Texting Scams on the Rise

I’ve posted blogs to warn readers of email scams, ransomware, IRS impersonator calls, and other methods that criminals use to get your money or your personal information. Well, if scammers can’t get your valuables one way, they try another. Last month, the IRS issued a warning to taxpayers that IRS-themed texting scams are on the rise, aimed at stealing personal and financial information.

So far in 2022, the IRS has identified and reported thousands of fraudulent domains tied to multiple MMS/SMS/text scams (known as smishing) targeting taxpayers. Smishing campaigns target mobile phone users, and the scam messages often look like they’re coming from the IRS, offering lures like fake COVID relief, tax credits or help setting up an IRS online account. 

In recent months, and especially in the last few weeks, IRS-themed smishing has increased exponentially. In the latest activity, the scam texts often ask taxpayers to click a link where phishing websites will try to collect their information or potentially send malicious code onto their phones. The IRS has taken numerous steps to warn people of this ongoing threat, including posting a video about how to avoid IRS text message scams.

So, what can you do to defend yourself against all that smishing? Your phone is only as safe as your security practices. All it takes is one click to open the door to a scammer masquerading as a trusted sender. 

Believe it or not, these four no-cost tips can help you avoid falling for a smishing scam:

  1. Scrutinize all electronic requests for a payment or fund transfers, even from a trusted party.
  1. Ignore text messages, emails, or phone calls asking you to update or verify your account information and go to the company’s website to see if something needs your attention.
  1. Never click on links or open attachments embedded in a text unless you are expecting it from a known, trusted source.
  1. Be extra suspicious of messages that urge immediate action.

If scammers can’t get you one way, they try another, like your smartphone. Consequently, testing scams are on the rise. The IRS is warning taxpayers about an increase in IRS-themed texting scams to steal your personal and financial information. Thousands of taxpayers have been victims to this scam so far in 2022. Following the four no-cost tips listed above will help you avoid falling for a smishing scam.

Finding a Tax Preparer for Next Filing Season

The chill of fall is in the air and it’s time to buy Halloween candy. Before you know it, 2022 will be over and the April tax filing deadline will be looming. The way time is flying, it’s not too early to look for a tax preparer for the next filing season, assuming that you don’t have a tax pro already. There are many tax professionals to choose from, but it’s a challenge to make sure you find someone who is knowledgeable, experienced, and dependable. You also want someone with whom you feel comfortable confiding your financial details.

So, how do you find a tax preparer for next filing season? You can ask friends, hit the Internet, or head to the local tax preparation office. Plan to interview two or three recommended tax preparers, starting with these four questions:

  1. How Do You Keep Up with Tax Law Changes?

Tax laws are constantly changing. We saw it a few years ago with the 2017 Tax Cuts and Jobs Act, and more recently with the COVID relief laws. 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.

  1. 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 are essential. Preparers with professional credentials, such as a CPA or Enrolled Agent (EA), are required to complete annual continuing education requirements and follow ethical and professional standards. 

  1. How Do You Communicate with your Clients?

Does the tax preparer meet regularly with clients? 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.

  1. Are You Available After the Tax Deadline?

Make sure the preparer is available. Some tax preparers only work on a seasonal basis. Taxpayers should consider whether the tax return preparer will be around after the filing deadline has passed. Taxpayers should do this because they might need the preparer to answer questions about the preparation of the tax return.

If you feel the chill in the fall air, it’s just a few months until next tax filing season. Need help finding a tax preparer to help you out? The IRS has a website for you with tips and tools – https://www.irs.gov/tax-professionals/choosing-a-tax-professional and a directory of federal tax return preparers with credentials and specified qualifications – https://irs.treasury.gov/rpo/rpo.jsf.

IRS Increases Focus on Cryptocurrency Transactions

It’s impossible to miss advertisements or news headlines urging you to get on the cryptocurrency bandwagon. Or, alternatively, warning you about the risks of trading in crypto. Whether you’re excited or scared by cryptocurrency, the IRS defines it as an asset that is subject to the same capital gains and loss rules as a security. That means that if you sell cryptocurrency or receive it in payment for goods or services, you are required to report that transaction on your income tax return. Oh, and pay income taxes on the income.

You’ve been required to answer a question about cryptocurrency transactions on your tax return since 2019. IRS forms for 2022 ask for more information about receiving, selling, or exchanging crypto to help the tax agency track down taxpayers who should be reporting income or capital gains. They are also ramping up investigations of customer records from digital currency brokers. So much for crypto being anonymous and untraceable!

Last month, there was an enthralling article from CNBC.com about how the IRS is making cryptocurrency reporting compliance a high priority. In 2021, Congress passed the $1.2 trillion bipartisan infrastructure law, with a provision requiring tax reporting for digital currency brokers starting in 2023. The IRS will use that information to match against tax returns filed by applicable crypto customers. It’s beyond likely that some of the funds from the recently passed Inflation Reduction Act of 2022 will augment the IRS’ resources to do all that matching and following up on unpaid taxes.

Regardless of which companies report activity to the IRS, you should be proactive about reporting any cryptocurrency income. That includes this year and any past year when you sold, exchanged, or received cryptocurrency. If you haven’t reported cryptocurrency income on past tax returns, you should take corrective action ASAP. It’s much better to come forward and file an amendment than for the IRS to audit you for not reporting crypto. It’s also a good idea to consult a qualified tax professional.

If you want more details about IRS actions to track down taxpayers who have not reported cryptocurrency transactions on their tax return, read the full article here. It’s worth the time. https://www.cnbc.com/2022/09/26/what-the-latest-irs-crypto-tax-records-summons-means-for-investors.html

Want to know more about how the IRS defines cryptocurrency? Check out their link here. It goes into a lot of detail about reporting requirements that could come in handy after you read the CNBC.com article. https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies

Tax Checklist for Closing a Business

Some businesses are considering permanently closing their doors because of persistent inflation on top of more than two years of COVID-19. Results from a June 2022 survey conducted by Digital.com of 1,000 small businesses with 500 or fewer employees show that inflation – and rumblings of a recession – are making about 65% of small businesses look seriously at closing their business.

Closing a business is a tough decision that creates a lot of work. That includes a “Tax Checklist” of responsibilities to alert the IRS and others not to expect more money or reporting from your business. Figuring it all out can be confusing. Fortunately, the IRS has a webpage to help business owners and self-employed individuals navigate tax steps when closing a business, including instructions, links, and forms for:

  1. Filing a Final Return and Related Forms

You must file a final return for the year you close your business. The type of return you file and related forms you need will depend on the type of business you have (e.g., sole proprietor or partnership). 

  1. Take Care of Your Employees

If you have employees, you must pay them any final wages owed, make final federal tax deposits, and report employment taxes. You must also provide an IRS Form W-2, Wage and Tax Statement, to each employee. 

  1. Pay the Tax You Owe

Whether it’s by check or online, all income and employment taxes must be paid in full. 

  1. Report Payments to Contract Workers

If you have paid any unincorporated contractors at least $600 during the calendar year in which you close your business, you must report those payments on IRS Form 1099-MISC.

  1. Cancel Your EIN and Close Your IRS Business Account

The employer identification number (EIN) assigned to your business is the permanent federal taxpayer identification number for that business. The IRS will not close your business account until you have filed all necessary returns and paid all taxes.

  1. Keep Your Records

How long you need to keep your business records depends on the type of document. Generally, tax records should be kept for four years, and copies of tax returns should be kept permanently.

If inflation is making you think about whether to continue or close your business, a Tax Checklist will help identify tasks that need to be done. No matter your business type, the IRS’ “Closing a Business” webpage https://www.irs.gov/businesses/small-businesses-self-employed/closing-a-business will help you navigate what to do after making the tough decision to close.