Beware of Bogus IRS Emails

Every tax-filing season, the scammers and ID thieves try to sucker people into providing personal and financial information through the use of phony e-mails.

The IRS receives thousands of reports every year from taxpayers who received emails out of the blue claiming to be from the IRS. Scammers use the IRS name or logo to make the message appear authentic in an effort to get you to respond and then to trick you into revealing your personal and financial information. The criminals use this information to commit identity theft or steal your money. It is a scam known as “phishing” and we do not want you to become a victim.

You should know that the IRS does not initiate contact with any taxpayer via e-mail or social media to request personal or financial information. If you should receive an e-mail claiming to be from the IRS or directing you to an IRS site, the first thing you should do is contact this office. But above all, DO NOT

• Reply to the message
• Open any attachments (attachments may contain malicious code that will infect your computer)
• Click on any links in a suspicious email or phishing website and enter your confidential information

Here are additional key points you should know about phishing scams:

• The IRS never asks for detailed personal and financial information like PINs, passwords, or similar secret access information for credit cards, banks, or other financial accounts.
• The address of the official IRS website is www.irs.gov. Do not be misled by sites claiming to be the IRS but ending in .com, .net, .org or anything other than .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the site.
• If you receive a phone call, fax, or letter in the mail from an individual claiming to be from the IRS, you should immediately contact our office before providing any information. You should do this whether you suspect the contact is legitimate or not. You can also contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you.
• You can help the IRS and other law enforcement agencies shut down these schemes. Visit the IRS.gov website for Reporting Phishing: http://www.irs.gov/uac/Report-Phishing to get details on how to report scams and helpful resources if you are the victim of a scam. You can report any bogus e-mails by forwarding a suspicious email to phishing@irs.gov.

Identity Theft is a Growing Problem—When a taxpayer’s ID has been stolen, the IRS will issue the individual a special number with which to file a return. The victim gets a new one each year for three years to provide time for the taxpayer to correct the ID theft damage. In 2012, the IRS issued 250,000 of these special numbers and for the 2013 filing season it issued 770,000—an increase of more than 300%. That is why it is so important for you to protect yourself from the nightmare of ID theft.

To learn more about how to protect yourself from ID theft, visit the following IRS webpages: Identity Protection Tips http://www.irs.gov/uac/Identity-Protection-Tips and Identity Protection Home Page http://www.irs.gov/uac/Identity-Protection.

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Checking the Status of Your Federal Tax Refund is Easy

If you already filed your federal tax return and are due a refund, you can check the status of your refund online.

Where’s My Refund? http://www.irs.gov/Refunds/Where's-My-Refund-It's-Quick,-Easy,-and-Secure. is an interactive tool on the IRS web site. Whether you split your refund among several accounts, opted for direct deposit into one account, or asked the IRS to mail you a check, Where’s My Refund? will give you online access to your refund information nearly 24 hours a day, 7 days a week.

If you e-file, you can get refund information 72 hours after the IRS acknowledges receipt of your return. Nine out of 10 taxpayers typically receive refunds in less than 21 days when they use e-file with direct deposit. If you file a paper return, refund information will be available within three to four weeks. When checking the status of your refund, have a copy of your federal tax return handy. To access your personalized refund information, you must enter:

• Your Social Security Number (or Individual Taxpayer Identification Number);
• Your Filing Status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er)); and
• The exact refund amount shown on your tax return.

Once your personal information has been entered, one of several responses may come up, including the following:

• Acknowledgement that your return was received and is in processing.
• The mailing date or direct deposit date of your refund.
• Notice that the IRS could not deliver your refund due to an incorrect address. You can update your address online using the Where’s My Refund? feature.

Where’s My Refund? also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues affecting your refund. For example, if you do not get the refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you can start a refund trace online.

Where’s My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader used with a Braille display and is compatible with different JAWS modes.

If you do not have Internet access, you can check the status of your refund by calling the IRS TeleTax System at 800-829-4477 or the IRS Refund Hotline at 800-829-1954. When calling, you must provide your Social Security Number (or your spouse’s), your filing status and the exact refund amount shown on your return.

IRS2Go is the IRS’ first smartphone application that let’s taxpayers check on the status of their tax refund. Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app.

Where’s My Refund? provides the most up-to-date information the IRS has. There’s no need to call the IRS unless Where’s My Refund? tells you to do so. Where’s My Refund? is updated every 24 hours – usually overnight -- so you only need to check once a day. Please call our office if you encounter problems.

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Individual Estimated Tax Payments for 2013 Start Soon

Our tax system is a “pay-as-you-go” system, and if your pre-paid amount is not enough, you become liable for non-deductible interest penalties. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. The primary among these include:

• Payroll withholding for employees;
• Pension withholding for retirees; and
• Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.

Determining how much tax to pre-pay through withholding and estimated tax payments has always been difficult, but thanks to Congress’ constant tinkering with the tax laws, ensuring there are no underpayment penalties or tax surprises when the tax return is prepared next year can be challenging.

There are several new tax laws and changes taking effect in 2013 that add complexity to estimating one’s tax liability including: higher ordinary tax rates, higher capital gains tax rates, the phase out of exemptions and itemized deductions for higher income taxpayers, the new 3.8% tax on net investment income and .9% increase in self-employment tax for upper-income self-employed individuals, not to mention myriad of extended and sun setting tax provisions.

When a taxpayer fails to prepay a safe harbor (minimum) amount, he or she can be subject to the underpayment penalty. This penalty is the short-term federal rate plus 3 percentage points and the penalty is computed on a quarter-by-quarter basis. So, even if you pre-pay the correct amount for the year, if the amounts are not paid evenly you could be subject to a penalty. Interestingly enough, withholding amounts are treated as paid ratably throughout the year, so taxpayers who are underpaid in the earlier part of the year can compensate by bumping up their withholding in the later part of the year.

Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (referred to as the de minimis amount), no penalty is assessed. In addition, the law provides “safe harbor” prepayments. There are two safe harbors:

1. The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty.
2. The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for a higher income taxpayer whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%.

Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can’t avoid the penalty under this exception.

However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.

If your state has a state tax, the state’s de minimis amount and safe-harbor percentage and amount may be different.

This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc.

If you have questions regarding your pre-payments or would like to review and adjust your W-4 payroll withholding, W-4P pension withholding, and estimated tax payments to provide the desired tax result for 2013, please give our office a call.

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Tax Breaks for Charity Volunteers

If you volunteer your time for a charity, you may qualify for tax breaks. Although no tax deduction is allowed for the value of services performed for a charity, some deductions are permitted for out-of-pocket costs incurred while performing the services. The normal deduction limits and substantiation rules also apply. The following are some examples:

• Away-from-home travel expenses while performing services for a charity, including out-of-pocket round trip travel cost, taxi fares, and other costs of transportation between the airport or station and hotel, plus lodging and meals are allowed at 100%. Unlike other areas of taxes, meals are not subject to the 50% limitation. These expenses are only deductible if there is no significant element of personal pleasure associated with the travel, or if your services for a charity do not involve lobbying activities. Any "significant element of personal pleasure" negates a deduction (i.e., not even partial deduction is allowed). Significant personal pleasure is assumed if the taxpayer has only minor duties and is not required to perform any duties for the charity for major portions of the away-from-home stay.
• The cost of entertaining others on behalf of a charity, such as wining and dining a potential large contributor are allowed at 100 % (but the cost of your own entertainment or meal is not deductible).
• If you use your car while performing services for a charitable organization, you may deduct your actual un-reimbursed expenses directly attributable to the services, such as gas and oil costs, or you may deduct a flat 14 cents per mile for the charitable use of your car. You may also deduct parking fees and tolls.
• You can deduct the cost of the uniform you wear when doing volunteer work for the charity, as long as the uniform has no general utility. The cost of cleaning the uniform can also be deducted.

No charitable deduction is allowed for a contribution of $250 or more unless the contribution is substantiated with a written acknowledgment from the charitable organization. To verify your contribution:

• Get written documentation from the charity about the nature of your volunteering activity and the need to pay for related expenses. For example, if you travel out-of-town as a volunteer, request a letter from the charity explaining why you're needed at the out-of-town location.
• Submit a statement of expenses if you are out-of-pocket for substantial amounts, and preferably, a copy of the receipts to the charity. Also, arrange for the charity to acknowledge the amount of the contribution in writing.
• Maintain detailed records of your out-of-pocket expenses, including receipts and a written record of the time, place, amount and charitable purpose of the expense.

Please call our office if you have questions related to your volunteer expenses or any other charitable contributions.

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Are You Collecting the Needed W-9s?

If you use independent contractors to perform services for your business or rental that is a trade or business, and you pay them $600 or more for the year, you are required to issue them a Form 1099 after the end of the year to avoid facing the loss of the deduction for their labor and expenses. (This requirement generally does not apply for payments made to a corporation. However, the exception does not apply to payments made for attorney fees and for certain payments for medical or health care services.)

It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later and have the total for the year exceed the $600 limit. As a result, you overlook getting the information needed to file the 1099s for the year. Therefore, it is good practice to always have individuals who are not incorporated complete and sign the IRS Form W-9 the first time you use their services. Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversights and protects you against IRS penalties and conflicts.

Many small business owners and landlords overlook this requirement during the year, and when the end of the year arrives and it is time to issue 1099s to contractors, they realize they have not collected the required documentation. Often it is difficult to acquire the contractor’s information after the fact, especially from those contractors with no intention of reporting the income.

IRS Form W-9, “Request for Taxpayer Identification Number and Certification” is provided by the government as a means for you to obtain the data required from your vendors in order to file the 1099s. It also provides you with verification that you complied with the law should the vendor provide you with incorrect information. We highly recommend that you have a potential vendor or independent contractor complete the Form W-9 prior to engaging in business with him or her.

If you have questions or need copies of the Form W-9, please call our office. Our office can also assist you with your 1099 filing requirements next January.

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Tax Filing Deadline Rapidly Approaching

Just a reminder to those who have not yet filed their 2012 tax return that April 15, 2013 is the due date to either file your return and pay any taxes owed, or file for the automatic six-month extension and pay the tax you estimate to be due.

In addition, the April 15, 2013 deadline also applies to the following:

• Tax year 2012 balance-due payments – Taxpayers that are filing extensions are cautioned that the filing extension is an extension to file, NOT an extension to pay a balance due. Late payment penalties and interest will be assessed on any balance due, even for returns on extension. Taxpayers anticipating a balance due will need to estimate this amount and include their payment with the extension request.
• Tax year 2012 contributions to a Roth or traditional IRA – April 15 is the last day contributions for 2012 can be made to either a Roth or traditional IRA, even if an extension is filed.
• Individual estimated tax payments for the first quarter of 2013 – Taxpayers, especially those who have filed for an extension, are cautioned that the first installment of the 2013 estimated taxes are due on April 15. If you are on extension and anticipate a refund, all or a portion of the refund can be allocated to this quarter’s payment on the final return when it is filed at a later date. Please call our office for any questions.
• Individual refund claims for tax year 2009– The regular three-year statute of limitations expires on April 15 for the 2009 tax return. Thus, no refund will be granted for a 2009 original or amended return that is filed after April 15. Caution: The statute does not apply to balances due for unfiled 2009 returns.

If our office is holding up the completion of your returns because of missing information, please forward that information as quickly as possible in order to meet the April 15 deadline. Keep in mind that the last week of tax season is very hectic, and your returns may not be completed if you wait until the last minute. If it is apparent that the information will not be available in time for the April 15 deadline, then let the office know right away so that an extension request, and estimate tax vouchers if needed, may be prepared.

If your returns have not yet been completed, please call right away so that we can schedule an appointment and/or file an extension if necessary.

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April 2013 Due Dates

April 2013 Individual Due Dates

April 10 - Report Tips to Employer

If you are an employee who works for tips and received more than $20 in tips during March, you are required to report them to your employer on IRS Form 4070 no later than April 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

April 15 - Individual Tax Returns Due

File a 2012 income tax return (Form 1040, 1040A, or 1040EZ) and pay any tax due. If you want an automatic six-month extension of time to file the return, please call our office.

Caution: The extension gives you until October 15, 2013 to file your 2012 1040 return without being liable for the late filing penalty. However, it does not avoid the late payment penalty; thus, if you owe money, the late payment penalty can be severe, so you are encouraged to file as soon as possible to minimize that penalty. Also, you will owe interest, figured from the original due date until the tax is paid. If you have a refund, there is no penalty; however, you are giving the government a free loan, since they will only pay interest starting 45 days after the return is filed. Please call our office to discuss your individual situation if you are unable to file by the April 15 due date.

April 15 - Household Employer Return Due

If you paid cash wages of $1,800 or more in 2012 to a household employee, you must file Schedule H. If you are required to file a federal income tax return (Form 1040), file Schedule H with the return and report any household employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2011 or 2012 to household employees. Also, report any income tax that was withheld for your household employees. For more information, please call our office.

April 15 - Estimated Tax Payment Due (Individuals)

It’s time to make your first quarter estimated tax installment payment for the 2013 tax year. Our tax system is a “pay-as-you-go” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. These include:

• Payroll withholding for employers;
• Pension withholding for retirees; and
• Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.

When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis.

Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than the $1,000 de-minimis amount, no penalty is assessed. In addition, the law provides "safe harbor" prepayments. There are two safe harbors:

• The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty.
• The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for higher-income taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%.

Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can't avoid the penalty under this exception.

However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than the 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.

This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call our office as soon as possible.

CAUTION: Some state de-minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.

April 15 - Last Day to Make Contributions

Last day to make contributions to Traditional and Roth IRAs for tax year 2012.

April 2013 Business Due Dates

April 15 - Social Security, Medicare and Withheld Income Tax

If the monthly deposit rule applies, deposit the tax for payments in March.

April 15 - Non-Payroll Withholding

If the monthly deposit rule applies, deposit the tax for payments in March.

April 15 - Corporations

The first installment of 2012 estimated tax of a calendar year corporation is due.

April 15 - Partnerships

File a 2012-calendar year return (Form 1065). Provide each partner with a copy of Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., or a substitute Schedule K-1. If you want an automatic 5-month extension of time to file the return and provide Schedules K-1 or a substitute Schedules K-1 to the partners, file Form 7004. Then, file Form 1065 and provide the K-1s to the partners by September 15.

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Tax Tips for Recently Married Taxpayers

If you got married during 2012, here are some post-marriage tips to help you avoid stress at tax time.

1. Notify the Social Security Administration − Report any name change to the Social Security Administration so that your name and SSN will match when filing your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security Card at your local SSA office. The form is available on SSA’s Web site, by calling 800-772-1213, or at local offices. Your income tax refund may be delayed if it is discovered your name and SSN don’t match at the time your return is filed.
2. Notify the IRS - If you have a new address, you should notify the IRS by sending Form 8822 Change of Address.
3. Notify the U.S. Postal Service - You should also notify the U.S. Postal Service when you move so that any IRS or state tax agency correspondence can be forwarded.
4. Review Your Withholding and Estimated Tax Payments - If both you and your new spouse work, your combined income may place you in a higher tax bracket, and you may have an unpleasant surprise when we prepare your return for 2012. On the other hand, if only one works, filing jointly with your new spouse can provide a significant tax benefit, enabling you to reduce your withholding or estimated payments. The fat is in the fire for 2012, but it may be appropriate to review your withholding (W-4 status) and estimated tax payments, if any, for 2013 to make sure you are not going to be under-withheld and set yourself up to receive bad news.

If you have any questions, please give our office a call.

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