tax season

Should you itemize this tax season? Some important things to keep in mind for 2020.

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Should you itemize this tax season? That is a common question for many taxpayers this season. Are you holding off seeing an accountant because you aren’t sure whether or not you will need to itemize?

I’m sorry to tell you, the only way you’ll truly know whether or not you should itemize is to ask a tax professional. But since (good) accountants charge by the hour, you might want to prepare the proper documentation before you step foot into an accountant’s office.

That’s understandable. We’ll help you navigate the big questions of deductions and whether or not you should itemize your tax return for the 2019 tax season. Then we’ll instruct you as to what types of documentation you’ll need to collect if you do decide to itemize.

Should you take the standard deduction? 

For the 2019 tax season, the standard deduction is up to $12,200 for a single person. This means most taxpayers are going to take the standard deduction.

Here is a chart breaking down both the standard deduction for the 2019 tax season (the taxes you’re currently prepping) and the 2020 tax season (next year’s tax return).

Status

2019

2020

Married Filing Jointly

$24,400

$24,800

Head of Household

$18,350

$18,650

Single

$12,200

$12,400

Married Filing Separately

$12,200

$12,400

If you’re wondering what makes this number change year to year, you can blame tax changes (the 2018 Tax Cuts & Jobs Act bumped the standard single person deduction from $6,000 to $12,000) and inflation.  Congress adjusts the amount of the standard deduction to accommodate inflation.

The big boost in the standard deduction means that anywhere between 85 and 95% of taxpayers won’t need to itemize. We’ll help you determine if you’re part of that approximately 13% that the IRS estimates will itemize for the 2019 tax season.

How do you know if you should itemize? 

You’ll have to add it up.

Check your filing status (and the filing status of a spouse or any dependents). Find out what the standard deduction is for your status. Then add up all your expenses and see if you come in under, close to, or over the standard deduction.

A good accountant would help you maximize what you can write off, but you can get a gist of what you’ll need if you prepare ahead of time.

Start by finding out if you can itemize these 4 major deductions:

  • Charitable contributions

  • Medical Expenses

  • Mortgage interest

  • State and local taxes (think property and sales tax)

Medical expenses and mortgage interest alone might be high enough to put you over the threshold.  If you haven’t made it over the approximate $12k yet, continue by assessing how much you can deduct from these expenses:

  • Casualty, disaster and theft losses

  • Business expenses

  • Tax preparation fees

  • Investment interest

  • Mileage on a vehicle

  • Home office deductions

This covers a lot of areas where you might commonly receive a deduction.  The business deduction point will be a particularly tricky one if you aren’t strict about your record-keeping.

Remember, you don’ t need to get an exact count, you just need to get a rough idea of what you’ll need. That way you spend less time in the accountant’s office and more time doing what you do best.

Who might want to itemize? 

If you aren’t into adding up all the numbers, here are some categories of person who might want to itemize:

  • You run your own business – You have to spend money to make money, which means you’re making less money than it looks like on paper.

  • You have a high-interest rate on your mortgage.

  • You had a lot of medical expenses in the past year.

  • You pay for your own healthcare out of pocket.

If you’re even questioning whether or not you meet the threshold to itemize, its time to schedule a meeting with an accountant. This post helped you determine whether or not your tax situation might warrant itemizing deductions, now talk to your local tax advisor to find out for certain.

 

Ensuring Your Year-End Donations Are Tax-Deductible

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Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Many people make donations at the end of the year. To be deductible on your 2017 return, a charitable donation must be made by December 31, 2017. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean?

Is it the date you write a check or charge an online gift to your credit card? Or is it the date the charity actually receives the funds? In practice, the delivery date depends in part on what you donate and how you donate it. Here are a few common examples:

Checks. The date you mail it.

Credit cards. The date you make the charge.

Pay-by-phone accounts. The date the financial institution pays the amount.

Stock certificates. The date you mail the properly endorsed stock certificate to the charity.

To be deductible, a donation must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions. The IRS’s online search tool, “Exempt Organizations (EO) Select Check,” can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access it at https://www.irs.gov/charities-non-profits/exempt-organizations-select-check. Information about organizations eligible to receive deductible contributions is updated monthly.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making. But act soon — you don’t have much time left to make donations that will reduce your 2017 tax bill.

Tax bill too big to pay all at once? Sign up for an IRS payment plan

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

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Do you owe the IRS money this year? You have several options for paying your tax online. But if you can’t pay it all at once, the IRS gives you payment plan choices.

Note, however, that your first step must be to file your tax return on time. Failure to do so can result in stiff penalties.

Paying with plastic

Some taxpayers find the easiest way to pay is with a credit card. The IRS has awarded contracts to three companies to accept payments by plastic: Official Payments, Link2Gov and WorldPay. They take American Express, Discover, MasterCard, Visa or a variety of debit cards.

Each company has its own fee schedule that will add to your bill.

IRS

If you do pay a fee, make a note of it for next year’s filing. The IRS has ruled that this amount is deductible as a miscellaneous itemized expense.

Keep in mind that if you don’t pay off your credit card in full, you’ll start racking up interest charges on your account. In some cases, though, your credit card interest charges might fall below IRS penalties and interest you’d owe if you don’t pay on time.

A low-interest credit card may be a good option in this scenario.

Installment plans

If your tax bill is too large for a credit card, the IRS will take monthly payments.

Approval is not automatic unless:

  • You owe less than $10,000.
  • You have paid taxes in a timely way during the past five years without entering into an installment agreement.
  • You can pay the full amount within three years.

To get the program going, you can attach Form 9465, Installment Agreement Request, to the front of your tax return. Or, you can request an installment agreement online at the IRS website if the total amount you owe is not more than $50,000.

Taxpayers who seek an installment plan must provide detailed financial information, including data on equity assets, that the IRS will verify.

Keep in mind that paying over time, even to Uncle Sam, will cost you more.

  • Expect to pay a one-time user fee of $225, up from $120 last year.
  • The fee drops to $107 for direct-debit agreements.
  • Some lower-income taxpayers could pay a reduced fee of $43.
  • Applying online is your best bet: You pay a $149 one-time fee, or only $31 if you agree to a direct-debit plan.

You’ll be billed for any fee when the agency sends you a notice detailing your payment terms. Plus, penalties and interest continue to accrue to your unpaid tax bill. The IRS may also file a federal tax lien against you, which will be released when you pay off your installment loan.

Another way to deal with a large tax bill is with a home equity loan. That way you won’t have to pay IRS penalties and fees.

Offer in compromise

What if you can’t pay off your tax bill, in whole or part, in three years or five years or even longer? Then it might be time to negotiate.

The IRS might be willing to accept a lump-sum payment offer of less than your total tax bill if it is realistic. In these cases, the agency hopes to get some taxpayer money sooner than it would after years of costly collection efforts.

The IRS will review your financial situation and future income potential to determine whether your offer is appropriate. Be warned, however: This program was designed only for extreme cases, and few filers will qualify for the program. If you believe your situation does indeed meet the requirements, you need to file two forms: Form 656, Offer in Compromise, and Form 433-A, Collection Information Statement.

To find out whether you qualify for an offer in compromise before filling out the paperwork, use the IRS’ online pre-qualifier tool. The questionnaire format will let you know if you’re eligible, as well as help determine an acceptable preliminary offer amount.

Options for offers in compromise include:

  • Lump sum cash offer — This must be paid in five or fewer installments within five months after the offer is accepted. You must include 20 percent of the offer amount plus a $186 application fee.
  • Periodic payment offer — This is paid in six or more monthly installments within 24 months after the offer is accepted. You must produce the first proposed installment payment plus $186.

The $186 fee is waived for qualifying low-income taxpayers.

The IRS has created a special website with “what if” scenarios regarding tax and payment issues for taxpayers who are having a hard time making their payments.

Regardless of which payment plan method you choose, make your decision now. Delay will only compound your financial and tax problems since penalties and interest charges will continue to accrue. By sending in any amount when you file your return, at least you’ll ultimately reduce your interest and penalty charges.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

10 Key Tax Terms To Help You Cut Through The Jargon

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

tax terms

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The tax field has its own lingo, which adds to the complexity of the tax filing task. But don’t despair. Knowing these 10 key tax terms can help you cut through the jargon and have you talking taxes in no time.

1. AGI

Adjusted gross income, or AGI, is all the income you receive over the course of the year, including wages, interest, dividends and capital gains, minus things such as contributions to a qualified IRA, some business expenses, moving costs and alimony payments. AGI is the first step in calculating your final federal income tax bill.

2. Tax credits

Tax credits are much like credits you get from a store. After you calculate your tax bill, you can use the credit to reduce the amount that you owe to Uncle Sam. Tax credits are more valuable than tax deductions because they directly cut the amount of tax you owe, rather than reducing the amount of taxed income. A $200 credit, for example, will turn a $1,000 tax bill into only $800. A few credits could even give you a refund you weren’t expecting.

3. Tax deductions

Tax deductions are expenses the Internal Revenue Service allows you to subtract from your AGI to arrive at your taxable income. In most cases, the lower your income, the lower your tax bill. If, for example, a single filer has income of $38,000 and $8,000 in deductions, then he would pay taxes on only $30,000. The IRS offers all filers a standard deduction amount (more on this later).

Some other deductions — such as student loan interest, moving expenses, deductible IRA contributions and alimony payments — also are listed directly on the 1040A or long Form 1040. The term “deductions” is most commonly associated with the itemized deductions (more on this later, too) that taxpayers who file Schedule A claim.

4. Standard deduction

This is a fixed dollar amount that taxpayers can subtract from their income. The standard deduction is available to all filers and is determined by the taxpayer’s filing status. The amounts change each year because of inflation adjustments. You can find the current standard deduction levels listed on each of the three individual tax forms. Most taxpayers use this deduction method, which eliminates the need to itemize actual deductions such as medical expenses, charitable contributions and state and local taxes.

5. Itemized deductions

These are expenses that can be deducted from your AGI to help you reach a smaller income amount upon which you must calculate your tax bill. Itemized deductions include medical expenses, other taxes (state, local and property), mortgage interest, charitable contributions, casualty and theft losses, unreimbursed employee expenses and miscellaneous deductions such as gambling losses. Some itemized deductions must meet IRS limits before they can be claimed. When you itemize, you must file Form 1040 and detail your tax deductions on Schedule A.

6. Exemption

This is an amount the IRS lets you subtract from your income to reflect all the people who count on your income. You can claim as tax exemptions yourself, your spouse and your dependents. The IRS allows a set amount for each exemption and, as with deductions, this total is subtracted from your AGI to come up with your final, lower earnings amount upon which you must figure your tax bill. Your personal exemption amount is in addition to any tax deductions, either standard or itemized, that you claim.

7. Progressive taxation

This is the system in which higher tax rates are applied as income levels increase. The U.S. tax system uses progressive taxation with tax brackets starting at 10 percent and rising to 39.6 percent for the wealthiest taxpayers.

8. Taxable income

Taxable income is your overall, or gross, income reduced by all allowable adjustments, deductions and exemptions. It is the final amount of income you use to calculate how much you owe in taxes.

9. Voluntary compliance

This describes the philosophy upon which our tax system is based: U.S. taxpayers voluntarily comply with the tax laws and report their income and other tax items honestly.

10. Withholding

Also known as pay-as-you-earn taxation, the withholding method enables taxes to be taken out of your wages or other income as you earn it and before you receive your paycheck. These withheld taxes are deposited in an IRS account and you are credited for the amount when you file your return. In some cases, taxes also may be withheld from other income such as dividends and interest.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Do you have to file taxes? The answer depends on your age, income and filing status

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

tax filing

 

Some people don’t need to file taxes every year, but this reprieve from tax duties generally applies to those whose earnings don’t meet certain thresholds.

You must consider three things when determining if you need to file a tax return: your age, your filing status and your income. Once you reach a certain income level, the law usually requires you to file taxes. The amounts are adjusted annually for inflation.

Tax-filing earnings thresholds for 2016 taxes

Tax-filing earnings thresholds for 2016 taxes

ACA premium credit claim

If you got health care coverage as required by the Affordable Care Act, also referred to as ACA or Obamacare, you might need to file a return.

This is the case if you qualified for federal help in buying your health care coverage through the health insurance marketplace. If advance payments of the ACA premium tax credit were made for you, your spouse, or a dependent who obtained such marketplace medical coverage, that amount must be reported by filing a Form 1040 tax return and Form 8962, Premium Tax Credit.

This will ensure that you got the appropriate tax credit in advance. If you received too much premium help, you’ll have to repay it with your return filing. If you did not get enough, you can collect the extra when you file.

Filing a return

As the table indicates, individuals younger than age 65 must file if they make certain amounts. The earnings threshold amounts go up a bit for older (65-plus) individuals.

Regardless of age, the earnings target is the same for married couples who file separate tax returns.

In most situations, your age for tax purposes depends on how old you were on the last day of the year. But when it comes to determining whether you have to file a return, the IRS says if you turned 65 on New Year’s Day, you are considered to be 65 at the end of the previous tax year. The one-day grace period allows you to use the higher income thresholds to determine whether you must file a tax return.

Dependents and filing

The IRS also has different rules for dependents who earn money. And even though it’s children we’re usually talking about, the IRS doesn’t make it easy, setting different earning standards for the two types of income — unearned or earned — that trigger filing requirements.

Generally, a child must file a return and pay tax due. But the amounts that trigger the filing depend on the type of income:

  • Earned, generally characterized as a salary, wages or tips. It also includes taxable scholarships and fellowship grants.
  • Or unearned, which includes investment interest or dividends, capital gains, unemployment benefits and some trust distributions.

The amount of each type of earnings that triggers a young person’s filing requirement is adjusted each year for inflation and is calculated using a formula that factors in the annual standard deduction amount.

Older individuals and persons of any age who are blind also must make some extra calculations to determine if they need to file a Form 1040.

Self-employment earnings

Don’t forget about self-employment earnings, whether you’re a teenager running a neighborhood lawn service or an adult with a 10-person manufacturing operation. This money counts toward determining if you have to file a return, regardless of whether it was your sole source of income or just an occasional side job to make a little extra cash.

If your annual gross self-employment income is at least as much as the income level for your filing status, you have to send in a Form 1040 and Schedule C or Schedule C-EZ reporting your earnings.

You also must file a Schedule SE to pay self-employment tax if your net earnings exceed $400.

When it pays to file

For those few who don’t legally have to file, it sometimes pays to send in a return anyway.

This is the case for individuals who don’t earn much but might be eligible for the earned income tax credit. This benefit is available to qualified individuals even if they owe no tax, meaning they would get money back from the federal government. Many people think the credit is available only to parents. It’s not. But the credit amount is greater for eligible low-wage taxpayers with children.

Plus, the IRS says that most individual taxpayers are due a tax refund. But those taxpayers must send in a Form 1040 or Form 1040A or Form 1040EZ to get that cash.

You can check out the filing requirements section of IRS Publication 17 for more details.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

The 10 best tips to prepare for the 2017 tax season

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

2017 tax filing season, tax tips

It’s hard to believe the 2017 tax season is already here, and you’ll be getting the information you need to settle up your 2016 tax return with Uncle Sam. Take advantage of the tax benefits available to you throughout the year.

First, think about getting organized. It’s important to have one place — a large envelope or a file folder — where you can accumulate tax information as it arrives. When it is finally time to fill out the tax return, a lot of information is required and every detail counts in making it a smooth process.

Read on for 10 savvy tips for tax-filing season.

1. Maximize retirement plan contributions

If your employer offers a 401(k) or other type of deferred pension plan, make every effort to contribute the maximum amount allowable — especially if your employer matches your contribution. Otherwise you are leaving money on the table that could benefit you in your retirement. Think of the employer match as an immediate 100 percent return on your money. Even if there is no match, all of the funds are tax-deferred and grow tax-free.

If your employer does not offer a retirement plan, then consider making a contribution to a traditional individual retirement account or a Roth IRA. The former potentially offers a tax deduction for the year the contribution is made, but both offer tax-deferred gains.

2. Adjust your withholding

Check your year-to-date withholding and consider changing the taxes withheld if you are expecting a large refund.

This is especially important if you are claiming the earned income tax credit, or EITC, or the additional child tax credit. Why? The IRS is now required by law to hold all refunds on those returns until Feb. 15. The new law was put into place to allow the agency additional time to detect and prevent tax fraud.

IRS Commissioner John Koskinen said in a statement: “It’s a personal choice if you want to have extra money withheld to get a bigger tax refund, but you have options available if you prefer to have a smaller refund next year and more take-home money now.” You will need to complete Form W-4, Employee’s Withholding Allowance Certificate, to adjust the amount of taxes withheld and submit it to your employer.

3. Protect your identity

Speaking of tax fraud, if you received an Identity Protection PIN, or IP PIN, in the past, then you must provide this number on your tax return not only this year but on all future tax returns. An IP PIN is a six-digit number assigned to eligible taxpayers that helps prevent fraudulent returns from being filed under your Social Security number. Remember, the IP PIN is your friend in getting the IRS to accept your tax return. However, this is no ordinary IP PIN, as it changes every year. You read that correctly: every year! If you do not receive the notification in the mail, you will need to go to the IRS website to retrieve it.

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4. Get what’s yours

According to the IRS, one out of every five workers fails to claim the very valuable earned income tax credit. If you worked and earned less than $53,505 in 2016 (the limit will be $53,930 in 2017), then use the EITC Assistant tool to determine if you qualify for the credit. You must file a return in order to receive the credit. Don’t miss out on this!

5. Declutter and reap a tax break

If one of your New Year’s resolutions is to simplify and declutter your life, now is the time to get going. You can make money by donating all of those things you no longer need or want in your life. There are many charitable organizations that accept items other than cash such as clothing, books, electronics and other household items. The deduction is limited to the item’s fair market value, and the items must be in good condition or better to be deductible. If the value of the noncash items is more than $500, then you must file Form 8283, Noncash Charitable Contributions, and fill it in with some details. But it is well worth the effort.

6. Cash in on scholarly tax breaks

If you, your spouse or dependents had higher education costs in 2016, there may be some tax savings for you. In fact there are multiple benefits available. The only difficult part is figuring out which one works best in your situation.

Basically there are three different benefits: the American opportunity credit, the lifetime learning credit and the tuition and fees deduction. There are various requirements that may limit the benefit, but the IRS once again offers a useful tool: the Interactive Tax Assistant tool to help you find your way through the maze. You should receive Form 1098-T, Tuition Statement, from your school with the information required by the IRS to complete Form 8863, Education Credits.

7. Get health coverage in order

Make sure you know what you need to report to the IRS on your health insurance. The shared responsibility provision requires that you and your family have minimum essential coverage or qualify for a health coverage exemption. Otherwise, you must make an individual shared responsibility payment for all months that you didn’t have coverage or an exemption.

Most taxpayers just need to do one thing: Check the box that indicates you had health care coverage for all of 2016. If that is not the case or you received advance payments of the premium tax credit on the marketplace, then you may need to fill out Form 8965, Health Coverage Exemptions, and Form 8962, Premium Tax Credit, to complete your tax return. For more information, visit the IRS page on the Affordable Care Act.

8. Know the rules about foreign accounts

Have a foreign bank account? Was the balance in the account(s) greater than $10,000 total? If the answer is yes to both, then you need to file what’s commonly referred to as an “FBAR,” a foreign bank account reporting form. The new name is FinCEN Report 114, FinCEN being an acronym for Financial Crimes Enforcement Network. As the name has the word “crime” in it, that should light a fire under your seat to make sure you’re in compliance as the penalties are very high for failing to report.

The requirements don’t stop there. If you maintain very high balances in your foreign accounts, you’ll have to file IRS Form 8938, Statement of Specified Foreign Financial Assets.

Also, if you meet certain thresholds of ownership in any foreign corporations or partnerships, or if you are the beneficiary of a foreign trust, you should be aware of the complex reporting requirements in those instances. Just a few of the pertinent forms are: Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations; Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. All are available at the IRS website.

9. Be generous without tax repercussions

Every so many years, the IRS changes the annual exclusion for gifts that you can give without having to file a gift tax return. If you gave more than $14,000 in cash, property or gifts to anyone, you must report the gift on Form 709. If you are married, you can give a combined $28,000 and remain under the radar.

Note that this applies to the person giving the gift; if you are receiving a gift, congratulations — you don’t have to do anything. That is, unless you receive a gift from a non-U.S. person. If you happen to receive such a gift that is greater than $100,000, you will have to report this on the IRS Form 3520.

10. Be smart when you file

When filing your return, the quickest and easiest way to receive your refund is to electronically file your return and use direct deposit. If you owe money, use IRS direct pay from your checking or savings account. And whatever else you do, please make sure you keep a copy of your filed tax return. Believe me, it saves so much trouble in so many ways in the event you do happen to need it.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Congressman shares tax ID theft story

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Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

No one is safe from tax identity theft, not even the lawmakers who help write the country’s tax laws.

Another member of the House Ways and Means Committee has become a victim. During a hearing of the committee’s Oversight Subcommittee on April 19, Rep. Jim Renacci, R-Ohio, told his colleagues about having his identity stolen and a fake tax return filed in his name.

Rep. Jason Chaffetz, R-Utah, a former chair of the Ways and Means Oversight panel, also was a tax identity theft victim.

Fake return seeking ‘significant’ refund

This week Renacci shared his tax identity theft experience as part of a hearing on the just-completed filing season.

“Last May, I received a notice from the IRS stating that they had some questions for me about my 2014 tax return,” Renacci testified. “I found this troubling because I had not yet filed.”

Renacci contacted the IRS and learned that his personal information had been stolen and was used to e-file a fraudulent tax return. The filing, said Renacci, included a fake W-2 from the U.S. House of Representatives and claimed a significant refund.

The false return instructed the fraudulent refund be sent to a bank account outside the United States. Fortunately, the IRS spotted some red flags on the filing and didn’t issue the refund check.

E-filing makes ID theft easier

“As a taxpayer and tax preparer for almost 30 years, it is apparent to me that identity theft is real,” Renacci said.

And one of the conveniences of filing — submitting a return electronically — can also cause significant issues related to identify theft, he told the subcommittee.

“Let me be clear, I don’t want to return to paper returns and checks, but the ease of electronic filing and payments have exacerbated the problem. I know, now more than ever, we need additional safeguards to protect taxpayers,” said Renacci.

To address his and other tax identity theft victims’ concerns, Renacci has introduced the Stolen Identity Refund Fraud Prevention Act of 2015. During his testimony, he urged his fellow Ways and Means members to act on the bill.

IRS making progress against identity theft

IRS Commissioner John Koskinen also testified at the hearing, telling subcommittee members that his agency is making progress against tax identity theft and refund fraud.

“We have improved the filters that help us spot suspicious returns before they can be processed,” Koskinen said. “Using those filters, we stopped 1.4 million returns last year that were confirmed to have been filed by identity thieves.”

The filters helped the IRS prevent issuance of around $8.7 billion in fraudulent refunds, according to the commissioner.

The IRS also is working with tax ID theft victims. Last year, said Koskinen, the agency worked with affected taxpayers to close more than 700,000 fraud cases.

$119 million in fake refunds stopped

Koskinen also reiterated the efforts of the Security Summit, created last year to coordinate tax identity theft and fraud prevention efforts across state governments and the tax services industry.

“Our collaborative efforts are already showing concrete results this filing season,” Koskinen said. “Through mid-March, leads from industry partners directly resulted in the suspension of 27,000 returns on which a total of $119 million in refunds was claimed, up from 8,000 returns claiming $57 million during the same period last year.”

If you find yourself in the same situation as Renacci and other identity theft victims, don’t rely on just the efforts of the IRS and its tax industry partners. Secure your personal data as soon as you suspect or discover it’s been compromised.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Beware the 2016 Dirty Dozen tax scams

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

taxes-blog-beware-the-2016-dirty-dozen-tax-scams

It’s not just the Internal Revenue Service that’s trying to get hold of your money. Crooks also are out in force during tax filing season.

These unofficial would-be collectors of your tax dollars are con artists, who over the years have come up with a variety of schemes, some quite sophisticated, to separate you from your cash.

Few new, but persistent ploys

The IRS issues an annual list of the top 12 tax scams. Most of this year’s Dirty Dozen are repeats of schemes the IRS warned about last year, ranging from the continuing threat of tax identity theft to phone scams to phishing.

Heck, the IRS says that sometimes we can’t trust apparent charitable groups or even our own tax pros!

The latest scams that the IRS is watching and wants us to keep an eye on, too, are:

  1. Identity theft
  2. Phone scams
  3. Phishing
  4. Return preparer fraud
  5. Offshore accounts
  6. Inflated refund claims
  7. Fake charities
  8. Falsely padding deductions
  9. Excessive business credit claims
  10. Falsifying income to claim tax credits
  11. Abusive tax shelters
  12. Frivolous tax arguments

Increased efforts to fight ID theft

When it comes to the top tax scam, the IRS points to Security Summit measures implemented this year to make it harder for crooks to steal taxpayer identities and refunds.

The IRS has added more filters to screen suspicious federal returns. Other Security Summit participants, which include state tax departments and the tax software industry, also have beefed up their defenses against fake return files, such as asking for taxpayer driver’s license numbers to help verify that filings are legitimate.

And, says IRS Commissioner John Koskinen, taxpayers must take preventative steps, too.

“We urge people to use caution when viewing e-mails, receiving telephone calls or getting advice on tax issues because scams can take on many sophisticated forms,” Koskinen said. “Keep your personal information secure by protecting your computers and only giving out your Social Security numbers when absolutely necessary.”

If you do find that crooks have your personal or tax information, you can monitor your credit with free tools from myBankrate.

Year-round criminal tax activity

Most of the tax scams peak during filing season. However, tax crooks operate year round.

And schemes that appear to save filers some tax dollars can actually end up costing even more. Once the scam is revealed, victims will owe not only their tax bills, but also penalties and interest.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

IRS warns again about phone tax scams

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

taxes-blog-irs-warns-again-about-phone-tax-scams

Benjamin Franklin famously said that the only constants in life are taxes and death.

In today’s world, that saying has morphed into “the only constants in life are taxes and tax scams.”

Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers, according to the Internal Revenue Service itself.

The scam artists purport to be IRS employees and threaten those they call with police arrest, deportation, driver’s license revocation and other things. They can be convincing, using fake caller ID numbers to make it look like it is the IRS calling and utilizing multiple fake agents, complete with phony IRS badge numbers, to reinforce their con.

Not new, but pervasive, scam

It’s not a new tax scam. It appeared back in the fall of 2013. By the next spring federal tax officials deemed it the largest tax scam ever.

The Treasury Inspector General for Tax Administration says it has received roughly 896,000 reports of the fake IRS agent calls, with more than 5,000 victims collectively paying more than $26.5 million to the crooks.

Now with the annual tax filing season underway, the IRS is seeing a surge of these fake IRS agent phone calls.

“Taxpayers across the nation face a deluge of these aggressive phone scams. Don’t be fooled by callers pretending to be from the IRS in an attempt to steal your money,” warns IRS Commissioner John Koskinen.

While the fake IRS agent telephone scam is still leading the tax con parade, there are a wide variety of tax schemes out there.

Many forms of tax scams

Some criminals try the tax carrot instead of stick, offering potential victims the promise of a huge refund. Sometimes the crooks say the tax money is related to a previously unknown investment or lottery winnings.

Regardless of how the tax ploy is pitched, don’t fall for it.

“We continue to say if you are surprised to be hearing from us, then you’re not hearing from us,” says Koskinen.

The commissioner also points out how you can tell the call is fake. The IRS, he says, will never:

  • Call to demand immediate payment. The agency will first mail you a bill.
  • Demand you pay taxes without giving you the opportunity to question or appeal the amount it says you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for credit or debit card numbers over the phone.
  • Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying your federal tax bill.

Protect your data

One way the crooks make themselves sound legitimate is by using victims’ names, addresses and other personal information. The idea is that by reciting this private information, the victim will believe it’s the IRS because who else would know all that stuff?

The reality is that the crooks do their homework. Hackers get into databases way too regularly nowadays, and the myriad stolen personal information is sold by one crook to others for use in cons like the IRS telephone scam.

Worried about identity theft? Make sure your personal and financial data are secure. You can keep track of your credit with free tools from myBankrate.

And be careful out there — this filing season and year round. The only thing worse than paying taxes to Uncle Sam is paying a fake tax bill to con artists.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

 

Most taxpayers want paid preparers licensed

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

taxes-blog-most-taxpayers-want-paid-preparers-licensed

Is a tax preparer helping you file your taxes this year? If so, are you comfortable with that person’s abilities?

Apparently, most of us are at least a bit concerned about the abilities of tax preparers, at least in general if not about our own tax adviser, according to a new national poll.

A Consumer Federation of America, or CFA, poll released Jan. 20 finds that 80% of taxpayers believe that paid tax preparers should be required to pass a competency test.

Another 83% say that paid tax preparers should be licensed by the state where they practice.

The cost of tax pro errors

The reason for more oversight is the usual one: Money.

Tax return filing represents for most people their largest financial transaction of the year.

“Errors on tax forms put consumers at risk of fines and lost tax refunds,” says Tom Feltner, director of financial services at CFA.

However, notes CFA Senior Policy Advocate Michael Best, only 4 states — California, Maryland, New York and Oregon — regulate tax preparers who aren’t otherwise covered under other professional credentialing programs.

A growing problem

CFA says that multiple rounds of mystery shopper tests over 3 years found instances of tax preparer incompetence and even fraud. The nonprofit group found problems in 24% of the tax returns in a 2008 test, 44% of returns in a 2011 test, and 93% of returns in a 2015 test.

The dramatic increase in issues with tax returns is in part because of new and changing tax laws over the years. Also, the focus on earlier investigations was the price charged for preparing tax returns rather than the accuracy of the filings, according to Chi Chi Wu, staff attorney at the National Consumer Law Center and co-author of 4 tax return testing reports.

Still, other studies also indicate tax return accuracy problems among paid preparers.

Government Accountability Office undercover investigators in 2014 went to 19 randomly selected tax preparer offices. Only 2 of the 19, or 11%, of the returns had the correct refund amount.

State vs. federal oversight

The Internal Revenue Service has tried in recent years to implement more oversight over paid tax preparers who aren’t already receiving training and credentials from other professional groups.

Those efforts, however, were struck down by federal courts that ruled only Congress could grant the IRS authority to regulate tax preparers. Now the IRS is relying on a voluntary education program for tax professionals.

And while there has been some sporadic movement on Capitol Hill toward giving the IRS the ability to set stricter tax preparer rules, that effort has stalled. So the CFA and other consumer groups now are focusing on state-by-state tax preparer regulations.

Eventual IRS oversight is a possibility, says Best, “but the timeline is extremely uncertain. It behooves us to focus on state levels.”

In the meantime, if you don’t live in a state that regulates paid tax preparers, it’s up to you to make sure the tax pro you hire is up to the task.

Do you get professional tax help? Have you ever had a problem with your tax pro?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.