if a member buys a product or service that it suggested.

Credit Karma members can select an “opt out” option to prevent the Company from using their tax return data, which includes their income and tax payments or refunds information, but not all customers are aware that their basic membership data may be shared.  One customer was quoted in the article saying that she had been approached by her credit-card company asking her to update her income after using Credit Karma’s free tax preparation service.  Credit Karma responded that the notice had nothing to do with her membership, but the customer deactivated her account anyway. Other providers say they also offer users ways to opt out of any information sharing.

Some of the other major online tax preparation service providers include Intuit, H&R Block, TaxAct and Blucora.  These companies may provide easy-to-use cost-free tax preparation tools via the internet, but when it comes to more complicated tax returns or state income tax returns, there are usually charges for the necessary forms and data calculation which are considered upgrades by the vendor.

It is also important for taxpayers with more complicated returns to know the questions and forms they need in order for the systems to share information and solutions, so there can be confusion and missed opportunities to claim tax credits and file the proper forms.

More taxpayers than ever before are turning to digital resources both online and through software to prepare and file their simple tax returns, but they should be mindful that even basic tax preparation services may have a complicated back-end effect on privacy and hidden advertising tactics.

Going Digital With Direct Deposits


Internet-sales-tax copyMore than ever before, taxpayers are choosing digital tools to file their tax returns and receive refunds. The latest numbers show 4 out of 5 taxpayers filed electronically in 2016 using a professional tax preparer or online software.  Of those taxpayers who qualified for a refund, 8 out of 10 chose to have the money deposited directly into a bank account rather than waiting for a check to arrive by mail.

The growth in digital tax tools use is due in part to IRS mandates.  Paper returns require more man hours to process; costing more and lengthening the time to receive a tax refund by weeks or months.  The IRS now requires most tax preparation professionals to file all tax returns and attachments electronically.  While under no mandate, more do-it-yourself taxpayers with simple tax returns are choosing to use the internet to prepare their returns using the IRS Free File software, and send electronically prepared returns through IRS e-File. This trend reflects security and privacy concerns as well as worries about delays that can come from paper filings and paper checks.

Combining IRS e-File with the direct deposit program is the fastest way to receive a refund and the transaction is free.  Most refunds are issued within 21 calendar days once the IRS receives a tax return.  A taxpayer may request that their refund be split into deposits in up to three separate financial accounts.  There are also options to purchase savings bonds, have a portion of a refund deposited into an Individual Retirement Account or make a deposit into an account with a pre-paid debit card.  A refund should only be deposited into an account or accounts that are in the taxpayer’s own name or spouse’s name, if it’s a joint account.

Tax agency officials try to reassure taxpayers the system used to receive tax records and payments as well as send refunds is the safest system available.  In the fall of 2015 and again in January 2016, new IRS software updates crashed the system and a small part of its online payment collection system was hacked causing delays and the need to reset taxpayer pins for security.

Today, the IRS uses the same electronic transfer system for refunds that is used to deliver almost all Social Security and Veterans Affairs benefits to millions of accounts.  It combines built-in security protection tools with layers of online protection programs provided by banks and financial institutions.

You can request the electronic direct deposit option to receive your refund even if you file a paper return by mail; yet know that processing a paper return takes the IRS on average two months longer than processing a digital return.  Requesting a direct deposit of your refund will not speed up the processing time.

If you have questions about the direct deposit option for income tax refunds, please contact one of our tax preparation specialists at McRuer CPAs for more information.

02/14/2017

Saving with myRA

The US Department of Treasury is offering the new myRA retirement savings account for people who have no access to a retirement savings plan at their job or lack other options to save.  It is a simple fund that is easy and free to open.  The idea is that if you give people a bit of help, they will learn the benefits of saving money and begin new habits that will last a lifetime.

MyRA logoA myRA account earns interest at the same rate as investments in the Government Securities Fund (average annual return of 2.94% over the last ten years) which are backed by the US Treasury.  It costs nothing to open the account and there are no fees.  A myRA is operated under Roth IRA Rules, so there is an annual contribution limit of $5,500 ($6,500 for individuals 50 years of age or older).  The fund is limited to a maximum $15,000.

The fund’s owner may withdraw any amount of money at any time tax-free and with no penalty.  The money can also be transferred to a private-sector Roth IRA at any time with no penalty.

Contributions may be made from direct deposits from a person’s paycheck, checking or savings account, and a federal income tax refund by marking the “savings” box on the refund section of a return.

The fund is designed to be a part of what is described as a “larger savings journey” with online tracking tools including a myRA Savings Goal calculator.  For more information, click here to visit the “Get Answers” page of the myRA website.

02/13/2017

EITC Refunds Slow

Big-tax-refundChanges in tax law may cause a delay in receiving tax refunds for early tax filers.  New in 2017, the 2015 Protecting Americans from Tax Hikes (PATH) Act has moved up the Forms W-2 filing deadline for employers and small businesses to January 31st from the previous end-of-February deadline.  The new deadline also applies to certain Forms 1099.  The new January 31st deadline is designed to help the IRS spot errors in early returns filed by taxpayers.  Having the Forms W-2 and 1099 sooner makes it easier to verify legitimate tax returns and send out refunds.

However, the changes will mean that early tax filers who apply for certain tax credits should expect that their refunds will arrive later than in past years.  If you claim the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC), the law prevents the issuing of the refund(s) until February 15th.

The way the calendar dates occur this tax season, even if a qualifying taxpayer has a refund issued on the first available day, February 15th, the money may not arrive even through a direct deposit until the week of February 27th.  Financial institutions need a few days to process the deposits and many do not process payments on weekends or holidays.  The President’s Day holiday on February 20th will also delay processing.  If a taxpayer has requested their refund to be paid by check, the delay in receiving payment could be several days or weeks longer, even into March.

02/10/2017

W-2 Scam Targets Small Business

Question-yikA5pBiEThe IRS has issued a new tax-related identity-theft scam warning to small businesses and human resources professionals.  The email phishing scam uses a business owner’s, corporate officer’s or human resource professional’s name in what looks like company or even official tax agency emails. The emails request copies of employee Forms W-2 from company payroll, internal accounting or human resources departments.

This is the second time the email scam has been identified as attacking businesses nationwide. The IRS urges business owners, internal accountants and company payroll officials to double check any executive-level requests for lists of Forms W-2 or Social Security Numbers.

The W-2 scam first appeared in early 2016. The IRS reports that cybercriminals tricked payroll and human resource officials into disclosing employee names, SSNs and income information. The thieves then attempted to file fraudulent tax returns to create fraudulent income tax refunds in a tax-related identity theft scheme.

This phishing variation is known as a “spoofing” e-mail.  It will contain, for example, the actual company chief executive officer’s name.  In this variation, the “CEO” sends an email to a company payroll office or human resource employee requesting a list of employees and information including their SSNs.

Crime investigators say some of the wording used in actual scam emails included:

  • “Kindly send me the individual 2016 Forms W-2 (PDF) and earnings summaries of our company staff for a quick review.”
  • “Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary).”
  • “I want you to send me the list of Form W-2 copies of employees’ wage and tax statement for 2016.  I need them in PDF file type, and please send it as an attachment.  Kindly prepare the lists and email them to me asap.”

Working together in the Security Summit, the IRS, states and tax industry representatives have made progress fighting against tax-related identity theft.  However, cybercriminals continue developing more sophisticated tactics to impersonate taxpayers in their effort to steal even more data.

For more information about tax-related identity theft and other tax scams, click here to link to The Security Summit’s national taxpayer awareness campaign called “Taxes. Security. Together.

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