Don’t be a victim of tax identity theft: File your 2017 return early
The IRS has just announced that it will begin accepting 2017 income tax returns on January 29. You may be more concerned about the April 17 filing deadline, or even the extended deadline of October 15 (if you file for an extension by April 17). After all, why go through the hassle of filing your return earlier than you have to?
But it can be a good idea to file as close to January 29 as possible: Doing so helps protect you from tax identity theft.
Tax Implications of Moving
People move for various reasons: to be close to loved ones, amenities and nightlife, to pursue lower living costs, or just because you always wanted to live in a certain place. Proximity to work is the most common reason for moving, and you may be eligible for tax incentives if you just got that offer for a dream job hundreds of miles away. Or, if moving to the city of your dreams is the only viable place where you can start a business, chances are that you can deduct your moving expenses.Read more
Avoiding Tax Identity Theft
"Identity theft is one of the fastest growing crimes nationwide, and refund fraud caused by identity theft is one of the biggest challenges facing the IRS."…IRS Tips for Taxpayers, FS-2014-2, January 2014
According to an IRS report, Mauricio Warner, a Georgia resident, had a $10 million tax fraud and identity theft operation underway before he was caught and convicted. Warner used the names and social security numbers of online victims who "were told they could submit an application for an 'Obama stimulus payment' or 'Free Government Money.'”
Warner was sentenced to 240 months in federal prison and three years supervised probation, ordered to pay over $5 million in restitution, and forfeited his $4.1 million bank account.
The IRS has been aggressive in tracking down identity thieves and criminals like Warner. Its Identity Theft Clearing House since its inception in 2012 has pursued over 7,600 leads involving 1.47 million fraudulent returns amounting to almost $7 billion.
Avoiding Tax Identity Fraud
If you're the victim of a tax-identity theft, your tax return may only be the beginning. The IRS recommends the following precautions:
Don't fall for scams
Any email addressed directly to you claiming to be from the IRS is fraudulent. The IRS never contacts taxpayers by email or social media. They do not use the web to demand payment or offer refunds to taxpayers. Forward suspicious email to [email protected].
Likewise, unexpected phone calls from someone claiming to be an IRS agent are impersonation scams. The caller might ask for personal information to send you a refund or threaten you with arrest or deportation if you don't pay an overdue tax bill. Report these impersonation scams online or call 1-800-366-4484.
Finally, any website that claims to be an official IRS site but does not begin with www.irs.gov is bogus. Make a phishing report at the link cited above.
File early and hold your personal information close
File your tax return as early as possible. Income tax identity thieves strike early in the year.
Safeguard your social security number and never give it out unless you have initiated contact requiring its disclosure. Never routinely carry a social security card or documents that display your social security number.
Protect all personally identifiable information on your computer. Use firewalls, anti-spam and virus detection software, and use secure passwords for Internet accounts. Be especially discrete with your online activity in public places over non-secure networks.
If you become a victim
The signs
You are likely to have become a victim of tax fraud if the IRS informs you that:
- they have received more than one tax return filed under your social security number
- you owe the IRS money for a refund overpayment
- you reported wages from an employer you never heard of
What to do
Don't procrastinate; work with the IRS. In addition to following the FTC-recommended steps to limit the damage of identity theft:
- respond to the IRS notice right away using the telephone number and contact information on the notice
- complete IRS Form 14039, the Identity Theft Affidavit. Go to IRS.gov/pub/irs-pdf/f14039.pdf and follow the instructions for transmitting the form to the IRS.
- pay your taxes and file your tax return, even if you must use paper documents
It might take a while, and you could use some help
Tax identity fraud cases can become complex and perplexing. An IRS resolution to tax identity fraud could drag on for months. If you need help in extricating yourself from identity-theft problems, Dukhon Tax and Accounting offers just the expertise, advice and services to individuals and businesses on a year-round basis.
Estimated Taxes: Who Has to Pay Them and How?
The majority of taxpayers pay their taxes due annually when filing their tax return for the year. In some circumstances, however, taxes must be paid to the IRS on a quarterly basis. These tax payments are called estimated taxes because they are based on the amount of income that an individual or business expects to make for the year.
Read more
Filing your federal tax return after filing for an extension
April 15th may be more than six months away but it is never too soon to start thinking about how and when you will file your tax return. If all taxes due are not paid on time, you run the risk of penalties and interest. This is not a situation most people want to be in.
You avoid penalties by withholding a sufficient amount from your earnings or paying a quarterly estimated tax. However, you can get a waiver of the penalty for underpayment if:
- you suffered some financial misfortune caused by a disaster or “unusual circumstance” and it just wouldn’t be fair to impose a penalty, or
- you retired after age 62 or became disabled during the tax year
So long as your underpayment was not due to “willful neglect,” the IRS will consider overlooking the penalty. Naturally, you still have to report the estimated tax penalty in your return.
Speaking of penalties…
If you miss the April 15th tax filing date, an additional clock starts ticking. The penalties and interest on what you owe mount, and they will not stop until the matter is resolved. There are some automatic 6-month extensions for filing individual tax returns for citizens living and serving in the Armed Forces outside the United States.
Everyone else can apply for an automatic 6-month extension by filing IRS Form 4868. The form must be filed by April 15th.
If you are owed a refund, there is no penalty for missing the April 15th filing date.
The big “however”…
The IRS makes it clear that an extension of time to file your return does not grant you any extension of time to pay your tax liability.
Nevertheless, there are valid reasons…
Our personal and financial lives are fraught with the unexpected. Unforeseen circumstances--fire, flooding, business reversals--can place records keeping and tax accounting on the back burner.
On the other hand, unexpected financial windfalls or unanticipated income could have tax liability consequences. The extra filing time could provide the breathing room to gather the documentation, fill out those additional forms and take advantage of what our tax code offers to reduce that tax bill.
To recap…
When You File that Extension Request, the Due Date Gets Pushed, but...
- You still owe outstanding taxes
- The tax must be paid by April 15, or penalties/interest will accrue
- If you cannot pay all/anything, consider requesting a time payment or offer in compromise. (Note: Expect an additional charge to set up a payroll deduction or direct debit agreement to pay off your tax bill.)
Your extension request is in. Now what?
If you need assistance with filing your tax return that is on extension or are considering extending a tax return in the next tax year, reach out to us. We can assist you with the process from start to finish.
Lower your Tax Liability with Deductions and Credits
Tax deductions and credits help taxpayers reduce their tax liability. The differences between the two are in their definitions:
- A tax deduction reduces your gross income and arises from a deductible expense. Taxpayers can take a standard deduction up front or itemize expenses.
- A tax credit is an amount of money applied directly to the tax liability. Tax credits are far less common.
About Tax Deductions
Say your adjusted gross income for 2014 was $75,000. If you filed jointly with a spouse and were born before January 2, 1950, your standard deduction would have been $14,800. You figure your income tax bill based on a reduced income of $60,200.
There are, however, other “above-the-line” deductions you can claim to lower the aforementioned $75,000 adjusted gross income. For tax year 2014, those deductions are listed on lines 16 through 21 on Form 1040A and lines 23 through 37 on Form 1040. Deductions common to both forms are:
- Educator expenses
- IRA deductions
- student loan interest payments
- tuition and fees
Taxpayers wanting to take advantage of business, health savings, moving, self-employment, alimony payments and other expenses, need to file Form 1040, fill out the additional IRS forms and hope for the best -- the “best” being avoidance of an IRS audit trigger.
The alternative to taking the standard deduction is to fully itemize your expenses for the tax year. To be worth the trouble, your itemized expenses must exceed the standard deduction. Attach Schedule A to Form 1040 to document the following:
- Medical and dental expenses that exceed 7.5% for seniors’ and 10% of younger taxpayers’ adjusted gross income
- State and local taxes
- Interest payments on home mortgages, etc.
- Charitable gifts of at least $250 in cash or $500 in other than cash
- Casualty or theft losses
- Unreimbursed job expenses
- Other miscellaneous deductions specified in the Schedule A instructions
If your adjusted gross income was not over $152,525 for 2014, your deduction was not limited. Wealthier taxpayers must use a worksheet that reduces the overall deduction that can be claimed.
About Tax Credits
If you can claim a tax credit (lines 31 through 38 on form 1040A and lines 48 through 54 on Form 1040), you can subtract that amount from the taxes you owe. It is a 100 percent, dollar-for-dollar tax relief, regardless of your taxable income. Tax credits for individual taxpayers are far less common and generally apply to the following:
- earned income tax credit
- education credits
- child and dependent care credits
- child adoption credits
- saver’s credits
Business tax credits, on the other hand, run the gamut from general business, investment, electric vehicle and other energy credits to mine rescue team training. The credits are designed, among other things, as incentives for community development, research and energy savings.
The Bottom Line:
For the average taxpayer, tax deductions lower the amount of income subject to federal income tax. Unless you have had large deductible expenses during the tax year, taking the standard deduction is the easiest way to complete your tax return. If you can qualify for a tax credit, which will apply dollar-for-dollar to reduce your tax bill, you can offset your tax liability.
Contact Dmitry Dukhon at Dukhon Tax to help you get organized, file your returns and answer any questions you may have. We can be an invaluable resource for you to make the process as smooth as possible.
Plan Ahead for Your 2015 Tax Filing
Experience can be a good teacher, but we shouldn’t learn everything through our mistakes. For example, if the IRS penalized you last April because you underpaid your taxes, you can fix that for this tax year. Consider having your employer deduct more from your wages, or at least going the estimated tax payment route.
We may be halfway through 2015 but there is still time for you to map out a strategy for this year. Here are 3 things you can start doing right now:
- Get organized.Getting organized might not cut your taxes, but good record keeping avoids the number 1 and number 2 hassles of tax preparation: 1) Bad records keeping makes it impossible to do a thorough and timely job on your tax return; and 2) The IRS requires documentation if you get audited.To get organized, at a minimum you should:
- keep last year’s tax return handy
- use personal finance software to keep track of tax-related income and expenditures
- throughout the year collect and group receipts and papers that affect your taxes and keep everything in a separate file
- safeguard the W-2s, 1099s, bank interest, mortgage statements, etc., that typically arrive in January
- plan to store your files for at least 3 years (7 years is optimum, since IRS audits can go back that far.)
- Itemize your tax deductions.
- Visit the IRS website and see Topic 500 - Itemized Deductions. You will need Form 1040, Schedule A and its accompanying instructions. Before you get to Schedule A, however, there are deductions like IRA contributions that don’t need to be itemized and can reduce your taxable income. You’ll find them in items 31 through 38 on IRS Form 1040A and 48 through 54 on Form 1040. For each deduction you’ll need to attach a corresponding IRS Form.Don’t forget to look into tax credits, which can also reduce your tax bill dollar-for-dollar. They are, however, less common than tax deductions.
- Gather the tax forms you need.
- Go right to the source on this one. The IRS has a complete catalog of forms and publications on its website. While there’s still time, it won’t hurt to review the forms and instructions for changes or additional documentation. Make a list of the forms you need; download them and shake your head in wonderment at the enormously complex tax code we live under.Above all, be on time.The end result of all that planning is that you have a complete and accurate tax return ready for submission on or before the tax-filing deadline. Even if unforeseen circumstances keep you from meeting the due date, you still must make a reasonable estimate of your tax liability and pay any balance due with your extension request. Even though the IRS holds all the cards, your ace in the hole will be your preparation and planning.…And Get Help.If after reading all the advice above, you’d rather leave tax planning to experts so that you can get on with your life and business, consider working with a knowledgeable tax advisor. Contact Dmitry Dukhon at Dukhon Tax to help you get organized, file your returns and answer any questions you may have. We can be an invaluable resource for you to make the process as smooth as possible.
Buying Time and Clearing up Your Tax Debt to the IRS
The IRS is like a collection agency on steroids. Each passing day that you owe back taxes accrues additional penalties and interest on the amount due. But you still have options -- a tax filing extension and installment plan, to name two -- if you want to avoid compounding your problems with ruinous IRS levies and liens.
The tax is due on April 15th, regardless
If your tax situation is so muddled or complicated that you cannot gather up what you need to file by April 15th, you can submit an extension request -- IRS Form 4868 -- online or by mail. Your new due date will be October 15th. However, filing the form does NOT EXTEND your due date to pay what you owe. According to a piece on the US TaxCenter website:
“[A] tax extension gives you more time to file your income tax return, but it does not extend the deadline …. This means that you need to know how much tax you owe and be ready to submit payment by April 15, whether or not you are requesting a tax extension.”
Consider filing your taxes on time if you can
So your best approach is that if you can meet the filing deadline, but don’t have the funds to pay your tax bill, file anyway. The penalty for failing to file is usually more than penalty for failing to pay your taxes. If the IRS judges that you used the extension request simply to kick the problem down the road, your request for an extension could be denied and you could be faced with additional penalties for failure to file.
Setting up a time payment plan for taxes
The good news is that according to the IRS, you can work out a monthly payment schedule through an installment plan. You are eligible for an extended time payment plan if:
- you owe no more than $50,000 in individual taxes
- you owe $25,000 or less in payroll taxes if you run a business
- have filed all required tax returns
Other conditions apply
The not-so-good news is:
- Setting up a payment schedule is not free. The IRS currently charges $120 to set up a standard agreement or payroll deduction plan -- $52 for a direct debit arrangement.
- Any future tax refunds will be applied to your debt until it is paid in full.
- You must pay your minimum monthly bill when it is due.
- You must also file future tax returns and pay all your taxes in full and on time.
To recap
So April 15th is when the IRS expects you to file your tax return and settle your tax bill. File an extension request if your situation is so complicated that you need time to gather the information you need for a complete and well-documented return. Otherwise, file on time and pay what you can and pay the rest later -- with penalties. If you want to avoid most or all of the late penalties, work out an installment payment schedule. The IRS will work with you.
Tom Brady Avoids Tax Penalty Associated with Giving Chevy to Malcolm Butler
When Chevrolet prepared to give a brand new 2015 Chevy Colorado to New England Patriots quarterback Tom Brady for being Super Bowl XLIX MVP, Brady did the honorable thing and said he would give it to cornerback Malcolm Butler instead. After all, it was Butler who intercepted a pass on the goal line to secure the Patriots' Super Bowl win. However, after considering the tax consequences of Brady giving away the vehicle himself, Chevy decided to give it directly to Butler instead, thus shifting the tax consequences to him.
You see, the IRS considers vehicles a taxable prize under the Internal Revenue Code, section 74. If Brady had received the vehicle and then given it to Butler, Brady would have had to pay $13,500 in income taxes just for receiving it (based on his 39.6 percent tax bracket). Brady would then have had to pay an additional $8,000 to cover the gift tax that the IRS charges when someone gives away items of value. The IRS allows individuals to give away money or property valued at $14,000 each year. If the item or monetary amount is higher than this and the giver must pay it. Now granted, money isn’t a problem for Tom Brady. Taxes in this case, however, would have been almost as much as a new vehicle. Since a new Chevy Colorado only costs $34,000, it begs the question of whether it’s worth it to go through the hassle of dealing with all of the IRS regulations related to gifting one. By giving the vehicle directly to Butler, the gift tax penalty was eliminated for Brady. Additionally, Butler is now the one who must pay income taxes on the vehicle.
It’s not the first time that this issue has arisen for Brady, a Super Bowl veteran. He also gave away the car he received for being the Super Bowl XXXVIII MVP to his high school, which raffled it off to raise money.
This story highlights the serious tax consequences that come with receiving a free gift, especially one valued at $35,000 like the Colorado in this story. While the average American won’t win a car, they do often give relatives property or money for down payments. This means that they are subject to the IRS’s gift tax and income tax regulations. However, there are ways to mitigate the tax implications of giving away high-value property or amounts. Those considering gifting large amounts should talk with a tax professional who can advise you on how to do it with the least amount of tax consequences.
Tax Filing Begins January 31st!
It's tax time again! We are looking forward to providing you with outstanding tax consulting and preparation services for the 2013 tax year filing period. We'd like to inform you of some resources available to help you organize your tax documents and schedule an appointment with us.
Tax Organizers
*These organizers are optional but are very helpful when gathering your tax information.
- Individual Extended Organizer (for lengthy returns) - Includes Tax Tips!
- Individual Short Form Organizer (for standard returns)
- Partnership or LLC Organizer
- S Corporation Organizer
- For other organizers, please submit a request on our website.
Options for Submitting Your Tax Information
- By Appointment - We invite you to schedule an appointment with us!
- Call us at 617 651 0531
- E-mail at [email protected]
- Submit an appointment request on our website and we will confirm within 15 minutes.
- Mail In - You may mail your tax documents and organizer to our office at:
Dukhon Tax and Accounting
60 Brighton Ave Suite A
Allston, MA 02134
- CLIENT PORTAL - You may use our secure client portal to submit your tax documents. The portal is an electronic file cabinet where you may upload your tax documents. It is safe and secure and will protect your data. Also, we will upload your tax returns and other documents for easy access any time in the future!
- To request access: E-mail [email protected] or submit a request through our website.
- To access the portal: Please login at Client Portal or just click the link in the banner above.
- Upload your documents and we will promptly prepare your return.
Tax Filing will begin on January 31st 2014. In most cases, you will be eligible for electronic filing of your return. This is the fastest and most accurate way to file your tax return. If you elect direct deposit of your refund, you can receive it in as little as 5 business days.
We look forward to speaking to you very soon! If you have any questions/concerns, please contact our office 617 651 0531 or [email protected].
Sincerely,
Dmitry Dukhon