Don’t Fall For IRS Impersonator Scams . . . Protect Your Identity This Year

Identity theft has become a massive problem for the federal government during the past few years. This affects your taxes when a criminal files a tax return using your social security number in order to claim a fraudulent tax refund. It should be noted that not every case of identity theft is a tax issue. If someone steals your credit card information, but doesn’t have access to your social security number, then that case would probably not become a tax issue at that time. However, you should take steps to ensure that no other information including your SSN does not become compromised. People can get your information thousands of different ways, but there are some things you can do to avoid identity theft.

http://ec.europa.eu/taxation_customs/taxation/tax_fraud_evasion/index_en.htm

If you didn’t know already, the IRS will NEVER contact you via phone or email. I repeat, NEVER. I don’t care if they sound like the most believable person ever. Hang up the phone and ignore them. If the IRS really needs to get a hold of you that badly, they will send you a notice. If someone contacts you via either of those mediums pretending to be an IRS employee, DO NOT give them any of your information. You should immediately send any suspected fraudulent emails to phishing@irs.gov. You should also report any scamming phone calls to the IRS at 1-800-366-4484 or you can report a scam online at the IRS Impersonation Scam Reporting.

One obvious red flag that your identity may have been stolen is if you file your tax return and you get a notice saying a return has already been filed for that social security number. If this occurs, you need to report this to the Federal Trade Commission. You should also contact one of the three large credit unions (Equifax, Experian, or TransUnion) to notify them of the fraud. Next you should fill out Form 14039 and return it to the IRS. You should also respond promptly to any notices you may receive from the IRS regarding the fraud. The longer you leave it alone, the more out of hand your situation will become. Lastly, you should always continue to file your tax returns. If you are a victim of fraud, they may require you to paper file your return. Event though this can be a pain, you still need to file it. Remember that interest and penalties can accrue on unpaid tax. While you may be able to get the penalties removed due to the fraud, the IRS does not normally waive interest accrued.

http://www.forbes.com/pictures/mjd45kmig/10-ways-to-become-a-victim-of-tax-identity-theft/

You can also get an Identity Protection PIN number to file with your tax return. This number helps ensure that your social security number will not be stolen or misused. A CP01F notice from the IRS invites you to get an IP PIN number because you could possibly be a victim of fraud. You are not required to get an IP PIN, but if you do, you cannot opt out in future years. The IRS will send you a CP01A notice with a new IP PIN number each year in December. If you have an IP PIN number you will file your return like you normally do, but you will simply include this number on your tax return. If you are required to have an IP PIN number because you previously opted to have one, your return will be rejected if you do not include this number on your tax return.

These are just a few steps and contacts to help you if you are ever caught in a fraud debacle. I won’t lie to you though. Dealing with the IRS when your social security number has been stolen is not a fun or easy task. It will be difficult, but if you nip it in the bud and take action as soon as possible, the process will be much less time-consuming and stressful. Have you ever had a problem with tax fraud? If so leave your comments below with any situations that could add additional information to this discussion!

Excited About That Tax Refund? Think Again.

It’s refund season, and while getting a tax refund seems exiting because you get a lump sum of cash, getting a refund is not necessarily a good thing. Of course you don’t want to owe a huge amount to the government either, but if you estimate your tax and subsequent withholding or payments correctly throughout the year, it is much more beneficial to owe a tiny amount or receive a tiny refund. Here’s why.

If you get a large refund, the government does not pay you interest on this money. Most people nowadays realize that a refund is simply an interest free loan that you gave to the government. The government charges you interest if you don’t pay your full tax liability by a specified time so it doesn’t make much sense to loan money to them without charging interest. The average return for 2014 so far is around $2,800 to $3,000. That is a good chunk of money that you could have spent on something else.

One obvious option is to save that money. Average savings account interest rates are around .06% which isn’t much but either way it would still be more than you’d be earning on your interest free loan to the government. However, it is possible to find accounts with very good interest rates all the way up to 1%. Banks such as Ally Bank or Synchrony Bank offer very high interest rates compared to the average. Throughout the year you could save you extra money in these accounts to earn interest. Additionally, you could put your money into CD which usually earns higher interest than a savings account. You could also invest in various stocks, municipal bonds, or savings bonds to name a few. All of these options could potentially increase you earnings without lifting a finger. It is kind of like getting free money! However, some options come with certain risks so it is important to determine the type of return you are hoping for with amount of risk you are willing to take.

Saving or investing your money is not the only option. You could also choose to pay of debts with you extra income. The average household credit card debt is approximately $15,000. In 2014, the average credit card interest rate was around 15%. However some credit cards can be in the 20% range. This means your credit card can accrue a huge amount of interest the longer it takes to pay it off. Instead of paying in unnecessary money to the government, you could put the extra money you have throughout the year to paying off your debts.

If you are fortunate enough to not have any debts like the rest of us do, and you feel that you save enough money already (there’s no such thing as too much saving, in my opinion!), you could buy that new outfit or gadget you have been wanting! Instead of waiting until the government decides to give you back your money, you could have your desired item much sooner! Lastly, if you are terrible at saving, and you’ll simply spend your money as soon as you see it, it may just be best to treat your refund as a savings account. This isn’t advisable since there are so many other options to earn a bigger return on your savings, but if you feel this is the best option for you, then go for it!

Leave comments below with any other ideas you may have!

Gambling Winnings and Losses . . . A New Election Potentially In Our Future

I live in Reno, Nevada, where gambling is very popular. While there are thousands of other things to do in and around Reno, gaming is still what people think of when they think “Nevada”. That is probably because there are casinos and slot machines EVERYWHERE; I’m not kidding, the slot machines are even in grocery stores. With the prevalence of gambling in this area, many people will be claiming winnings and losses on their tax returns. You didn’t think I’d lead you anywhere other than a tax subject, did you? First, we’ll go over how to record your winnings and losses on your tax return, and then I’ll tell you about a possible new election that you may want to make if you are an avid gambler.

http://www.casinocenter.com/helping-luck-along/

Winnings are claimed as “Other Income” on the face of your 1040, the front page of your tax return. Generally, if you win over $1,200 on one game or machine, you will receive a W-2G from the casino at which you won the money. This form simply shows how much you won, the date you won, and the type of game you were playing. These forms are given to you and are also sent to the IRS so they have this information. Therefore, if you don’t report this income, the IRS will know and you will be required to file an amended return in many cases. However, if you win a couple hundred bucks, the casino is not required to file a W-2G for you. Even though you don’t receive a form, it is your responsibility to keep track of all those winnings throughout the year and claim them on your tax return. Hiding this information from the IRS could get you in deep trouble so I’d advise just claiming the income and getting it over with. Also, if you have a lot of winnings, it is likely that you may have high losses as well which are also deductible on your return.

Your losses are claimed on Schedule A. This means, you can only claim your gambling losses if you itemize. If you use the standard deduction, you cannot claim your losses. If you don’t already know what the Schedule A is, click here, here, or here to read my other posts describing all aspects of Schedule A. Currently, there is no “lumping” allowed. This means if you win $5,000 and casino X, but lost $6,000 also at casino X, you cannot net the two together. You must report the income and deductions, in full. You cannot net them to a loss of $1,000 and report nothing on your tax return. However, this could possibly change.

The IRS has proposed a new safe harbor election related to gambling winnings and losses. This procedure only applies to electronically tracked slot machines which means you use a player’s card or another method for tracking your activity. This proposed procedure also specifically defines a “session of play” which has not been done previously. A session of play is defined as a full calendar day from 12 am to 11:59 pm. For example, if you walk into a casino at 1 pm and start playing a slot machine, leave at 4 pm, and come back at 6 pm to continue playing slots until 8 pm, that is all considered one session. If you play through the night until 2 am, 12 am to 2 am is considered a new session. Additionally, if you leave and go to another casino to gamble, that is considered a new session of play; one session of play cannot overlap between gambling establishments. This new procedure allows the taxpayer to net together gambling gains and losses in one session of play. For example, if you won $5,000 during one session of play as defined above, but spent $3,000 during that time, you would be permitted to net the two together and claim $2,000 in winnings on your return. Without using this election, you would be required to claim $5,000 in winnings and $3,000 in losses. The taxpayer still must keep very good records in order to substantiate their winnings and losses. As you can see, this election does not affect other types of gambling such as lottery, horse races, etc. If this proposed election is approved, it will go into effect for the tax year beginning January 1, 2016. Click here to see the full, official proposal

Leaves any questions you may have below, and stay tuned to The Tax Bleep for more important updates!

Set Your Standards High

Your standard deduction, that is. Your standard deduction is the amount that can be deducted from your income if you do not have enough itemized deductions (keep tuning in to The Tax Bleep to learn all about Schedule A and itemized deductions). This number goes on Line 40 of Form 1040. The standard deductions are as follows:

Filing Status                                               Standard Deduction

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Single, Married Filing Separately                   $6,200

Married Filing Jointly                                       $12,400

Head of Household                                            $9,100

Not everyone will use schedule A because sometimes the standard deduction is higher than all of the amounts you spend on other deductions combined. For instance, a single person who has no children, is a renter, and is fairly healthy, might spend $200 out of pocket for medical expenses the whole year, and pay no property taxes or mortgage interest (which tend to be the biggest deductions). That person’s itemized deductions would not even total $1,000. Therefore, the standard deduction of $6,200 for a person with a filing status of “single” would be the most beneficial option.

If you are a dependent, however, your standard deduction may change. This is relevant for many young people who are supported by their parents throughout college. The minimum standard deduction would be $1,000 for that dependent person. Here is an example of how your standard deduction might change:

Bobby is a sophomore at A+ University. He has a part-time job, but his parents provide most of his support so he is claimed as a dependent on their return. If Bobby makes more than a certain amount of money in a year, he is required to file a tax return, but even if he is not required to file, he may still want to in order to receive a refund of some of the federal tax withheld from his paycheck. In 2014, Bobby made $400 during the year. Add $350 to his wages for a total of $750. Since this number is less than the minimum standard deduction of $1,000, he would take a standard deduction of $1,000.

However, say Bobby made $1,000 of income during 2014. Add $350 to this for a total of $1,350. This number is greater than $1,000 but less than the standard deduction of $6,200 for a single person. Therefore, Bobby would take $1,350 as his standard deduction.

The standard deduction would also veer from the normal standard deduction if you are blind and/or were born before January 2, 1950. This date will change each year. See an alternative worksheet if either of these apply to you.

Continue tuning into The Tax Bleep to learn when it is better to itemize your deductions instead of taking the standard deduction. Have a great week!