While The IRS, state tax agencies and numerous people in the tax and accounting industry are working together to warn tax professionals and their clients about phishing scams, they are still all too common. Here’s what you need to know about the two most recent scams: fake charities that take advantage of people’s generosity during times of natural disasters and IRS/FBI-themed ransomware.

Fake Charity Scams Relating to Hurricane Harvey

With Houston still reeling from the devastating effects of Hurricane Harvey, many people are wondering how they can help. One of the best ways to do this is by donating to a charity that helps victims affected by natural disasters. Unfortunately, however, due to the prevalence of tax scams, taxpayers need to make sure the organization they donate to is not a fake charity set up by unscrupulous criminals looking to make a fast buck or get people’s personal information.

How the Fake Charity Scam Works

These types of fraudulent schemes usually involve contact by telephone, social media, email or in-person solicitations. Criminals typically send emails that steer recipients to bogus websites that appear to be affiliated with legitimate charitable causes. These sites frequently mimic the sites of, or use names similar to, legitimate charities, or claim to be affiliated with legitimate charities in order to persuade people to send money or provide personal financial information that can be used to steal identities or financial resources.

What to Watch out for

Follow these tips if you want to make a disaster-related charitable donation but avoid falling victim to scam artists:

• Donate to recognized charities. IRS.gov has the tools people need to quickly and easily check the status of charitable organizations.
• Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. The IRS website at IRS.gov has a search feature, “Exempt Organizations Select Check” which people can use to find qualified charities; donations to these charities may be tax-deductible.
• Don’t give out personal financial information–such as Social Security numbers or credit card and bank account numbers and passwords–to anyone who solicits a contribution. Scam artists may use this information to steal a donor’s identity and money.
• Never give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the donation.
• Consult IRS Publication 526, Charitable Contributions, available on IRS.gov. This free booklet describes the tax rules that apply to making legitimate tax-deductible donations. Among other things, it also provides complete details on what records to keep.

Taxpayers suspecting fraud by email should visit IRS.gov and search for the keywords “Report Phishing.” More information about tax scams and schemes may be found at IRS.gov using the keywords “scams and schemes.” Details on available relief can be found on the disaster relief page on IRS.gov as well.

Don’t hesitate to call the office if you have any questions or concerns or believe you have been a victim of a fake charity scam.

IRS/FBI-Themed Ransomware Scams

There’s also a new phishing scheme that impersonates the IRS and the FBI as part of a ransomware scam to take computer data hostage. The scam email uses the emblems of both the IRS and the Federal Bureau of Investigation. It tries to entice users to select a “here” link to download a fake FBI questionnaire. Instead, the link downloads a certain type of malware called ransomware that prevents users from accessing data stored on their device unless they pay money to the scammers.

What to do if you are a Victim of a Ransomeware Scam

Do not pay a ransom. Paying it further encourages the criminals, and frequently the scammers won’t provide the decryption key even after a ransom is paid. Victims should immediately report any ransomware attempt or attack to the FBI at the Internet Crime Complaint Center (www.IC3.gov). Forward any IRS-themed scams to phishing@irs.gov. For more information about IRS Tax Scams and Consumer Alerts visit the IRS website

People should stay vigilant against email scams that try to impersonate the IRS and other agencies that try to lure you into clicking a link or opening an attachment. As a reminder, the IRS does not use email, text messages or social media to discuss personal tax issues, such as those involving bills or refunds.

If you believe you’ve been a victim of a ransomware scam or any other IRS-related scam, please call the office for assistance.

• By Leon Clinton
• September 7, 2017

Uber, Lyft, Airbnb, Etsy, Rover, TaskRabbit. If you’ve used any of these services–or provided services for them to others–you’re a member of the sharing economy.

If you’ve only used these services (and not provided them), then there’s no need to worry about the tax implications but if you’ve rented out a spare room in your house through a company like Uber or Airbnb then you’re probably collecting a fee–a portion of which goes to the provider (in this example, Airbnb) and a portion that you keep for providing the service. But whether it’s your full-time gig or a part-time job to make some extra cash, you need to be aware of the tax consequences.

Millennials are the number one users of the sharing economy but Gen X and Boomers use it too; and a recent PWC study found that 24 percent of boomers, age 55 and older, are also providers. While many people are looking to earn a bit of extra income, some dive into it full-time hoping they can make a living, and still, others simply enjoy meeting new people or providing a service that helps people. What most people don’t realize is that this extra cash could impact their taxable income–especially if they have a full-time job with an employer.

In other words, that extra income might turn into a tax liability once you figure out your tax bill. To avoid surprises at tax time, it’s more important than ever to be proactive in understanding the tax implications of your new sharing economy gig and seek the advice of a competent tax professional.

Tip: If you have a job with an employer make sure your withholding reflects any extra income derived from your side gig (e.g. boarding pets at your home through Rover or driving for a ride-share company like Uber on weekends). Use Form W-4, Employee’s Withholding Allowance Certificate, to make any adjustments and submit it to your employer who will use it to figure the amount of federal income tax to be withheld from pay.

New Business Owner

While you may not necessarily think of yourself as a newly self-employed business owner, the IRS does. So, even though you work through a company like Airbnb or Rover, you are considered a business owner and are responsible for your own taxes (including paying estimated taxes if you need to). It’s up to you to keep track of income and expenses–and of course, to keep good records that substantiate your income and expenses (more on this below).

Note:If you receive income from a sharing economy activity, it’s generally taxable even if you don’t receive a Form 1099-MISC, Miscellaneous Income, Form 1099-K, Payment Card and Third Party Network Transactions, Form W-2, Wage and Tax Statement, or some other income statement.

And now, for the good news. As a business owner, you are entitled to certain deductions (subject to special rules and limits) that you cannot take as an employee. Deductions reduce the amount of rental income that is subject to tax. You might also be able to deduct expenses directly related to enhancements made exclusively for the comfort of your guests. For instance, if you rent out a room in your apartment through Airbnb, amounts you spend on window treatments, linens, or even a bed, could be deductible.

Pitfalls: It’s more complicated than it seems

At first glance renting out a spare room through Airbnb or pet sitting through Rover seems like an easy thing to do, but as with most things, it’s more complicated than it seems and you’ll need to keep an eye out for the following pitfalls:

• • Insurance requirements
  • Business license registration (state or municipal)
  • Room and lodging, or tourist taxes

Many municipalities charge room, occupancy, or tourist taxes on the amount of rental paid for short term stays (less than 30 days). Noncompliance may result in penalties, fees, and payment of back taxes owed.

• • Failure to set aside money for taxes and/or estimated tax payments

Estimated tax payments apply toward both income tax and self-employment tax (Social Security and Medicare). If you don’t pay enough tax, through either withholding or estimated tax (or a combination of both) you may have to pay a penalty. Estimated tax payments are due quarterly. The payment of estimated tax for the income for the first quarter of the calendar year (that is, January through March) is due on April 15. Payments for subsequent quarters are due on June 15, September 15 and January 15. If you don’t pay enough by these dates you may be charged a penalty even if you’re due a refund when you file your tax return.

Tip: If you also work as an employee, you can often avoid needing to make estimated tax payments by having more tax withheld from your paycheck.

• • Not receiving Forms 1099-MISC or 1099-K from a company you provide services for

As a sole proprietor, you may receive a Form 1099-MISC (employees receive a Form W-2) or a 1099-K. Form 1099-K, Payment Card and Third Party Network Transactions, is an information return that reports the gross amount of reportable payment card and third party network transactions for the calendar year to you and the IRS. If you receive a Form 1099-K, you should retain it and use the information reported on the Form 1099-K in conjunction with your other tax records to determine your correct tax.

• • Renting out a home for more than two weeks

If you rent your home out for 15 days or more during a calendar year and you receive rental income for the use of a house or an apartment, including a vacation home, that rental income must be reported on your return in most cases. You may deduct certain expenses such as mortgage interest, real estate taxes, maintenance, utilities, and insurance and depreciation, that reduce the amount of rental income that is subject to tax.

If you use the dwelling unit for both rental and personal purposes, you generally must divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. You won’t be able to deduct your rental expense in excess of the gross rental income limitation.

Tip: Generally, if you rent out your home for less than 15 days, then you do not need to report any of the rental income and you don’t deduct any expenses as rental expenses.

Recordkeeping

It’s important to keep good records and to choose a recordkeeping system suited to your business that clearly shows your income and expenses. The type of records you need to keep for federal tax purposes depends on what kind of business you operate; however, at a minimum, your recordkeeping system should include a summary of your business transactions (i.e. income and expenses) using a cash basis of accounting. Your records must also show your gross income, as well as your deductions and credits.

Tax Rules are Complicated: Don’t get Caught Short

If you have any questions or would like more information about the sharing economy and your taxes, please contact the office.

• By Leon Clinton
• September 5, 2017

September 11

Employees Who Work for Tips – If you received $20 or more in tips during August, report them to your employer. You can use Form 4070.

September 15

Individuals – Make a payment of your 2017 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment date for estimated tax in 2017.

Partnerships – File a 2016 calendar year income tax return (Form 1065). This due date applies only if you were given an additional 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1065) or a substitute Schedule K-1.

S corporations – File a 2016 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you made a timely request for an automatic 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1.

Electing Large Partnerships – File a 2016 calendar year income tax return (Form 1065-B) and pay any tax due. This due date applies only if you timely requested an automatic 6-month extension. Otherwise, see March 15. Provide each partner with a copy of Schedule K-1 (Form 1065-B) or a substitute Schedule K-1.

Corporations – Deposit the third installment of estimated income tax for 2017. A worksheet, Form 1120-W, is available to help you make an estimate of your tax for the year.

Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in August.

Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in August.

• By Leon Clinton
• September 2, 2017