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Tax Tip of The Week | No. 348 | Tweaked Tax Quiz Causing Fewer Concerns Among Taxpayers March 30, 2016

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Tax Tip of the Week | March 30, 2016 | No. 348 | Tweaked Tax Quiz Causing Fewer Concerns Among Taxpayers

Here is a recent update from the Ohio Society of CPAs…..

The Ohio Department of Taxation’s ID confirmation quiz is prompting fewer complaints by taxpayers this year as state officials continue to use it to fight attempted fraud.

You might remember that last year the quiz was the talk of Ohio’s tax community, as taxpayers complained about the questions. Things are going more smoothly in 2016, said Deborah Smith, administrator of the Ohio Department of Taxation’s Income Tax Division.

“We’ve actually had comments thanking us for the changes we made,” Smith said. “We removed the relationship-type questions that were problematic last year. We were also able to eliminate the look back period on some. For instance, we no longer ask who you purchased a property from 20-30 years ago.

“Overall it’s more positive this year.”

This past summer, Gov. Kasich vetoed a budget provision that would have limited the questions to information obtained from the previous five years; Tax Commissioner Joe Testa told OSCPA such a limit would have hamstrung his department’s ability to examine tax returns.

ODT said it blocked more than half a billion dollars in attempted fraud between July 2014 and the end of 2015.

Testa said security measures have been expanded this year to protect the identity of minors, as well as adults. Criminals are also stealing the identities of minors, and if ODT identifies a situation where it appears a child’s identity has been compromised, the state will notify the household, allowing the filer to take additional steps to thwart illegitimate use of that minor’s identity.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 347 | The 2016 IRS Dirty Dozen March 23, 2016

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Tax Tip of the Week | March 23, 2016 | No. 347 | The 2016 IRS Dirty Dozen

The 12 most egregious tax scams of the year….

“We are working hard to protect taxpayers from identity theft and other scams this filing season,” says Internal Revenue Service Commissioner John Koskinen. “We urge taxpayers to help protect themselves from scams – old and new.”

To tell the old from the new and the clever from the mundane, the service again this year offers its Dirty Dozen scams. Here they are, in reverse order:

1. ‘I don’t owe taxes because…’  “Promoters of frivolous schemes,” the IRS says, “encourage taxpayers to make unreasonable and outlandish claims even though they are wrong and have been repeatedly thrown out of court.” True, you can take your case to the legal system, but don’t try hiding behind many of the whimsical arguments that taxes are too high, wrongly levied or unconstitutional. The penalty for filing a “frivolous” return losing one of these spats: $5,000.

2. Gimme shelter. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them: “Everyone should be on the lookout for people peddling tax shelters that sound too good to be true,” from those involving foreign banks or companies to dream-come-true beachfront property in some sunny, faraway land. Increasingly, the wrong overseas LLC or LLP can land you right in JAIL.

3. Faking a living. “Don’t invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit,” the IRS warns. “Taxpayers are sometimes talked into doing this by scam artists.” Sometimes by their own sense of adventure and derring-do, too, along with the nagging little idea that nobody in the government is truly watching.

4. No credit, big problem. Generally, taxpayer clients stop listening when they hear the monetary benefit of something like the fuel tax credit and never hear how it’s a benefit generally not available to most. “Taxpayers should also avoid misuse of the research credit,” the IRS notes in this entry. “Improper claims generally involve failures to participate in or substantiate qualified research activities and/or satisfy the requirements related to qualified research expenses.”

5. Inflationary issues. This entry on the Dirty Dozen must be one of the oldest dodges in return prep: “Taxpayers should avoid the temptation of falsely inflating deductions or expenses on their returns to underpay what they owe or possibly receive larger refunds,” says the IRS. And, of course, one special villain is the EITC.

6. Uncharitable charities. Ever have a client who wrote a check to UNICHEF? How about one who eagerly clicked a donation to the American Human Society? “Be on guard against groups masquerading as charitable organizations,” the IRS says. “Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities.” So we can’t deduct our fifty bucks to Shave the Children?

7. Free money! Amazing, really, how taxpayers keep falling for the promise of giant (see “falsely inflated”) refunds obtained by any shady preparer. “Be wary of anyone who asks taxpayers to sign a blank return, promises a big refund before looking at their records or charges fees based on a percentage of the refund,” the IRS advises. Like we said, amazing.

8. Casting abroad net. The recent string of successful enforcement actions against offshore tax cheats – and the financial organizations that help them – prove it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities, according to the IRS. The service offers the Offshore Voluntary Disclosure Program to enable people to catch up on their filing and tax obligations – since starting in 2009; it has netted more than $8 billion in otherwise-lost revenue.

9. Rotten apples. “The vast majority of tax professionals provide honest, high-quality service,” the IRS concedes in this entry. “But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams.” Please have your PTIN and credentials out for inspection.

10. Gone phishing. Only after you enter the last numerals of your checking account number and hit SEND do you realize that the e-mail came from “IRS.com” and that the official seal of the Internal Revenue Service does not feature the face of Krusty the Clown. You’ve just been hooked by phishing, fake e-mails or Web sites looking to steal personal information. The IRS never sends taxpayers an e-mail about a bill or refund out of the blue; tell your clients never to click on one!

11. One ringy-dingy. Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers and surged recently as scam artists threaten taxpayers with police arrest, deportation and license revocation, among other things. (Not that these thieves are always the brightest: Last season they even called the home of the commissioner of the Connecticut Department of Revenue Services.)

12. What’s in a name? Identity thieves not only top the IRS Dirty Dozen but they also continue to aggressively file fraudulent returns using someone else’s info. In fiscal year 2015, the IRS initiated 776 ID-theft related investigations, which resulted in 774 sentencings. One thief got more than 27 years, or roughly three years for each digit in a phony Social Security number.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW…until next week.

Tax Tip of the Week | No. 346 | Recession Cut Capital Gains 96% March 16, 2016

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

Tax Tip of the Week | March 16, 2016 | No. 346 | Recession Cut Capital Gains 96%

The following statistics were recently released by the IRS…….

The economic downturn of eight years ago caused a sharp decline in sales of capital assets reported on individual returns, according to the IRS Winter 2016 Statistics of Income Bulletin.

The IRS reported that total realized capital gains less losses declined by approximately 96 percent between 2007 and 2009, from $914 billion to $37 billion. Net gains then increased to $373.4 billion in 2010 and $639.9 billion in tax year 2012.

Of these gains, pass-through entities and corporate stock sales made up the largest categories reported by taxpayers in each year. In 2007, taxpayers reported $384.8 billion in gains from pass-through entities, the largest category for every year. Gains of this type then declined in both 2008 and 2009 and then increased each year through 2012, to $320.9 billion.

Among the Bulletin’s other information:

–    Tax-exempt public charities filed nearly 280,000 Forms 990 and 990-EZ and reported $3.3 trillion in assets for tax year 2012, an increase of 6 percent from the previous year.

–    U.S.-source income paid to foreign persons totaled $672.9 billion for calendar 2012, an increase of 18.4 percent from 2011.

–    For tax year 2013, taxpayers reported non-farm sole proprietorship activity on approximately 24.1 million individual income tax returns, a 2.2 percent increase from 2012. Profits fell to $302.3 billion in 2013, a 0.9 percent drop from the previous year.

–    For tax year 2011, corporations claimed more than $107 billion in foreign tax credits, a decline of 9.3 percent from 2010. European countries were responsible for almost 40 percent of the total foreign source taxable income; Asia accounted for slightly more than a fifth.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 345 | IRS Auctions Rock & Roll Memorabilia March 9, 2016

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

Tax Tip of the Week | March 9, 2016 | No. 345 | IRS Auctions Rock & Roll Memorabilia

Here is a press release you don’t see often from the IRS…….

The Internal Revenue Service conducted a massive public auction in Overland Park, Kansas, on February 25, 2016 of a mind-blowing set of rock & roll memorabilia, including autographed records from Jimi Hendrix and Led Zeppelin, a 10-piece drum set from Anthrax, an autographed guitar from Joe Walsh of the Eagles, Nirvana items, a guitar from Nikki Sixx of Motley Crue, and Stevie Ray Vaughn’s shoes.

The property comes from an unidentified collector who clearly fell considerably behind on his or her tax payments.

One nonmusical item in the lot is the jacket worn by actor Brandon Lee, the son of Bruce Lee, during the filming of “The Crow,” the 1993 movie where he was killed by an accidental gunshot wound.

Also in the mix is Ozzie Osbourne’s guitar, even though, as NBC News pointed out, Osbourne doesn’t play guitar. There’s also a pair of snakeskin platform boots once worn by KISS singer Gene Simmons, and another pair of silver boots that used to belong to KISS guitarist Ace Frehley. Other items include a pair of jeans worn by Lita Ford of the Runaways, a Madonna print, and “No More Censorship” artwork once owned by Jello Biafra of the Dead Kennedys. There’s also a framed record and photos of the Clash and their song “Clash City Rockers,” an autographed copy of the Cure’s “Fascination Street,” plus a guitar from a member of the Sex Pistols alongside their classic album “Never Mind the Bollocks. Here’s the Sex Pistols.”

The IRS has set a starting bid for the entire lot of $15,495, but the actual closing price is likely to go considerably further in filling the IRS’s budget gap.

For more information on the auction, click here.
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 344 | Tax Breaks for College Students March 2, 2016

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

Tax Tip of the Week | March 2, 2016 | No. 344 | Tax Breaks for College Students

If you are attending college, or have a college student in your household, the following is a brief summary of the various education credits and deductions that may be taken on your tax return:

American Opportunity Tax Credit: This is a very generous tax break that could even include a refundable credit.  It is only available for the first four years of undergraduate enrollment in a qualified higher education facility.  The maximum credit could be up to $2,500.

Lifetime Learning Credit:  If you cannot claim the American Opportunity Credit, you may qualify for this credit.  This credit, up to $2,000 is not refundable, and is available for qualified education expenses for almost anyone.

Tuition and Fees Deduction:  This deduction is an alternative choice you can make vs. using either of the education credits. You always need to consider each of these tax-breaks before choosing which offers the greatest tax savings.  This deduction is an “above the line” deduction which means it can also help reduce your Ohio tax liability.

Qualified Tuition Programs (QTPs or 529 Plans):  If you invested money into one of these programs for your student, you know that you did not receive any federal tax savings on those contributions.  Now is the time to reap the rewards for those savings! Distributions from these plans is now tax free if used on qualified expenses.

IRA Distributions:  Generally speaking, if you take money out of an IRA before reaching age 59.5 you will pay a 10% penalty in addition to tax on the distributed amount.  There is an exception, however, on the penalty if the distribution is used for education expenses. You will still pay tax on the distributed amount.  Be careful on this one—give us a call before trying!

Education Savings Bond Program:  If you own U.S. Savings Bonds you have the choice of paying taxes on the interest as it is earned or paying tax on the full amount of interest when the bond is cashed.  If the bond is cashed to pay qualified education expenses on a dependent, the interest may be excludable from income.

Scholarships and Grants:  A scholarship or grant that a student receives is usually excluded from income. The amounts received, however, need to be offset against the qualified expenses used to calculate one of the credits/deductions we discussed above. Example; if a student gets a “free ride scholarship” they would probably not qualify for any of the credits/deductions we outlined.

Student Loan Interest Deduction:  When a student needs to start paying off any student loans taken, the interest they pay can be tax deductible up to 2,500 per year.

Please note:  All of these credits and deductions are limited by AGI.  If your income is too high, you may not qualify for any tax breaks.  Use of these education incentives takes some careful tax planning.
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.