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Is It Too Late to Find a Tax Preparer?

Tax filing season is here! Time to gather all your tax documents, hunker down and file your income tax returns before the deadline, April 15th. It’s a good idea to get started soon, especially if you think that you will need help from a tax preparer. Those folks (including me) are pretty darned busy this time of year. 

Piece of paper that says "TAX" with hand holding pen
Photo by rawpixel on Unsplash

When you are running against the tax deadline and you just can’t figure out how to file your return yourself, what can you do? Well, you can ask friends, hit the Internet or head to the local tax preparation office. But how can you feel confident that the tax preparer you find is qualified and can do what’s best for you (within the rules, that is)?

When “shopping” for a tax preparer, taxpayers should ask these three questions:

  • How Do You Keep Up with Tax Law Changes?

Tax laws are constantly changing. Some changes are major, as we saw two years ago with the Tax Cuts and Jobs Act. It’s important to work with a tax preparer who keeps up with all those changes, so you don’t have to. A qualified tax preparer will describe attending conferences, webinars, or other methods to stay current.

  • What Experience and Credentials Do You Have?

Tax preparation is an unregulated industry where anyone can participate, so asking about years of experience, training and education is essential. Preparers with professional credentials, such as a CPA or Enrolled Agent (EA), are required to complete annual continuing education requirements and to follow ethical and professional standards. 

  • How Do You Communicate with your Clients?

Does the tax preparer meet regularly with clients? Are meetings in person? Is she or he available to you if a tax-related question or issue comes up? Make sure you feel comfortable with the tax preparer’s style, manner and process. If not, keep looking. You’ll be sharing a lot of personal information so you must be comfortable.

It’s important to have a qualified and knowledgeable tax preparer that is up to date on the tax laws and is prepared to meet your needs. That starts with feeling confident and comfortable with the answers to these three questions. If you feel good about the answers, it’s a good sign that your tax preparation needs will be met. Still need help getting started? The IRS has a website for you with tips and tools – https://www.irs.gov/tax-professionals/choosing-a-tax-professional

IRS Impersonators and Other Scams

I recently collaborated with Arlington Community Federal Credit Union (ACFCU) to present a workshop at two local retirement communities. It was called called “IRS Impersonators and Other Scams: Tips to Identify and Avoid Them.” ACFCU and I recognized that retired individuals are targeted by scammers because they often have assets that attract thieves. 

IRS impersonators are in the news all the time, but they were just one example that we discussed of scammers who use technology to reach out and steal your money and confidential information. Other scams include callers impersonating the Microsoft Help Desk and Dominion Virginia Power – services that you don’t want to have a problem with.

We couldn’t possibly describe every scam. New scams are created all the time. In our workshop, we emphasized using healthy skepticism when your phone rings or when you get an email from an unknown (or even a known) sender. Tips that we shared to identify scams included:

  • Be skeptical of any contact that you did not initiate; if you want to verify, hang up and call the legitimate business, charity or tax agency.
  • If you answer and no one is there immediately, hang up.
  • Do not click on any links in unexpected emails or emails from unknown sources.
  • Look at the return email address and subject line and delete if they do not appear to be from a legitimate sender.
  • Any offer via email or phone that sounds too good to be true is likely a scam.

Email “phishing” scams are very popular because they can send huge volumes very quickly. To me, the most insidious phishing scams come from IRS imposters because hey, who isn’t afraid of the IRS? 

Protect yourself! Remember that the IRS does not send emails about your tax refund or sensitive financial information. Most IRS communication is still through the good old-fashioned USPS. If you receive an email claiming to be from the IRS that contains a request for delinquent tax balances or financial information, immediately do the following:

  1. Don’t reply, open any attachments or click on any links. 
  2. Visit the IRS’ identity protection page.
  3. Forward the email as-is to the IRS at [email protected]
  4. Delete the original email.

Tax scams are a year-round business, so taxpayers always need to be on-guard for IRS imposters. Need to report an IRS imposter? See Report Phishing and Online Scams for more details.

Tax Help for the Gig Economy

“Gig Economy” is in the news all the time these days. It’s also known as the sharing, on-demand or access economy. What does that term mean? The Gig Economy is a labor market that is made up of short-term contracts or freelance work as opposed to a traditional job as an employee. The Gig Economy can benefit workers and businesses by making work more adaptable to the needs of the moment and demand for flexible lifestyles. At the same time, the gig economy can come with significant downside risk, mostly for workers.

On an interesting side note, the term “Gig Economy” derives from a term used in the 1920s by jazz musicians as a shortened version of the word “engagement.” It now refers to any aspect of musical performance. More broadly, “gigging” means having paid work, often as a freelancer.

In effect, workers in a Gig Economy are more like entrepreneurs than traditional workers. While this may mean greater freedom of choice for the individual worker, it also means more responsibility. The security of a steady job with regular pay, benefits, and a daily routine is rapidly disappearing. Workers must take a much larger share of the economic responsibility for taxes, insurance and other financial obligations that employers usually take care of.

When it comes to taxes, there are a lot of rules and quite a bit to know. How can you keep up with it all? The Internal Revenue Service has created a new Gig Economy Tax Center on its website to help Gig Economy workers meet their tax obligations by getting the information to figure it out, all in one place. Whether renting out a spare bedroom or providing car rides, workers need to understand the rules so they can stay compliant with their taxes and avoid expensive surprises at tax filing time.

Educating Gig Economy workers about their tax obligations is vital because many don’t receive W-2s, 1099s or other information returns for their work in the Gig Economy. However, income from these sources is generally taxable, regardless of whether workers receive information returns or not. Workers who are gigging also need to know about the business expenses they can deduct to reduce their taxable business income.

The IRS’ Gig Economy Tax Center is designed to make it easier for taxpayers to find information about a variety of topics including filing requirements, quarterly estimated income tax payments, and deductible business expenses. But the information can still be daunting. Get help from a qualified tax professional if you don’t feel comfortable navigating it yourself. The IRS can help with that, too. https://www.irs.gov/tax-professionals/choosing-a-tax-professional

New Rules for IRAs

A few weeks ago, I blogged about the IRS rules for Required Minimum Distributions (RMDs) from traditional IRAs, 401(k) plans and other pre-tax retirement plans. Well, throw that one out. On December 20, 2019, the Setting Every Community Up for Retirement Enhancement Act (aka “Secure Act”) was signed into law. The Secure Act changed several important aspects of IRA distributions and contributions.

One thing hasn’t changed. The new tax law still doesn’t allow untaxed retirement money to remain untaxed indefinitely. RMDs, inherited IRAs and other distribution rules are intended to make sure that Uncle Sam gets his share of taxpayers’ pre-tax retirement savings. The Secure Act changes the timing of when Uncle Sam gets his share.

Here are three major changes from the Secure Act that should you know, even if you aren’t close to retirement age:

  • Required Minimum Distribution (RMD) Age Increase

Under prior tax law, RMDs had to begin no later than April 1 following the year in which a person turned age 70½. For taxpayers who were not already age 70½ by December 31, 2019, the age to start taking RMDs is extended to 72. Distributions don’t have to be postponed to 72; it’s just an option. What’s better – waiting or not – depends on individual circumstances.

  • Contribution Age Restrictions Repealed 

Before the Secure Act, workers over age 70½ were not eligible to make contributions to an IRA. That contribution age limit has been eliminated. Yea! Slight damper on that celebration, though – the same rules about who can and cannot deduct a traditional IRA contribution apply, regardless of age. 

  • Inherited IRA “Stretch Distributions” Eliminated for Non-Spouses

Traditional IRAs that are inherited by someone other than the owner’s spouse can no longer be distributed over the life of the beneficiary. Distributions now must be taken within a ten-year period after inheritance. This new rule eliminates the options for non-spouse beneficiaries to use inherited traditional IRAs as part of his or her own retirement planning.

Tax rules are always changing. The December 2019 Secure Act changed several rules about taking distributions from traditional IRAs, 401(k) plans and other pre-tax retirement plans. Sure¸ taxpayers still can’t allow untaxed retirement money to remain untaxed indefinitely. Conversely, the repeal of the age limit on IRA contributions and other changes could positively impact how retirement distributions are taxed.

Need help figuring out the new rules? Get detailed tax advice that fits your situation from a qualified tax professional. You can find one near you at https://www.irs.gov/tax-professionals/choosing-a-tax-professional.

New IRS Standard Mileage Rates for 2020

Do you use your personal vehicle for business, charitable, medical or moving purposes? If yes, you could qualify you for an income tax deduction. How much you can deduct and how you report the expense depends on your particular situation. The rules say that qualified deductible vehicle expenses can total the greater of actual expenses or a standard rate. Both expense options are based on the number of miles driven for business, charitable, medical or moving.

Most people choose to use the standard rate because it’s easier and usually results in a larger deduction amount. The standard mileage rate is determined each year by the Internal Revenue Service based on data about the cost of operating and maintaining a vehicle, including passenger cars, vans, pickups and panel trucks.

The IRS recently issued the new standard mileage rates for 2020 to calculate the deductible costs of operating a vehicle for business, charitable, medical or moving purposes. Beginning on January 1, 2020, the standard mileage rates were reduced or stayed the same. Here are the details:
 

  • 57.5 cents per mile driven for business use, down 0.5 cents from the rate for 2019,
  • 17 cents per mile driven for medical or moving purposes, down 3 cents from 2019, and
  • 14 cents per mile driven in service of charitable organizations. The charitable rate is set by statute and remains unchanged.

Even at the lower rates, that standard mileage rate can really add up. Remember that you always have the option of calculating the actual costs of using your vehicle instead of using the standard mileage rates. Also remember that you have to track your mileage by category (e.g., business and personal) for each vehicle no matter which method you use.

Taking vehicle deductions for business, charitable, medical or moving purposes involves a lot of tracking, but the effort can be worth it. There are apps you can put on your phone to help. Once you get your system down, you’ll see that those deductions can add up and reduce the bottom line on your tax bill.

Reflections for 2019 – Plans for 2020

The end of one year and the beginning of another is the perfect time to reflect on and celebrate business and personal accomplishments from 2019. Definitely take time to pause and savor your successes. Reflecting on the goals you achieved in 2019 is also a great time to plan for what you want to achieve in 2020. You know what they say…A goal without a plan is just a dream

Whether you are expanding, launching something new or maintaining the status quo, 2020 will be different than 2019. That means setting new goals and making a new plan. Start by identifying an overarching change or improvement you want by the end of the year. Want higher profits? Increased cash flow? Need a new worker employee or automation? 

Change and improvement don’t happen without a plan to get it done. Follow these three tips to establish a plan that will get you what you want to achieve in 2020:

  • Gather the Numbers

Quantify all the applicable aspects of your goals. This task will require some research and could entail making estimates and assumptions. For example, how much profit growth do you want to achieve? Can you express that growth in dollars and as a percentage? How much would a new worker or automation project cost? How much of that cost would be one-time and how much would be ongoing? The more numbers you can nail down, the better.

  • Be Realistic

Keep market conditions and your resource capacity in mind when setting growth and other goals. It’s important to be realistic in order to ensure that your goals are achievable. Setting unrealistic objectives is not only discouraging, it can result in allocating resources – aka time and money – on activities that are unlikely to succeed. Better to target those resources on realistic, achievable goals.

  • Adjust As Needed

No matter how well you research the numbers and focus on what’s realistic, any view of future events is imperfect. Market conditions and other factors that you depended on when setting your goals could change. Periodically assess progress on meeting your objectives. Are you on track? Why or why not? Based on those answers, you may need to make some adjustments to the goals that you set at the beginning of the year.

The end of 2019 is the perfect time to savor your successes and to plan for what you want to achieve in 2020. Don’t let your goals turn into the dreams you never achieved. Establish a plan for 2020 and turn those dreams into your reality. 

Experts Predict Phishing Scams to Increase in 2020

Hospitals, accountants, law offices and other businesses have volumes of juicy, valuable personal and confidential information in their computer systems. Human beings who are imperfect work in those businesses Cyber thieves know that, so they work every day to break into computer systems to steal valuable financial and personal data. One popular method is to send “phishing” emails with links that infect the user’s computer and all the systems it touches.

Man wearing a mask in dark room in front of computer

Experts are predicting that phishing scams will increase in the 2020s, probably because they are so successful. The Seventh Annual Edition of Experian’s 2020 Data Breach Industry Forecast includes some scary predictions about phishing scams and their potential impact. Hackers are going to new heights to steal and exploit the vulnerabilities that exist in today’s technology.

You can read details of Experian’s Forecast here – https://www.experian.com/data-breach/data-breach-industry-forecast. But what can you do to protect your business?

Here are five tips to secure your computer environment and protect your data:

  • Phishing emails – Never open an email from a suspicious source, click on a link in a suspicious email or open an attachment without scanning it first. Otherwise, you could be a victim of a phishing attack and your data could be compromised. Never click links within pop-up windows, download “free” software from a pop-up, or follow email links that offer anti-spyware software. The links and pop-ups could be installing the spyware that they claim to be eliminating. 
  • Two-Factor Authentication – Many email providers now offer two-factor authentication to add an extra layer of protection. Often, two-factor authentication means the returning user must enter username and password plus another step, such as entering a security code sent via text to a mobile phone. A thief might snag you username and password but it’s highly unlikely they also would have the mobile phone to receive the security code.
  • Backup software/services – Critical files on computers should routinely be backed-up to external sources, such as a cloud storage service or an external hard drive. Periodically verify that the files are backed up and can be retrieved. Backups give you assurance in the event your business is victim to a phishing scam.
  • Anti-Virus Software – Anti-virus software scans computer files or memory for certain patterns that may indicate the presence of malicious software or definitions of known malware from cyber criminals. Anti-virus vendors find new issues and update malware daily, so it is important that you have the latest updates installed on your computer by setting it to automatically receive the latest updates.
  • Firewalls – Firewalls provide protection against outside attackers by shielding your computer or network and preventing malicious software from accessing your systems. Firewalls can be configured to block data from certain suspicious locations or applications while allowing relevant and necessary data through. But remember, firewalls do not prevent attacks; they protect against malicious traffic (unless the user accidentally installs malware – see “phishing”).

Huge volumes of valuable personal and confidential data mean that hackers will go to new heights to steal and exploit the vulnerabilities in our systems through phishing emails and other tools. Following the five security tips above will help to secure your computer environment and protect your data from cyber scams.

Do You Have to Take an RMD for 2019?

Are you age 70½ years or older? If yes, you need to pay attention to the Required Minimum Distribution (RMD) rules for traditional IRAs, 401(k) plans and other pre-tax retirement plans. Tax law doesn’t allow your untaxed money to go untouched indefinitely. RMD rules are intended to make sure that Uncle Sam gets his share of at least some of what you saved for retirement. 

Even if you aren’t close to age 70½, it’s good to know these Four RMD Facts:

  • How is the amount of the Required Minimum Distribution (RMD) calculated?

An RMD is calculated separately for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy table published by the IRS. Life expectancy tables vary based on your individual situation, such as “Joint and Last Survivor,” “Uniform Lifetime” and “Single.”

  • When must I receive my RMD from my IRA?

You must take your first RMD for the year in which you turn age 70½. However, the first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year. 

  • What happens if a person does not take a RMD by the required deadline?

If an account owner fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. The additional tax is reported on IRS Form 5329Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with the federal tax return for the year in which the full amount of the RMD was not taken.

  • Can a person avoid taxes on her or his RMD?

Charitable donations can be made directly from a traditional IRA to save on taxes. People who are age 70½ and older can transfer up to $100,000 yearly from IRAs directly to charity. The IRA funds must go directly to a charitable organization. Make sure you get a receipt and an acknowledgement from the charity to substantiate your donation.

All of that information is not easy to absorb. No extra charge for reading the Four RMD Facts again. Still want to know more about RMDs and how to calculate them? Check out the IRS website at https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions#4.