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Where’s My Refund? July 29, 2020

Posted by bradstreetblogger in : 2019 Taxes, tax changes, Tax Rules, Tax Tip, Taxes, Taxes, Uncategorized , add a comment

                     

Due to the COVID-19 pandemic, IRS live phone assistance is extremely limited. People are encouraged to first check the Where’s My Refund? tool on the IRS website and the IRS2Go app. Taxpayers can also review the IRS Services Guide (PDF) which links to additional IRS online services.

The IRS issues 9 out of 10 refunds in less than 21 days, and the fastest way to get a refund is to use IRS e-file and direct deposit. Taxpayers should also know they can have their refunds divided into up to three separate accounts.

Please note: Ordering a tax transcript will not speed delivery of tax refunds nor does the posting of a tax transcript to a taxpayer’s account determine the timing of a refund delivery. Calls to request transcripts for this purpose are unnecessary. Transcripts are available online and by mail at Get Transcript.

A few necessary items

To use the “Where’s My Refund” tool, taxpayers will need to enter their Social Security number, tax filing status (single, married, head of household) and exact amount of the tax refund claimed on the return.

Taxpayers who file electronically can check “Where’s My Refund” within 24 hours after they receive their e-file acceptance notification. The tool can tell taxpayers when their tax return has been received, when the refund is approved and the date the refund is to be issued.

Some refunds may take longer

While the IRS continues to process electronic and paper tax returns, issue refunds, and accept payments, there are delays in processing paper tax returns due to limited staffing. If a taxpayer filed a paper tax return, the return will be processed in the order in which it was received. Do not file a second tax return or call the IRS.

Many different factors can affect the timing of a refund. In some cases, a tax return may require additional review. It is also important to consider the time it takes for a financial institution to post the refund to an account or for a refund check to be delivered by mail.

Taxpayers who owe

The IRS encourages taxpayers who owe to do a Paycheck Checkup every year to ensure enough tax is withheld from their pay to avoid an unexpected tax bill.

This week’s article – From IRS.gov – Click Here

– Tammy

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.  

– until next week.

“Dirty Dozen” List of Tax Scams for 2020 July 22, 2020

Posted by bradstreetblogger in : COVID, COVID-19, General, Tax Rules, Tax Tip, Taxes, Uncategorized , add a comment

On July 16, 2020, the Internal Revenue Service announced its annual “Dirty Dozen” list of tax scams with a special emphasis on aggressive and evolving schemes related to coronavirus tax relief, including Economic Impact Payments.

On July 16, 2020, the Internal Revenue Service announced its annual “Dirty Dozen” list of tax scams with a special emphasis on aggressive and evolving schemes related to coronavirus tax relief, including Economic Impact Payments.

This year, the Dirty Dozen focuses on scams that target taxpayers. The criminals behind these bogus schemes view everyone as potentially easy prey. The IRS urges everyone to be on guard all the time and look out for others in their lives.

“According to a cpa tax scams tend to rise during tax season or during times of crisis, and scam artists are using the pandemic to try stealing money and information from honest taxpayers,” said IRS Commissioner Chuck Rettig. “The IRS provides the Dirty Dozen list to help raise awareness about common scams that fraudsters use to target people. We urge people to watch out for these scams. The IRS is doing its part to protect Americans. We will relentlessly pursue criminals trying to steal your money or sensitive personal financial information.”

Taxpayers are encouraged to review the list in the “special section” on IRS.gov and be on the lookout for these scams throughout the year. Taxpayers should also remember that they are legally responsible for what is on their tax return even if it is prepared by someone else. Consumers can help protect themselves by choosing a reputable tax preparer.

The IRS urges taxpayers to refrain from engaging potential scammers online or on the phone. The IRS plans to unveil a similar list of enforcement and compliance priorities this year as well.

An upcoming series of press releases will emphasize the illegal schemes and techniques businesses and individuals use to avoid paying their lawful tax liability. Topics will include such scams as abusive micro captives and fraudulent conservation easements.

Here are this year’s “Dirty Dozen” scams:

Phishing:

Taxpayers should be alert to potential fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a tax bill, refund or Economic Impact Payments. Don’t click on links claiming to be from the IRS. Be wary of emails and websites − they may be nothing more than scams to steal personal information.

IRS Criminal Investigation has seen a tremendous increase in phishing schemes utilizing emails, letters, texts and links. These phishing schemes are using keywords such as “coronavirus,” “COVID-19” and “Stimulus” in various ways.

These schemes are blasted to large numbers of people in an effort to get personal identifying information or financial account information, including account numbers and passwords. Most of these new schemes are actively playing on the fear and unknown of the virus and the stimulus payments. 

Fake Charities:

Criminals frequently exploit natural disasters and other situations such as the current COVID-19 pandemic by setting up fake charities to steal from well-intentioned people trying to help in times of need. Fake charity scams generally rise during times like these.

Fraudulent schemes normally start with unsolicited contact by telephone, text, social media, e-mail or in-person using a variety of tactics. Bogus websites use names similar to legitimate charities to trick people to send money or provide personal financial information. They may even claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds.

According to a great accountant, taxpayers should be particularly wary of charities with names like nationally known organizations. Legitimate charities will provide their Employer Identification Number (EIN), if requested, which can be used to verify their legitimacy. Taxpayers can find legitimate and qualified charities with the search tool on IRS.gov.

Threatening Impersonator Phone Calls:

IRS impersonation scams come in many forms. A common form is bogus, threatening phone calls from a criminal claiming to be with the IRS. The scammer attempts to instill fear and urgency in the potential victim. In fact, the IRS will never threaten a taxpayer or surprise him or her with a demand for immediate payment.

Phone scams or “vishing” (voice phishing) pose a major threat. Scam phone calls, including those threatening arrest, deportation or license revocation if the victim doesn’t pay a bogus tax bill, are reported year-round. These calls often take the form of a “robocall” (a text-to-speech recorded message with instructions for returning the call).

The IRS will never demand immediate payment, threaten, ask for financial information over the phone, or call about an unexpected refund or Economic Impact Payment. Taxpayers should contact the real IRS if they worry about having a tax problem.

Social Media Scams:

Taxpayers need to protect themselves against social media scams, which frequently use events like COVID-19 to try tricking people. Social media enables anyone to share information with anyone else on the internet. Scammers use that information as ammunition for a wide variety of scams. These include emails where scammers impersonate someone’s family, friends or co-workers.

Social media scams have also led to tax-related identity theft. The basic element of social media scams is convincing a potential victim that he or she is dealing with a person close to them that they trust via email, text or social media messaging.

Using personal information, a scammer may email a potential victim and include a link to something of interest to the recipient which contains malware intended to commit more crimes. Scammers also infiltrate their victim’s emails and cell phones to go after their friends and family with fake emails that appear to be real and text messages soliciting, for example, small donations to fake charities that are appealing to the victims.

EIP or Refund Theft:

The IRS has made great strides against refund fraud and theft in recent years, but they remain an ongoing threat. Criminals this year also turned their attention to stealing Economic Impact Payments as provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Much of this stems from identity theft whereby criminals file false tax returns or supply other bogus information to the IRS to divert refunds to wrong addresses or bank accounts.

The IRS recently warned nursing homes and other care facilities that Economic Impact Payments generally belong to the recipients, not the organizations providing the care. This came following concerns that people and businesses may be taking advantage of vulnerable populations who received the payments. These payments do not count as a resource for determining eligibility for Medicaid and other federal programs They also do not count as income in determining eligibility for these programs. See IR-2020-121, IRS alert: Economic Impact Payments belong to recipient, not nursing homes or care facilities for more.

Taxpayers can consult the Coronavirus Tax Relief page of IRS.gov for assistance in getting their EIPs. Anyone who believes they may be a victim of identity theft should consult the Taxpayer Guide to Identity Theft on IRS.gov.

Senior Fraud:

Senior citizens and those who care about them need to be on alert for tax scams targeting older Americans. The IRS recognizes the pervasiveness of fraud targeting older Americans along with the Department of Justice and FBI, the Federal Trade Commission, the Consumer Financial Protection Bureau (CFPB), among others.

Seniors are more likely to be targeted and victimized by scammers than other segments of society. Financial abuse of seniors is a problem among personal and professional relationships. Anecdotal evidence across professional services indicates that elder fraud goes down substantially when the service provider knows a trusted friend or family member is taking an interest in the senior’s affairs.

Older Americans are becoming more comfortable with evolving technologies, such as social media. Unfortunately, that gives scammers another means of taking advantage. Phishing scams linked to Covid-19 have been a major threat this filing season. Seniors need to be alert for a continuing surge of fake emails, text messages, websites and social media attempts to steal personal information.

Scams targeting non-English speakers:

IRS impersonators and other scammers also target groups with limited English proficiency. These scams are often threatening in nature. Some scams also target those potentially receiving an Economic Impact Payment and request personal or financial information from the taxpayer.

Phone scams pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language. These calls frequently take the form of a “robocall” (a text-to-speech recorded message with instructions for returning the call), but in some cases may be made by a real person. These con artists may have some of the taxpayer’s information, including their address, the last four digits of their Social Security number or other personal details – making the phone calls seem more legitimate.

A common phone scan is the IRS impersonation scam. This is where a taxpayer receives a telephone call threatening jail time, deportation or revocation of a driver’s license from someone claiming to be with the IRS. Taxpayers who are recent immigrants often are the most vulnerable and should ignore these threats and not engage the scammers.

Unscrupulous Return Preparers:

Selecting the right return preparer is important. They are entrusted with a taxpayer’s sensitive personal data. Most tax professionals provide honest, high-quality service, but dishonest preparers pop up every filing season committing fraud, harming innocent taxpayers or talking taxpayers into doing illegal things they regret later.

Taxpayers should avoid so-called “ghost” preparers who expose their clients to potentially serious filing mistakes as well as possible tax fraud and risk of losing their refunds. With many tax professionals impacted by COVID-19 and their offices potentially closed, taxpayers should take particular care in selecting a credible tax preparer.

Ghost preparers don’t sign the tax returns they prepare. They may print the tax return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost preparer will prepare but not digitally sign as the paid preparer. By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on returns.

Unscrupulous preparers may also target those without a filing requirement and may or may not be due a refund. They promise inflated refunds by claiming fake tax credits, including education credits, the Earned Income Tax Credit (EITC) and others. Taxpayers should avoid preparers who ask them to sign a blank return, promise a big refund before looking at the taxpayer’s records or charge fees based on a percentage of the refund.

Offer in Compromise Mills:

Taxpayers need to be wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for “pennies on the dollar” through an Offer in Compromise (OIC). These offers are available for taxpayers who meet very specific criteria under law to qualify for reducing their tax bill. But unscrupulous companies oversell the program to unqualified candidates so they can collect a hefty fee from taxpayers already struggling with debt.

These scams are commonly called OIC “mills,” which cast a wide net for taxpayers, charge them pricey fees and churn out applications for a program they’re unlikely to qualify for. Although the OIC program helps thousands of taxpayers each year reduce their tax debt, not everyone qualifies for an OIC. In Fiscal Year 2019, there were 54,000 OICs submitted to the IRS. The agency accepted 18,000 of them.

Individual taxpayers can use the free online Offer in Compromise Pre-Qualifier tool to see if they qualify. The simple tool allows taxpayers to confirm eligibility and provides an estimated offer amount. Taxpayers can apply for an OIC without third-party representation; but the IRS reminds taxpayers that if they need help, they should be cautious about whom they hire.

Fake Payments with Repayment Demands:

Criminals are always finding new ways to trick taxpayers into believing their scam including putting a bogus refund into the taxpayer’s actual bank account. Here’s how the scam works:

A con artist steals or obtains a taxpayer’s personal data including Social Security number or Individual Taxpayer Identification Number (ITIN) and bank account information. The scammer files a bogus tax return and has the refund deposited into the taxpayer’s checking or savings account. Once the direct deposit hits the taxpayer’s bank account, the fraudster places a call to them, posing as an IRS employee. The taxpayer is told that there’s been an error and that the IRS needs the money returned immediately or penalties and interest will result. The taxpayer is told to buy specific gift cards for the amount of the refund.

The IRS will never demand payment by a specific method. There are many payment options available to taxpayers and there’s also a process through which taxpayers have the right to question the amount of tax the IRS says they owe. Anytime a taxpayer receives an unexpected refund, and a call from the IRS out of the blue demanding a refund repayment, they should reach out to their banking institution and to the IRS.

Payroll and HR Scams:

Tax professionals, employers and taxpayers need to be on guard against phishing designed to steal Form W-2s and other tax information. These are Business Email Compromise (BEC) or Business Email Spoofing (BES). This is particularly true with many businesses closed and their employees working from home due to COVID-19. Currently, two of the most common types of these scams are the gift card scam and the direct deposit scam.

In the gift card scam, a compromised email account is often used to send a request to purchase gift cards in various denominations. In the direct deposit scheme, the fraudster may have access to the victim’s email account (also known as an email account compromise or “EAC”). They may also impersonate the potential victim to have the organization change the employee’s direct deposit information to reroute their deposit to an account the fraudster controls.

BEC/BES scams have used a variety of ploys to include requests for wire transfers, payment of fake invoices as well as others. In recent years, the IRS has observed variations of these scams where fake IRS documents are used in to lend legitimacy to the bogus request. For example, a fraudster may attempt a fake invoice scheme and use what appears to be a legitimate IRS document to help convince the victim.

The Direct Deposit and other BEC/BES variations should be forwarded to the Federal Bureau of Investigation Internet Crime Complaint Center (IC3) where a complaint can be filed. The IRS requests that Form W-2 scams be reported to: phishing@irs.gov  (Subject: W-2 Scam).

Ransomware:

This is a growing cybercrime. Ransomware is malware targeting human and technical weaknesses to infect a potential victim’s computer, network or server. Malware is a form of invasive software that is often frequently inadvertently downloaded by the user. Once downloaded, it tracks keystrokes and other computer activity. Once infected, ransomware looks for and locks critical or sensitive data with its own encryption. In some cases, entire computer networks can be adversely impacted.

Victims generally aren’t aware of the attack until they try to access their data, or they receive a ransom request in the form of a pop-up window. These criminals don’t want to be traced so they frequently use anonymous messaging platforms and demand payment in virtual currency such as Bitcoin.

Cybercriminals might use a phishing email to trick a potential victim into opening a link or attachment containing the ransomware. These may include email solicitations to support a fake COVID-19 charity. Cybercriminals also look for system vulnerabilities where human error is not needed to deliver their malware.

The IRS and its Security Summit partners have advised tax professionals and taxpayers to use the free, multi-factor authentication feature being offered on tax preparation software products. Use of the multi-factor authentication feature is a free and easy way to protect clients and practitioners’ offices from data thefts. Tax software providers also offer free multi-factor authentication protections on their Do-It-Yourself products for taxpayers.

This week’s article – From IRS.gov – Click Here

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

– Tammy

– until next week.

Your Age-by-Age Checklist to Prepare for Retirement Conversations June 24, 2020

Posted by bradstreetblogger in : General, Retirement, Tax Tip, Taxes , add a comment

June 24, 2020

The question isn’t at what age I want to retire, it’s at what income.                      -George Foreman

Never have times been so interesting. Never has change occurred so fast.  We all know that time moves faster as we grow older.  However, it may not make sense to bend over backwards in an effort to fund your retirement at a young age.  But neither may it be ignored completely either.  
                           -Mark Bradstreet

What should you and your loved ones be doing to prepare for a retirement when and how you want? While the answer partially depends on whether your own personal finish line is just around the corner or decades away, there’s one thing that everyone should be doing, no matter your age: talking.

It’s important to have conversations about retirement planning early and often, but not everyone knows what to talk about or how to get started. These age-based guidelines can serve as discussion points with your loved ones to make sure you’re on track for the retirement you want.

Preparing for retirement in your 30’s

• Don’t let student loans prevent you from saving for retirement. It’s usually a mistake to think that student loan debt should be fully paid off before putting aside money for retirement. Your retirement savings need time to grow so you can achieve your goals, and investing early will pay off in the long run — even if you can’t save as much as you’d like.  The right balance will likely include payments toward both goals, with the exact amounts depending on factors like interest rates and expected returns. 

• Make sure you’re maxing out your company’s 401(k) matching contributions. Employers often match up to a certain amount of your contributions; it’s essentially free money that you could be taking advantage of! 

• Don’t leave your job without taking vesting into consideration. Many companies tie their retirement contributions to a requirement that you stay with the company for a minimum amount of time, known as the vesting period. If you leave before the allotted period of time, be aware of the financial repercussions. 

• Revisit your 401(k) contributions each time you get a raise or promotion. If you’ve set up automatic contributions, it’s important that you don’t fall into the trap of sticking to those levels indefinitely.

• Understand the power of compounding returns. The earlier you begin investing, the more time your money will have to grow. Don’t delay. 

Preparing for your retirement in your 40’s

• Prioritize paying down your high-interest debt. Whether you have credit card debt, a car loan or a home mortgage, paying interest can eat away at your ability to save money for retirement. Prioritize your highest interest debt first and work your way down until you’re debt free. 

• Don’t fall behind. Your 40’s can be a stressful time financially. Many people in today’s “sandwich generation” are squeezed by the needs of children getting ready for college and elderly parents with dwindling reserves. Try to at least keep pace with your previous level of retirement savings. 

• Start running the numbers. Making some quick calculations can help show you where different savings scenarios are likely to lead you. If you’re not sure where to start, try Lincoln Financial’s retirement calculators.

• Talk to a financial advisor to make sure you’re on the right track. “Meeting with a financial advisor can help alleviate some of the stress surrounding retirement by helping savers create a plan,” said Jamie Ohl, Executive Vice President, President, Retirement Plan Services, Lincoln Financial Group. “People who have a plan are more confident and better prepared for retirement.”

Preparing for retirement in your 50’s

• Don’t let your spending get out of control. People often find that their disposable income increases in their 50’s as they become empty nesters and their salaries peak. Instead of letting your spending increase in tandem, increase the amount of money you put into your retirement accounts and practice frugality — getting accustomed to a more luxurious lifestyle can make it more difficult to retire.

• Ask your employer about catch-up contributions. Most companies allow workers who are age 50 and above to contribute an extra $6,000 annually to their 401(k) on top of the regular contribution limits. 

• Don’t count on an “average” lifespan. “People are living longer than ever before, and they may not factor that into their retirement planning,” said Will Fuller, Executive Vice President, President, Annuities, Lincoln Financial Distributors and Lincoln Financial Network. “That makes outliving your savings a real concern for the millions of households in America that do not have any kind of income protection in place.”

• Consider purchasing an annuity to protect against uncertainty. Annuities provide you with a guaranteed income for life, safeguarding you against longevity risk and stock market risk. 

• Get your financial advisor to align with your expected retirement age. You may have an ideal retirement age in mind, but your financial advisor is best situated to help you determine whether it’s realistic and what you need to do to get there. 

Tips like these will make sure that you’re heading in the right direction, but there’s no substitute for talking through your own personal circumstances with a financial advisor every step of the way. You’re never too young or too old to get help from a professional — and if you’ve already followed the steps above, it will be easy for them to take you across the finish line.

Today’s author – Mark Bradstreet

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.  

– until next week.

IRS Faces Next Challenge: Reopening June 17, 2020

Posted by bradstreetblogger in : General, Taxes , add a comment

June 17, 2020

    WASHINGTON — The Internal Revenue Service cranked out $267 billion in stimulus payments in about two months, faster than many analysts expected. But challenging work lies ahead, such as opening 10 million pieces of piled-up mail and resuming a semblance of normal taxpayer service.                

    The agency, already struggling with budget cuts and reduced staff before the coronavirus pandemic hit in March, was given the monumental task of sending stimulus payments worth $1,200 for most adults and $500 per child to help Americans ride out the economic slump. Despite some hitches—like payments to dead people and debit-card envelopes that looked to some like junk mail—those payments are largely complete, the government said this week. “The IRS has taken on nearly impossible challenges and performed many of them very well,” said Rep. Kevin Brady of Texas, the top Republican on the House Ways and Means Committee.

    Now the agency is trying to slowly reopen dozens of offices around the country and recall thousands of workers as the July 15 tax filing deadline approaches.“It gets tougher from here,” said Mark Everson, a former IRS commissioner.

    Some major operations centers remain closed, and open ones aren’t running at full strength. Refunds are being processed more slowly than usual, agency data indicate. Some telephone assistance is available, but IRS officials say phone lines remain unusually busy and they are directing people to the agency’s website whenever possible. Catching up will take time.

    “If you mailed us something, especially in February, it’s gonna be a while,” said Chad Hooper, an IRS worker in Philadelphia and president of the Professional Managers Association, which represents the agency’s supervisors.

    Meanwhile, the regular tax filing season continues, postponed from the usual April 15 deadline to July 15 as part of the coronavirus relief effort. As of May 29, the IRS had received 6.5% fewer returns than it did last year and processed 13% percent fewer. That suggests many people are waiting longer than usual for refunds. Sometimes the agency’s automated filters block refunds for suspected fraud, requiring a person to check before payments are made, even on electronically filed returns that normally yield fast refunds.

    Michael Whiteley, an unemployed chef in Rochester, N.H., said he filed his tax return in March, expecting a refund of more than $4,000. Instead, he got a notice from the IRS requesting documentation to prove that his son with a different last name was his own. Mr. Whiteley, who had already spent about $500 at H&R Block for tax preparation, said he spent $40 on expedited mail delivery to send follow-up documentation to the IRS in Fresno, Calif.—an office that isn’t set to reopen until the end of June. “I’m still sitting here to this day, waiting,” he said.

    Getting back to normal will be tricky. More than half of agency employees have been working remotely, according to the House Ways and Means Committee. But about 30% have been on paid leave because of the pandemic, and those who staff phone lines generally can’t work from home. The IRS had been trying to make more employees eligible for remote work but didn’t finish doing so before the pandemic started, Mr. Hooper said.

    “Having more modern systems would have been a great thing to have prepared for prior to a thing like this,” said Andrew Moylan, executive vice president of the National Taxpayers Union Foundation, a nonprofit research group affiliated with a conservative organization. “Expect less timeliness, less ability to contact people, less ability to get your questions answered, more problems that people have to sort out.”

    Reopening will be uneven for an agency with offices scattered across the country. Major offices in Utah, Texas and Kentucky reopened this week for employees who can’t work from home. Next come eight states and Puerto Rico, including campuses in Atlanta and Fresno, and that phase could bring back as many as 12,500 workers who aren’t eligible to work remotely. Offices in places with tighter restrictions—including Pennsylvania, Washington, D.C., New York and Maryland—aren’t yet scheduled to reopen.

    Different campuses do different types of work. Many employees have very specialized skills handling certain types of tax returns, creating a complicated management challenge to restore full service. “This is not a McDonald’s where you can move a person from the register to the to-go window,” said Mr. Everson, now vice chairman of Alliantgroup LP.

  The IRS hasn’t restarted services that require face-to-face meetings with the public, such as taxpayer assistance centers and some audit and collections operations. That is a safety concern for taxpayers and the government. Years of hiring freezes and the security of public-sector jobs mean the IRS has an aging workforce that is more susceptible to Covid-19. Employees remain anxious about the risks posed by taking public transportation, being in enclosed facilities with hundreds of co-workers and whether their work stations will be consistently and properly cleaned and disinfected,” said Tony Reardon, president of the National Treasury Employees Union, which represents front-line IRS workers.

    IRS Commissioner Charles Rettig, in a memo to employees, said their health and safety was the agency’s priority. In a statement to The Wall Street Journal, Mr. Rettig said employees worked around the clock in challenging circumstances to provide more than 159 million payments. “As we continue a phased-in reopening, we will do everything possible to accelerate our operations and enhance taxpayer services and processing of refunds,” he said.

    There are other challenges. In March, the IRS announced its “People First Initiative,” suspending some enforcement and collection through July 15 to help taxpayers struggling with unemployment and disruption. At some point, the agency will shift back toward enforcement.

    When will that happen? “It’s going to be a judgment call,” said Diana Erbsen, a lawyer at DLA Piper in New York who is chairwoman of the agency’s advisory council. “It’s not going to be an on-off switch.”

This week’s Author – Mark Bradstreet

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.  

– until next week

Unraveling Conflicting Tax Rules for Active vs. Passive Income February 26, 2020

Posted by bradstreetblogger in : 2019 Taxes, Business consulting, General, Tax Rules, Tax Tip, Taxes, Taxes, Uncategorized , add a comment

February 26, 2020

Few topics in the office cause more arguments than the tax definition of active versus passive.  The answer affects your income taxes vastly more than one would ever guess.  And, not in just one area of tax but often involving a multitude of seemingly unrelated areas.  At times, both parties in our office scuffles will have written evidence to support each of their opposing views.  Taxes have many shades of gray.

                            -Mark Bradstreet

It is commonly accepted wisdom that tax rules are complicated. This belief is well supported by the conflicting tax rules that apply to business owners, depending on their participation in the business. Let me try to make some sense of these conflicting rules.

Overview

Business owners may be active in their business. This means they are hands-on and are involved in day-to-day activities. Other business owners may be mere investors, adding their capital but not their labor. The following are various rules that take into account whether owners do or do not work in their businesses.

Qualified business income deduction

The 20% deduction for qualified business income (QBI) applies to owners of pass-through entities. There is no requirement that they do or do not participate in the daily operations of the business in order to claim this personal deduction based on their share of business income. If they participate (e.g., they are an S corporation shareholder who receives a salary), this factors into the QBI determination. For example, salary to an S corporation shareholder is not an item allowed in determining QBI, but the salary does count as wages for purposes of W-2 wages used in the formula for the QBI deduction.

Net investment income deduction

The 3.8% net investment income (NII) tax depends entirely on an owner’s participation in the business. Only income from a business in which the taxpayer does not materially participate is treated as investment income and potentially subject to the NII tax. The determination of material participation is made using the passive activity loss rules (below).

Passive activity loss rules

Under the passive activity loss rules, losses from a business activity in which an owner does not materially participate, and has no passive income, are not currently deductible (sorry for the double negative but it’s the best way to explain this limitation). Suspended losses can be carried forward and used to offset passive activity income in the future.

The determination of whether an owner is passive or active is based on 7 tests. An owner is treated as materially participating (i.e., active) and is exempt from the passive activity loss rules if he or she meets any of these tests:

1.    The owner participated in the activity for more than 500 hours.
2.    The owner’s participation was substantially all the participation in the activity of all individuals for the tax year, including the participation of individuals who didn’t own any interest in the activity.
3.    The owner participated in the activity for more than 100 hours during the tax year, and he or she participated at least as much as any other individual (including individuals who didn’t own any interest in the activity) for the year.
4.    The activity is a significant participation activity, and the owner participated in all significant participation activities for more than 500 hours (i.e., participation for more than 100 hours during the year and in which the owner didn’t materially participate under any of the material participation tests).
5.    The owner materially participated in the activity (other than by meeting this fifth test) for any 5 (whether or not consecutive) of the 10 immediately preceding tax years.
6.    The activity is a personal service activity in which you materially participated for any 3 (whether or not consecutive) preceding tax years. An activity is a personal service activity if it involves the performance of personal services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other trade or business in which capital isn’t a material income-producing factor.
7.    Based on all the facts and circumstances, the owner participated in the activity on a regular, continuous, and substantial basis during the year.

Note: When it comes to rental real estate activities and the passive activity loss rules, an owner’s participation doesn’t entitle him or her to claim losses. Owners of rental real estate activities can escape the passive activity loss rules only by demonstrating that they are real estate professionals (part of the definition of a real estate professional is based on material participation).

Self-employment tax

Sole proprietors pay self-employment tax on their net self-employment income. This is so whether they run their business or are totally in the background, relying on a full-time manager to handle the business.

General partners are subject to self-employment tax on their distributive share of self-employment income, plus any guaranteed payments. In contrast, limited partners are exempt from self-employment tax (other than for any guaranteed payments they receive for personal services rendered for the partnership).

Members in limited liability companies may or may not be subject to self-employment tax. There is no firm IRS guidance on this matter. However, tax professionals have argued that where members are mere investors (i.e., they act like limited partners), they should be treated like limited partners who are exempt from self-employment tax on their distributive shares.

Bottom line

Whether you sweat each day in your endeavors or are an investor who watches the books determines the tax rules that apply to you. Discuss your status with your CPA or other tax advisor.

Credit given to:Barbara Weltman

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.  

Today’s author – Mark Bradstreet

–until next week.

Ohio Income Tax Updates January 29, 2020

Posted by bradstreetblogger in : 2019 Taxes, General, tax changes, Tax Planning Tips, Tax Tip, Taxes, Taxes , add a comment

A filing season approaches, we are often focused on the federal changes to tax law, but one shouldn’t fail to keep their eyes and ears open to the state changes.  For those of us in Ohio, the 2019 tax law changes were fairly mild.  Below are a few of the key changes to Ohio tax law for the 2019 tax year.

Change in Tax Brackets:

Following the example of the Federal government, Ohio has decreased the number of tax brackets and overall tax rates which are applicable to the 2019 tax year.  The change in rates are displayed below:

Ohio Earned Income Credit:

The Ohio Earned Income Credit (EIC) was also expanded and simplified for 2019.  Historically, the credit was calculated utilizing 10% of the Federal EIC, and possibly subject to limitations based on income.  For the 2019 tax year, the credit is simply 30% of the Federal EIC.

Modified Adjusted Gross Income (MAGI):

The 2019 tax law introduces a new term for purposes of means testing.  Means testing is applied to determine exemption amounts and qualifications for certain credits.  Historically, Ohio Adjusted Gross Income (OAGI) was used in means testing.  The primary difference with this new metric is that income which would have been excluded under Ohio’s generous Business Income Deduction is now included for means testing.  Note, that this doesn’t mean that the business income is now taxable.  It simply means that this income will be considered when determining exemptions and credit qualifications.

In the ever-changing world of taxes, the changes take place not only on the Federal level, but on the state, and even local as well.  We strive to stay abreast of these changes, and help you make the best tax-conscious decisions. 

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.  

This week’s author – Josh Campbell

Tax Tip of the Week | QUANTUM: 2 1/2 Minutes vs. 10,000 Years November 27, 2019

Posted by bradstreetblogger in : General, Tax Tip , add a comment

The last week of October, 2019 I attended our CPAConnect National Roundtable conference in Memphis, Tennessee. One of our nationally known speakers was Randy Johnston. He is an IT specialist who has assisted our three (3) letter federal agencies both recently and over the years. Part of Randy’s program included Google’s announcement that their quantum computer has solved a math problem in 2 ½ minutes that would have taken 10,000 years to solve. He went on to explain that this speed would make passwords and block chain security useless, and that passwords were headed out anyway being too easy to hack. Also, today’s viruses upon entering your computer, first encrypts your back-ups including those on the cloud and then encrypts your computer. So, only your offline back-ups may be of any value. He is suggesting that we return to the “days of old” in terms of offline back-ups that we take back and forth to our home or another safe location. We can no longer rely only on cloud back-ups.

However, multi-factor authentication seems to still be working at this time – so at least there is some good news.

                                By Mark Bradstreet

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

–until next week.

Tax Tip of the Week | Real Estate – Tax Basis April 24, 2019

Posted by bradstreetblogger in : Depreciation options, General, Section 168, Section 179, tax changes, Tax Tip, Taxes, Uncategorized , add a comment

In an earlier Tax Tip, different tax categories of real estate were briefly discussed. This week we will discuss how a tax gain or loss is treated upon sale by the various classifications as listed below:

1.    Principal residence – Your gain (loss) is calculated by subtracting your tax basis from your sales price. Your tax basis starts with your original cost, adds in any qualifying improvements, and includes most of the selling expenses you incur when sold. Provided certain tests are met, gain is excludable up to $500,000 on a joint return, or $250,000 for a single filer. Exception: Any depreciation taken after May 6, 1997 is usually taxable. Depreciation may have been taken on an office in the home or any business usage. Any loss upon the sale of a personal residence in non-deductible.

2.    Second home – Your tax basis is calculated in the same manner as a personal residence. Any gain is taxed as capital gain. No exclusion is allowed as with a personal residence. No one may designate more than one property as a personal residence. Just as with a personal residence, any loss upon the sale of a second home is non-deductible.

3.    Rental property – The tax basis is calculated in the same manner as a personal residence with one major exception.   Because rental properties are depreciated over time, basis has to be reduced by the depreciation allowed or allowable. Any gain on the sale of a rental property is taxed as capital gain. However, the gain attributable to the depreciation taken could be taxed as high as 25%. This in known as Section 1250 recapture. Any excess gain is taxed as normal capital gain with a maximum rate of 20%. A loss on the sale of a rental property is normally deductible as an ordinary loss (not subject to the $3,000 per year net capital loss limitation).

4.    Investment property – Depreciation is not normally allowed on investment property. A loss is deductible to the extent of capital gains plus $3,000 per year for joint or single filers, and $1,500 per year for a married filing separate return.

5.    Business property – Same as rental property above if owned individually.

6.    Gifted property – Your tax basis in a property received as a gift is the same as the basis was in the hands of the giver.

7.    Inherited property – Your tax basis in an inherited property is generally the fair market value of the property as of the date of death of the decedent, commonly called a “stepped-up basis”.

As noted above, gains and losses are often treated very differently depending upon the type of property. Please understand what your type of property is and that its character may change for a variety of reasons including your intentions. Being able to substantiate all of this may be important.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.  

This week’s author – Norman S. Hicks, CPA

–until next week.

Tax Tip of the Week | 5 Ways to Fail a Sales Tax Audit March 20, 2019

Posted by bradstreetblogger in : General, tax changes, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

IRS audits are horrible! Sales tax audits are worse. In some areas, a sales tax auditor has more legal authority than an IRS agent. Yes, that is scary! Some businesses think that it is not a big deal failing to collect sales tax from a “favorite” customer since the customer would be liable anyway in an audit. It is not that easy – the sales tax agent collects this shortfall from whoever they are auditing. You might be paying the sales tax for your “favorite” customer. Good luck trying to get those dollars back from them.

The article below is advertising from an Avalara blog. I do not know anything about Avalara other than this tongue in cheek article which makes a lot of sense at least from my experience over the years.
                                                      By Mark Bradstreet

 FROM THE AVALARA BLOG JANUARY 23, 2019

 “All businesses relish a good sales tax audit. After all, what’s not to like? And did you know it’s possible to spend more time, money, and resources than absolutely necessary during an audit? It’s true. Simply follow the five tips below and you’ll dramatically increase your chances of having to pay those coveted audit penalties. 

[From the Avalara blog.]

1. Give the auditor a hard time

Spare no inconvenience. Send the auditor on coffee runs. Set the auditor up in your most cramped and unappealing space then make the auditor sort through the messiest records. First impressions matter when it comes to audits, so make yours a terrible one. The harder the experience for the auditor, the more likely that auditor will help you spend more money, resources, and time.

2. Assume you don’t need to collect tax

This is a high-risk move. If you have nexus in a state, you’re required to collect and remit sales tax; and while nexus used to refer primarily to some sort of physical presence, that’s no longer the case.

On June 21, 2018, the Supreme Court of the United States ruled physical presence is not a requisite for sales tax collection. Since the decision in South Dakota v. Wayfair, Inc., more than 30 states have broadened their sales tax laws to include a business’s “economic and virtual contacts” with the state, or economic nexus. That trend is likely to continue until all states with a general sales tax impose a sales tax collection obligation on remote sellers.

If you want to ensure you run afoul of auditors, just keep on not collecting in states where you make significant sales: Tax authorities are looking for you; they’ll likely find you.

3. Put your exemption certificates in a box in the warehouse

This gives you two advantages. First, it forces the auditor to dig through a potentially rat-infested box for the records needed, thus wasting more time. Second, it increases your chances of losing certificates to flood, fire, or vermin.

If you don’t have a complete certificate that proves a customer is exempt, you’ll owe the state for the sales tax you didn’t charge — plus bonus penalties and interest.

4. Keep incorrect records

You want to fail a sales tax audit? Make sure your records don’t match your bank accounts. If you have more or less money in your account than shows up on your sales tax records, you’re begging for an audit penalty.

If incorrect records are too blatant for your taste, strive for incomplete records. Don’t stress about recording every cent of sales tax charged to your customers. Scribble sales tax records down on a sheet of paper so you’ll never know where to find them when you need them. The auditor will linger as long as there’s a clear discrepancy between how much you collect and how much you record.

5. Pay less than you owe

This one’s about your overall method. You can drastically increase your risk of penalties during an audit by manually managing sales tax. Paying less sales tax than what your business owes will substantiate incorrect record-keeping, shoddy certificate storage, and (purposeful) ignorance about nexus. Plus, think of all of the other opportunities for error that await when you manually manage the following:

•    State and local jurisdiction rate changes
•    Filing methods and schedules for each taxing jurisdiction
•    Changing product taxability rules

But seriously

We know you don’t actually want to waste time, money, and resources. So, hopefully these tips give you some ideas of what not to do.

The right technology can turn sales tax management from painful and risky to easy and more accurate. Avalara’s suite of solutions can reduce your risk by automating calculations, certificate management, timely filing, and easy-to-access reports.”

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C. Bradstreet, CPA

-until next week