How to Avoid Tax Scams

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Avoiding Tax Scams

With tax season coming to an end, many consumers are now trying to pull themselves out of some of the worst tax scams they have ever experienced. Some are finding out first hand what it feels like being scammed during tax season while for others it is a constant reminder that you have to make sure you are careful during tax season.

According to a report issued by the IRS, thousands of people have lost millions of dollars due to ax scams and fake IRS communications in recent years. Below are popular scams and how you can avoid them:

You Are Under Arrest

One of the most popular IRS scams to date, is when individuals pose as officials from the IRS to notify you that you are under arrest for not paying your taxes. Please note that the IRS will never call you to tell you that you will be arrested so don’t ever feel pressured to give away personal information over the phone. Once you hang up call 911.

We Need Your Social Security Number

Another popular IRS scam is having people pose as IRS officials to ask of your social security number. Once again, the IRS will never call you over the pone and ask you to disclose personal information such as your social security number especially not over the phone.

Downloading Unknown Software

Receiving an email to download unknown software is by far one of the oldest tricks in the book. Don’t ever download any software from unknown users because it may be an attempt from an online thief to steal your information.

The best and easiest way to avoid unknown IRS scammers is to know that the IRS will only contact you via mail and in rare cases via phone. If you are ever in doubt if a communication is coming directly from the IRS, call your local IRS and ask. While it may make you feel crazy for asking if they’ve called it’s always better to be safe than sorry.

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How Identity Theft Victims Can Survive Tax Seasons

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Identity Theft

Each and every year, millions of Americans deal with the unfortunate event of having their identity stolen. According to the FBI, identity theft is one of the fastest growing crimes in America. We have all become increasingly vulnerable as a consequence of technology: in recent years, cases of online identity theft have tripled.

Losing your identity can be a stressful event at any time during the year; however, it can turn into a veritable nightmare during tax season. Here are just a few ways you and your family can survive tax season after your identity has been stolen:

Remain Vigilant

Before tax season even begins, remain vigilant. Keep monitoring your credit report and also make sure you report anything you receive in the mail which looks suspicious, especially if it could impact your taxes.

Report to the IRS

You should immediately report the theft to the IRS. The IRS can’t protect you from the things they don’t even know exist. The moment you realize your identity has been stolen, make sure you report it.

File On Paper

If you have been a victim of identity theft you may be required by the IRS to file a paper return. This will also allow you to file pertinent identity theft paperwork along with your tax return.

Beware of Scammers

Scammers are on the prowl especially during tax season. Make sure you know that the IRS will never contact you to tell you that you owe money. Anytime someone calls and pretends to be the IRS, make sure you report them because it’s a scam.

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Obamacare and Your Tax Liability

Obamacare Healthcare Insurance Premium Tax

Healthcare

The Affordable Healthcare Act is benevolent in its intent: it seeks to make health insurance affordable, and prevents healthcare companies from denying coverage for preexisting conditions. However, it has also proven to be incredibly confusing to many taxpayers and has caused some to forego buying insurance on the Healthcare Marketplace. We’ve compiled a sort of 101 to help you understand how the Affordable Care Act can impact your 2017 tax return.

You qualify for a discount to help offset your insurance premiums if your total household income is between one to four times the Federal Poverty Level. You can choose to apply these credits to your insurance costs to lower your monthly bill, or apply them to your tax return the next year.

If you’re on Medicare or have insurance through your employer, Obamacare doesn’t apply to you. Here’s two important points for individuals:

Individual Mandate: Americans who can afford to obtain health coverage must do so for the majority of the year (more on that later) unless they qualify for an exemption. Filers who do not obtain insurance will be assessed a monthly fee.

Advanced Premium Tax Credits: Low-to-middle income Americans are eligible for tax credits, which can reduce the upfront cost of premiums on health insurance purchased through their State’s Health Insurance Marketplace.

Who is Exempt?

Some Americans are exempt, meaning that do not have to pay a penalty if they are not insured.

Such scenarios include:

  • Filers whose income is so low that they aren’t required to file a tax return.
  • Anyone who would have to pay more than 8% of their income for insurance
  • Members of religious groups whose beliefs prohibit health insurance benefits
  • Incarcerated individuals
  • Members of Native American tribes
  • Undocumented immigrants

Tax Penalties for the Uninsured 

You can be charged a tax penalty if a) you do not have health coverage and b) don’t qualify for an exemption. But how are penalties calculated? It depends on the following: your household income, how many people in your household were not covered by health insurance, and how long they were without coverage.

In 2016 the rates stood at 2.5% of income, or $695 per uninsured adult. Starting in 2017, annual rates will be adjusted for inflation. Note that if you are uninsured for only part of the year, the penalty is prorated to cover only the months for which you were uninsured. You will not be assessed a penalty for a gap in coverage less than three months long–which is called a “short gap.” However you are only allowed one short gap per year.

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Reasons You Could Be Audited by the IRS

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IRS Audit

Perpetually feared, IRS audits have taken on an almost mythical aura in our society. Despite the fact that fewer than 1 out of 100 middle class income households are audited per year, audits do in fact happen. But why? Below are a few reasons why the IRS could send you the dreaded audit notice. First, let’s understand what an audit is and is not.

An audit may consist of the following:

  1. Notice: the IRS may notify you via mail or telephone. They will NOT send the Men in Black to your door.
  1. An interview: you may do an in-person interview and review of your records. It may take place at your home, an IRS office, your accountant’s office, or your place of business. It will NOT take place in a secret CIA bunker.
  1. Request for documents: you will be asked to provide specific documents. These documents will clarify your financial situation.

What can trigger an IRS audit?

A. Not reporting all of your income: most employers file with the IRS, which means the IRS most likely knows when you’ve been paid for work or services. Be honest about your income, even if you’re worried about diminishing your tax return. In the end, it’s better than an audit.

B. Earning more than $200K: individuals who earn over this amount are more likely to be audited. This is not socioeconomic discrimination, it’s just statistical fact.

C. Claiming too many charitable donations: while donating to charity is great, reporting that you donated a significant chunk of your income to charity is likely to raise a red flag at the IRS office.

D. Using clean, round numbers: most salaries don’t end in a nice, neat, round number, and the IRS knows that. If you report such numbers, it suggests rounding–which is falsified information. Always be honest when you’re reporting income and you’re less likely to be audited. And if you are audited on an honest tax return, you’ve got nothing to hide.

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How to Apply for an Online Payment Agreement with the IRS

Owing money to the IRS can be a pain, and failure to pay can result in civil and criminal prosecutions. For many people who are facing upward of $50,000 in back taxes, penalty fees and interest rates combined, paying a one-time sum is nearly impossible. It’s important to setup an online payment agreement with the IRS to help with making the payments and avoiding any of the penalties associated.cashdollarspic

Qualifications for an Online Payment Agreement

In order to setup a payment arrangement online as an individual, you need to owe less than $50,000 to the IRS. Also, you must have filed all the required tax documents for the year to apply for the payment agreement. If you failed to file a form with your taxes, you will need to work that out first with the IRS before continuing onto a payment agreement.

To qualify for an online payment agreement for your business, you need to owe less than $25,000 in taxes for the current year or previous year. You must also have filed all the required forms in your return.

What You’ll Need to Apply for an Online Payment Agreement

To apply for an online payment agreement, you must go online to the IRS website.

For an individual payment agreement, you will need the following information to finish the application: full name, date of birth, filing status, valid e-mail address, physical address on your most recent filed return and social security number. If filing jointly, you will need both of your social security numbers for the application.

Businesses looking for a payment agreement will need to provide the following information: Caller ID from notice, Employee Identification Number (EIN), date you signed the EIN and the physical address on your most recent tax return.

Setting up a payment plan online is simple and can prevent you from having to deal with future criminal or civil judgments put against you by the IRS. Even if you can’t pay what you owe in one lump sum to the IRS, they do offer you good options.

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How to React to a Letter from the IRS

Notice Letter IRS

Letters

The IRS sends out millions of letters and notices to taxpayers in reference to their filed taxes. Before panicking, know that most of these letters contain simple fixes and aren’t a cause for panic. Here’s what to do if you receive a notice or letter from the IRS.

  1. Don’t panic. Most times, the notice doesn’t really imply anything too bad. Just read the instructions carefully.
  1. Send over relevant information. If the IRS is requesting payments, asking for additional information or notifying you of a change in your account, comply with the notice. Send all relevant information and it will most likely resolve the issue right then and there.
  1. Check if you agree with corrections. If the IRS made corrections to your taxes and you agree with the changes they made to your taxes, then you won’t have to do anything.
  1. Respond to the request if you don’t agree with tax corrections. If you feel the IRS made a mistake with a correction on your taxes, then you need to respond back to the letter with a full written explanation as to why you disagree. You should also include all supporting documents to help build and explain your case further. Mail in the form and wait at least 30 days for a response from the IRS before contacting them.
  1. Be sure to keep copies of everything. If you have mailed something, be sure to keep a copy of it for your own records in case it didn’t get sent to the IRS. You want to have proof of everything in the event that you need to prove it to the IRS in court.

If you feel that your issues with the IRS are beyond your capabilities, reaching out to an attorney could help with finding a resolution.

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How to Avoid IRS ID Scams

Although it seems hard to pull off, IRS scams happen all of the time. Scammers have a way of creating documents using stock IRS logos to replicate letterhead. In some cases, consumers are emailed or called on the phone. Here are a few tips to help you avoid IRS ID scams.IRSScamAlert

Follow TAP

TAP is the Taxpayer Advocacy Panel. This panel works to identify tax scams and provide information on such scams to the IRS. Their main goal is to help protect taxpayers. Phishing scams are often caught by TAP. The IRS investigates all of the claims sent from TAP.

Know IRS Methods of Contact

Do you know how the IRS contacts taxpayers? They contact through the mail only. Any other contact should be ignored by you but still reported as it may be a new scam that hasn’t been investigated. The IRS will send paper mail, which you should also research for validity. Some scammers are getting smarter and using the U.S. mail delivery system to defraud taxpayers.

Be Aware of Proper Payment Methods

The IRS will never ask for your payment information via email or over the phone. You should never be directed to a third-party website to make a payment. All online IRS payments are done right on their website.

Closing Thoughts

If you receive suspicious communications from entities claiming to be the IRS, report it to your local police and the IRS immediately. Internet communications may be able to be tracked. Do not respond to any email requests as this can damage your computer or allow scammers to steal your personal information.

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Don’t Bend the Truth with Your Tax Preparer

Increased tax rates and the rising chance of an economic recession have tempted taxpayers to cut corners when filing their taxes. However, taxpayers who think that tax preparers aren’t too capable at spotting untruth are mistaken. Here are some clear signs which give away your attempt to bend the truth to your tax preparer.SuperTaxPic

False Deductions

Keeping your receipts and documentation orderly is vital to providing proof when claiming deductions. Having a bunch of additional expenses without any paper trail is one of the biggest phony moves there is, especially if these expenses turn up after receiving a final number from your tax preparer.

Un-Qualifying Dependents

Claiming dependents is an easy way to lower your tax rate, but claiming dependents who aren’t your own or don’t exist is an illegal move. The IRS has tightened up the rules for those who claim kids for the Earned Income Credit by requiring additional documentation which shows the child has met the proper support and residency tests.

Personal and Business Expenses

These two should remain separate when filing your taxes. Although you can write off a percentage of personal expenses on items such as your vehicle and other office equipment, the rest can be very grey areas for some taxpayers. Be sure to provide specific instances of use when your tax preparer questions you about these expenses. If an item can only be sited as used once or twice towards the business it may not be a plausible business expense.

Conclusion

Taxpayers who try to cheat on their taxes are going to run into trouble. Tax preparers know the inner workings of the system and can see when you’re trying to get around paying taxes.

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What are IRS Voluntary Disclosure Programs?

If you are facing an investigation by the IRS with regard to reporting your taxes you may want to consider participating in one of the organization’s Voluntary Disclosure Programs.IRS - ScrabblePic

What are the Programs?

The IRS currently allows any US taxpayer who is under investigation for violating US tax law the opportunity to voluntarily report any income that is not reported on their taxes for the previous year.

The programs consist of two different categories:

  • The IRS Domestic Voluntary Disclosure Program
  • The IRS Foreign Voluntary Disclosure Program

Domestic Disclosure

The domestic program allows individuals to voluntarily provide the IRS with information concerning any and all forms of undisclosed income which was earned within the territory of the United States.

Foreign Disclosure

This program allows individuals with financial interests in foreign countries to disclose any information concerning their earnings which was not previously reported. These financial interests can be anything from foreign bank accounts to other financial products.

What the Programs Provide

The IRS Voluntary Disclosure Programs operate solely for the guidance of IRS personnel and there are no substantive procedural rights for the taxpayer. However, making a disclosure can significantly help a taxpayer resolve their tax issue with the IRS.

Why You Should Participate

By participating in these programs, you can generally eliminate the risk of criminal prosecution and also avoid substantive civil penalties.

While there is no guarantee that a taxpayer can avoid criminal prosecution for failing to comply with US tax law, these programs can provide much needed relief.

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3 Most Important Foreign Tax Filing Regulations to Follow

If you are an American taxpayer living abroad there are three important filing regulations you need to be aware of when you are filing your taxes.TaxGlobe

You Must File Your Taxes

All US taxpayers living and working abroad must file their US tax return with the IRS on the regular due date of April 15th. While the IRS does provide an automatic two-month extension for any taxpayer living and working abroad, it does not exempt you from interest. All taxes paid after April 15th will be subject to interest. Living and working abroad, while remaining a US citizen or resident alien, does not absolve you of your tax responsibility.

You Must Follow Currency Exchange Rates

When working abroad, you must file your payment of US taxes in US dollars, regardless of whether or not you receive your income in the form of foreign currency. There is no exception if you receive your income in foreign currency as a full or partial payment. All taxes must be reported in US dollars.

You Must Report Any Foreign Bank and Financial Accounts

If you possess any financial interests in a foreign country, these accounts must be reported when you file your taxes. Failure to do so will subject you to penalties and exposure to criminal liabilities concerning tax evasion and fraud.

Filing your taxes with the IRS while living abroad depends on your tax status. If you are required to file, the above are the most important tax regulations to follow.

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    We serve Tukwila, Auburn, Federal Way. We have a few meeting locations. If you are looking for a Redmond CPA firm, get in touch with us! Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.