Tag: tax season

Scam High Alert – It’s Tax Season

Tax filing season officially started last Monday. The race to meet the April 18 deadline is on! Scammers are on a deadline, too. Scam artists prey on their victims all year long, but cybercrime activity seems to spike during tax season. They just can’t resist all those opportunities to fool or intimidate taxpayers who are in the middle of an unpleasant task that makes them nervous and vulnerable, especially online. Consequently, the IRS advises taxpayers to be on Scam High Alert during this filing season.

Since 2014, the IRS has issued an annual list of the “Dirty Dozen” top tax scams. The list is based on actual scams reported to its investigative and law enforcement units. The top twelve for 2021include five scams that are more likely to occur during tax season, targeting taxpayers with malicious intent to steal their refunds, bank account number, or personal information. 

Here are five of the 2021 tax-related scams highlighted by the IRS:

  1. Fake Charities:

Criminals frequently exploit natural disasters and other times of crisis by setting up fake charities to steal from well-intentioned people trying to help in times of need. Unfortunately, this is nothing new. The current COVID-19 pandemic and recent natural disasters are examples where scammers take advantage of your compassion.

  1. Immigrant and Senior Fraud: 

IRS impersonators and other phone scammers are known to target vulnerable people, like those with limited English proficiency and senior citizens. These scams are often threatening in nature, like where a taxpayer receives a telephone call threatening jail time, deportation, or revocation of a driver’s license from someone claiming to be with the IRS.

3. Offer in Compromise Mills:

Misleading tax debt resolution companies can exaggerate the chance to settle tax debts for “pennies on the dollar” through an Offer in Compromise (OIC) for a hefty fee. Later, the taxpayer learns that she or he is not one of the small number of individuals who are qualified to even apply for an OIC, after the fee is paid and it’s too late.

4. Unscrupulous Return Preparers:

Most tax professionals provide honest, high-quality service, but dishonest preparers pop up every filing season. They commit fraud, harming innocent taxpayers, or talk taxpayers into doing illegal things, like inflating deductions. These scammers may also have taxpayers deposit refunds into tax preparer accounts.

  1. Unemployment Insurance Fraud: 

Unemployment fraud often involves individuals acting in coordination with or against employers and financial institutions to get state and local assistance to which they are not entitled. These scams include submitting fraudulent applications and using stolen or fake identification information to perpetrate an account takeover.

The IRS helps taxpayers to be on Scam High Alert all year round, but especially during tax filing season, by issuing its annual “Dirty Dozen” top tax scam list. To learn more about these scams for the 2021 filing season, check out the IRS website at https://www.irs.gov/newsroom/irs-dirty-dozen-list-warns-people-to-watch-out-for-tax-related-scams-involving-fake-charities-ghost-preparers-and-other-schemes.

Keeping Your Tax Information Secure

The IRS announced last week that the 2022 tax filing season starts on January 24th. Most people will not have all their necessary tax documents for 2021 by then, but it’s the first day that the IRS will accept and start processing income tax returns for last year. As you’re gathering those W-2s, 1099s, 1098s, P&Ls, and the rest of the alphanumeric “soup” that comprises your tax information, how are you keeping it secure?

Most taxpayers receive or download their tax documents electronically and save them in a folder on a home computer. While the “work at home” aspect of the pandemic shed light on the need for enhanced cybersecurity at home, tax time reminds us how important it is to protect against identity theft. The IRS collaborates with the tax software and preparer communities to secure the tax filing process. Taxpayers have a role in keeping their tax information secure, too.

Here are three tips from the IRS for taxpayers to protect online personal and financial data from identity thieves:

  1. Keep Your Computer and Mobile Phone Secure 

Use firewall and security software on every device that contains confidential information and set it for automatic updates. Use strong, unique passwords and consider using a password manager to keep it all straight. Implement Multi-Factor Authentication. Only give personal information over encrypted websites, those with a “https” address. Periodically back-up your data onto an external drive as an “insurance policy” against ransomware or a crashed drive.

  1. Avoid Phishing Scams and Malware 

Identity thieves use phishing emails to trick users into giving up passwords and other information. Don’t take the bait. Before opening messages in your inbox, look out for emails that pose as trusted source (e.g., your bank) and for emails with an urgent message (e.g., update your account now!) with a link or attachment. Never download software or apps from pop-up advertising. Talk to your family members who also go online (i.e., everyone) about online security, both with computers and mobile devices. 

  1. Protect Your Tax Return 

Taxpayers who can validate their identities can obtain an Identity Protection PIN. An IP PIN is a six-digit code that prevents an identity thief from filing a fraudulent tax return using your Social Security number. After the IRS issues an IP PIN, that taxpayer’s tax return cannot be filed without entering the IP PIN to “unlock” the taxpayer’s return for that year. Learn more about getting an annual IP PIN at www.irs.gov/ippin. 

The 2022 tax filing season starts next week, on January 24th. As you receive or download all the tax documents that comprise your tax information, how are you keeping them secure? The IRS has tips for taxpayers to keep their confidential tax and other financial information secure. Read all about it here at https://www.irs.gov/pub/irs-pdf/p4524.pdf.

2021 Tax Filing Starts February 12

Tax filing season officially starts for individuals on Friday, February 12th, when the IRS begins accepting and processing 2020 income tax returns. Ordinarily, tax filing starts in the third week of January. However, with all the last-minute tax changes in 2020, including a second round of Economic Impact Payments, the IRS needed extra time to update its systems.  

The IRS has already started begun accepting business returns and individual returns from taxpayers who are eligible to use IRS Free File partners (https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free). The IRS anticipates that nine out of ten taxpayers will receive their refund within 21 days of filing electronically if there are no issues with the tax return.

The IRS has five tips to avoid having issues with your return:

  • There is no extension of the April 15 tax filing deadline. If you need more time to file, you can extend filing until October 15, by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. But remember, it’s an extension of time to file, not to pay. Pay any taxes due with the extension request, no later than April 15.
  • Taxpayers are urged to file returns electronically as soon as they have the 2020 tax documentation that they need. Filing early is a good idea for several reasons. First, processing volumes are lower at the IRS and state tax agencies, resulting in faster refunds. Filing early also gets ahead of potential scammers filing a fraudulent tax return with a valid tax ID. 
  • Returns involving the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) need additional processing time to help the IRS stop fraudulent refunds and claims from being issued to identity thieves. By law, refunds for EITC and ACTC taxpayers cannot be issued before mid-February. Because the IRS isn’t processing returns until February 12, their refunds should start arriving in the first week of March.
  • Electronic tax refunds and payments are the safest and fastest method for financial transactions with federal and state tax agencies. Your tax preparer can usually set them up using authorized tax software. Tax agency websites include links for payments via bank account or credit card. However, these sites don’t have a refund option.
  • Advance stimulus payments, a.k.a. Economic Impact Payments, do not reduce a taxpayer’s refund or payment due for 2020. Eligible taxpayers who received less than the maximum stimulus payment amount could claim the Recovery Rebate Credit and increase her or his 2020 federal income tax refund. Anyone who received the maximum amount does not need to include any information about the payment when filing.

The IRS begins accepting and processing 2020 income tax returns on February 12, about three weeks later than usual because of last-minute tax law changes passed in December. Taxpayers who want a smooth tax filing experience should follow these five IRS tips.

New Tax Law Still Requires Patience

Top down view of a cluttered desk with hands folded showing a watch.
Photo by rawpixel on Unsplash

In January 2018, less than a month after the Tax Cuts and Jobs Act was passed, I blogged that we all need patience. “Less than a month after passing a new law is too soon for all the details and unintended consequences to be fully explained,” I said.

Little did I know back then that we would need so much patience now, a year after the law was enacted.

Many new tax law provisions became effective in 2018, making the 2019 tax filing season the first time that many taxpayers will be aware of how the tax law impacts her or him. Getting clarity about those impacts may not be quick or easy, especially for businesses. Figuring it out will take some patience, whether you prepare your own taxes or pay a tax professional to do it.

Tax filing season officially opened this week. The deadline to file or extend an individual return is April 15, new law or not. During those 12 weeks of tax filing season, the following people will need to show and be shown lots of patience:

  • Self-Preparers – Reading instructions not your thing? You could be sorry if you rush into preparing your 2018 taxes without slowing down and understanding the new rules. Approach your tax software as though it were the first time you’ve used it. Everything will look so different, you will want to take each step with patience and care.
  • Tax Professionals and Their Clients – Your tax preparer may ask new questions and require more documentation to ensure your returns are accurate and comply with all the new rules. She or he will also need to explain the new rules and why you may not get your expected refund. Those conversations could be more stressful than usual, so a bit more patience will be needed by all parties.
  • IRS Employees – If you need to call an IRS representative, please remember that this mess is not her or his fault. Plus, as of this writing, the federal government is partially shut down. That IRS employee could be working without pay. Demonstrating patience on the phone makes the situation more pleasant for everyone.

The 2019 tax filing season is going to be more stressful than usual because of the new tax law and its impact. Approaching your software, your tax professional and the IRS with some patience will go a long way to making the 2019 tax filing season as painless as possible.

What to Expect from a Tax Preparer

Changes to the tax law enacted in December 2017 means we’ll be dealing with a lot of new rules this filing season. Tax filing “simplification” means that all the individual forms for 2018 look different than ever before. As a result, more taxpayers than ever before could be looking for a tax preparer, even people who have always filed their own tax returns. But just any tax preparer isn’t good enough, especially this year!

You are responsible for the contents of your tax return, even if you pay someone to prepare and file it for you. It’s essential that you engage a qualified tax preparer who has the right experience and knowledge of your tax situation. The tax industry is unregulated; anyone can hang up her or his “Tax Preparer” shingle. So how do you find a qualified tax preparer to meet your needs?

First, get referrals from colleagues, family and friends about who prepares their taxes. Ask them why they like their tax preparer. Briefly interview two or three of the tax preparers that sound like a good fit, including these three questions:

How Do You Keep Up with Changing Tax Laws?

Tax laws are constantly changing, as we know. It’s important to work with a tax professional who keeps up, so you don’t have to. Your tax preparer should describe attending conferences, webinars, or other methods she or he uses to stay current.

What are Your Experience and Credentials?

Working with a credentialed tax professional, like an Enrolled Agent or Certified Public Accountant, provides confidence that your taxes are being prepared accurately. Also ask for examples of tax situations and complex issues where she or he has experience. The answers will indicate whether your needs will be addressed.

How Do You Communicate with your Clients?

Discuss whether the tax preparer meet regularly with clients, how confidential documents are shared and stored, and whether the person is available for you if a tax-related question or issue comes up outside of “normal” tax season. Make sure you feel comfortable with the tax professional’s style, manner and process.

It’s important to have a qualified tax preparer that is prepared to meet your needs. Feeling confident and comfortable with the answers to these three questions is a good sign that your taxes will be prepared accurately and consider all the new tax rules.

Make Next Tax Season Less Painful

Phew! Tax Filing Season 2017 is finally over! Well, how did it go for you? Painful? Long? Expensive?

 

Tax season’s end is the perfect time to look back at what went well and how to make next year go faster and easier. In short, less painful. Whether you prepare your own taxes or use a tax professional, you can take steps to reduce your pain and spend less time on your taxes.

 

Three tips will make next tax filing season much less painful:

 

Get Organized

Disorganized tax records means that getting ready to file takes hours away from enjoying your life. Not to mention the stress! Having a computerized or paper process is essential for getting organized. Scanning documents into folders or filing papers into an accordion folder puts everything you need at tax time in one place.

 

Know What to Keep

Use your 2016 tax return to identify the information you’ll need to accumulate during 2017 to prepare for next year. Will a life event in 2017 change your tax situation? Things like buying a home, starting a business, or getting married all impact your taxes. Find out what documents you’ll need for tax time next year.

 

Keep Records Up-to-Date

A big stack of papers waiting to be organized can be scary. Keep up with the paperwork and the task is easier to do. Not to mention how much easier it is to find information, because it’s right where you need it to be. Need pay stubs and account statements to apply for a loan? It’s all there, ready for you.

 

Make next tax filing season less painful, long and expensive by getting organized, knowing what to keep, and keeping up-to-date. You’ll be glad you did, next year and every year after that.