Sep 01

Three scams to be aware of as summer ends

Tax scams can happen anytime of the year, not just during tax season. Three common year-round scams are identity theft, phishing and return preparer fraud. These schemes are on the top of the IRS’s “Dirty Dozen” list of scams this year. They’re illegal and can lead to significant penalties and interest, even criminal prosecution. Here’s more information about these scams that every taxpayer should know.

1. Identity Theft.  Tax fraud by identity theft tops this year’s Dirty Dozen list. Identity thieves use personal information, such as your name, Social Security number or other identifying information without your permission to commit fraud or other crimes. An identity thief may also use another person’s identity to fraudulently file a tax return and claim a refund.

The IRS has a special identity protection page on IRS.gov dedicated to identity theft issues. It has helpful links to information, such as how victims can contact the IRS Identity Theft Protection Specialized Unit, and how you can protect yourself against identity theft.
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2. Phishing.  Scam artists use phishing to trick unsuspecting victims into revealing personal or financial information. Phishing scammers may pose as the IRS and send bogus emails, set up phony websites or make phone calls. These contacts usually offer a fictitious refund or threaten an audit or investigation to lure victims into revealing personal information. Phishers then use the information they obtain to steal the victim’s identity, access their bank accounts and credit cards or apply for loans. The IRS does not initiate contact with taxpayers by email to request personal or financial information. Please forward suspicious scams to the IRS at phishing@irs.gov. You can also visit IRS.gov and select the link “Reporting Phishing” at the bottom of the page.

3. Return Preparer Fraud.  Most tax professionals file honest and accurate returns for their clients. However, some dishonest tax return preparers skim a portion of the client’s refund or charge inflated fees for tax preparation. Some try to attract new clients by promising refunds that are too good to be true.

Aug 30

IRS will recognize legal same sex couples for tax purposes

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

The ruling implements federal tax aspects of the June 26 Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act.

Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

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Legally-married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status.

Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

Aug 08

Tax tips if you’re moving this summer

If you make a work-related move this summer, you may be able to deduct the costs of the move. This may apply if you move to start a new job or to work at the same job in a new job location. The IRS offers the following tips on moving expenses you may be able to deduct on your tax return.

In order to deduct moving expenses, you must meet these three requirements:

1. Your move closely relates to the start of work.  Generally, you can consider moving expenses within one year of the date you first report to work at a new job location. Additional rules apply to this requirement.

2. You meet the distance test.  Your new main job location must be at least 50 miles farther from your former home than your previous main job location was. For example, if your old main job location was three miles from your former home, your new main job location must be at least 53 miles from that former home.

3. You meet the time test.  After you move, you must work full time at your new job location for at least 39 weeks during the first year. Self-employed individuals must meet this test and also work full time for a total of at least 78 weeks during the first 24 months upon arriving in the general area of their new job location. If your income tax return is due before you have satisfied this requirement, you can still deduct your allowable moving expenses if you expect to meet the time test.

See Publication 521, Moving Expenses, for more information about these rules. If you can claim this deduction, here are a few more tips from the IRS:

  • Travel.  You can deduct transportation and lodging expenses for yourself and household members while moving from your former home to your new home. You cannot deduct the cost of meals during the travel.
  • Household goods.  You can deduct the cost of packing, crating and transporting your household goods and personal property. You may be able to include the cost of storing and insuring these items while in transit.
  • Utilities.  You can deduct the costs of connecting or disconnecting utilities.
  • Nondeductible expenses.  You cannot deduct as moving expenses any part of the purchase price of your new home, the costs of buying or selling a home, or the cost of entering into or breaking a lease. See Publication 521 for a complete list.
  • Reimbursed expenses.  If your employer reimburses you for the costs of a move for which you took a deduction, you may have to include the reimbursement as income on your tax return.
  • Update your address.  When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive mail from the IRS. File Form 8822, Change of Address, to notify the IRS.
  • Tax form to file.  To figure the amount of your deduction for moving expenses, use Form 3903, Moving Expenses.

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Aug 05

What would a 28% corporate tax rate mean?

The President recently announced that he would favor lowering of the corporate tax rate to 28%. This would drop the rate from its current highest marginal rate of 35%, which is the highest of the developed countries. The 28% rate would be below the median for most developed countries and would, in theory, make the U.S. a more attractive place for businesses.

However, the change would not come without significant ramifications. Namely, the change in the corporate rate, but not the individual rate, would mean that the largest businesses in America would be paying rates much less than most small businesses. The reason for this is the pass-through type of taxation for most small businesses. The pass-through taxation results in the business profits being taxed at the owners’ marginal tax rates. With the imposition of the Affordable Care Act and recent changes to the tax law, this rate can be up to 43.5% at the federal level.
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If one considers favorable dividend rates for distributions, the majority of large companies and their shareholders would pay much lower rates than successful small business (especially considering FICA taxes.) I am all for lowering the corporate tax rate, but tax reforms need to be considered all across the Tax Code, and playing favorites with certain provisions is what caused it to be the jumbled mess it is today.

Jul 25

I can give away $10,000 without taxation, right?

I have given quite a few seminars over the past five years on estate planning and have answered many, many questions. I have also helped many clients and provided all the information I can so those clients can make a knowledgeable decision regarding their estate plan. So, I want to spend the next few posts going over questions I run into with estate planning to help spread more knowledge to the people of Altus and the surrounding areas of southwest Oklahoma (and the world).

Common Question: I heard that I can give away $10,000 each year without having to pay taxes on it. I paid too much in income taxes last year and I would like to use this deduction by giving it to my kids.

The Answer: There are a few misunderstood concepts in the above scenario, so let’s straighten them out.

First, you are alluding to the Annual Gift Tax Exclusion. When the law was updated in 2001, it said that one person could give any other person up to $10,000 per year and there would be no requirement for gift tax reporting. The $10,000 amount is adjusted for inflation, and currently, in 2013 the amount per year is $14,000. Married couples can combine their exclusions and give an individual up to double the exclusion amount, but they will have to file a gift tax return to show they split the gift.
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Next, even if someone did exceed the $14,000 amount and gave another individual more in a single year, there still would not be taxes due. This is because in addition to the annual exclusion amount, there is a lifetime exemption amount that must be used prior to actual taxes being due. The lifetime exemption amount is tied to the estate tax exemption amount and is currently $5,250,000 per person. So, you have to give significant gifts prior to there being taxes, but only relatively small gifts (exceeding $14,000) for there to be reporting.

Lastly, there is no deduction for giving money or property to kids, so if it is income for you, you cannot assign it to your children and take a deduction on your tax return. If you are interested in “income shifting” then there are more complicated steps which need to be taken, but most people do not want to follow through with those requirements.

If you would like to set up a consultation to discuss your estate plan or tax plan, then call 580-318-8829 for an appointment today. Mention this post and receive a one-hour complimentary consultation!