Month: January 2019

The 2019 tax season is quickly approaching and with it an increase in identity theft and W-2 scams. Small business identity theft is big business for identity thieves. Just like individuals, businesses may have their identities stolen, and their sensitive information used to open credit card accounts or used to file fraudulent tax returns for bogus refunds.

Furthermore, employers also hold sensitive tax data on employees, such as Form W-2 data, which also is highly valued by identity thieves and often used to file fake tax returns. Therefore, it is important for small businesses to take some important steps to protect themselves and their employees.

Stolen Employer Identification Numbers (EINs) have long been used by identity thieves to create fake Forms W-2 that they would file with fraudulent individual tax returns. Fraudsters also use EINs to open new lines of credit or obtain credit cards and are now using company names and EINs to file fraudulent returns.

The fraudulent filings apply to partnerships as well as estate and trust forms and the IRS has identified an increase in the number of fraudulent Forms 1120, 1120S and 1041 as well as Schedules K-1.

Signs of Potential Identity Theft

Businesses, partnerships and estate and trust filers should contact the IRS if they experience any of the following:

• Extension to file requests are rejected because a return with the Employer Identification Number or Social Security number is already on file.
• An e-filed return is rejected because a duplicate EIN/SSN is already on file with the IRS.
• An unexpected receipt of a tax transcript or IRS notice that doesn’t correspond to anything submitted by the filer.
• Failure to receive expected and routine correspondence from the IRS because the thief has changed the address.

Be on Guard against W-2 scams

Both public and private sector employers are targets for these W-2 scams, which in recent years have become one of the more dangerous email scams for tax administration. These emails appear to be from an executive or organization leader to a payroll or human resources employee. It may start with a simple, “Hey, you in today?” and, by the end of the exchange, all of an organization’s Forms W-2 for their employees may be in the hands of cybercriminals—putting workers at risk for tax-related identity theft.

Because payroll officials believe they are corresponding with an executive, it may take weeks for someone to realize a data theft has occurred. Generally, the criminals are trying to quickly take advantage of their theft, sometimes filing fraudulent tax returns within a day or two.

This scam is such a threat to taxpayers that the IRS has established a special reporting process.

Reporting Fraud Schemes:

1. Email dataloss@irs.gov to notify the IRS of a W-2 data loss and provide contact information. In the subject line, type “W2 Data Loss” so that the email can be routed properly. Do not attach any employee personally identifiable information data.

2. Email the Federation of Tax Administrators at StateAlert@taxadmin.org to get information on how to report victim information to the states.

3. Businesses/payroll service providers should file a complaint with the FBI’s Internet Crime Complaint Center (IC3.gov). Businesses/payroll service providers may be asked to file a report with their local law enforcement agency.

4. Notify employees so they may take steps to protect themselves from identity theft. The Federal Trade Commission’s www.identitytheft.gov provides guidance on general steps employees should take.

5. Forward the scam email to phishing@irs.gov.

Steps Employers can take to Protect Sensitive Information

Employers are urged to put steps and protocols in place for the sharing of sensitive employee information such as Forms W-2. One example would be to have two people review any distribution of sensitive W-2 data or wire transfers. Another example would be to require a verbal confirmation before emailing W-2 data. Employers also are urged to educate their payroll or human resources departments about these scams.

Don’t hesitate to contact the office if you believe you were a victim of identity theft or any other tax scam. Help is just a phone call away.

• By Leon Clinton
• January 18, 2019

If you’ve lost your job you may have questions surrounding unemployment compensation, severance, and other issues that could affect your tax situation. Here are some answers:

Q: What if I receive unemployment compensation?

A: Unemployment compensation you receive under the unemployment compensation laws of the United States or of a state are considered taxable income and must be reported on your federal tax return. If you received unemployment compensation, you will receive Form 1099-G, Certain Government Payments (Info Copy Only), showing the amount you were paid and any federal income tax you elected to have withheld.

Types of unemployment benefits include:

• Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
• Railroad unemployment compensation benefits
• Disability payments from a government program paid as a substitute for unemployment compensation
• Trade readjustment allowances under the Trade Act of 1974
• Unemployment assistance under the Disaster Relief and Emergency Assistance Act

You must also include benefits from regular union dues paid to you as an unemployed member of a union in your income. However, other rules apply if you contribute to a special union fund and your contributions are not deductible. If this applies to you, only include in income the amount you received from the fund that is more than your contributions.

Q: Can I have federal income tax withheld?

Yes, you can choose to have federal income tax withheld from your unemployment benefits by filling out Form W-4V, Voluntary Withholding Request. If you complete the form and give it to the paying office, they will withhold tax at 10 percent of your payments. If you choose not to have tax withheld, you may have to make estimated tax payments throughout the year and you may owe tax when you file your tax return in April.

Q: What if I lost my job?

A: The loss of a job may create new tax issues. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time are also taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and SNAP (formerly known as food stamps) are not taxable.

Q: What if I searched for a job?

A: Under tax reform, many miscellaneous deductions were eliminated. As such, for tax years 2018-2025, you are no longer able to deduct certain expenses such as travel, resume preparation, and outplacement agency fees incurred while looking for a new job. In prior years, job-seekers were able to deduct these expense-even if they did not get a new job. Moving costs for a new job at least 50 miles away from your home were also deductible; but again, under tax reform, and for tax years 2018-2025, job-related moving expenses are not deductible.

Q: What if my employer went out of business or into bankruptcy?

A: Your employer must provide you with a W-2 Form showing your wages and withholdings by January 31. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fail to provide you with a Form W-2, contact the IRS. They can help by providing you with a substitute Form W-2. If your employer liquidated your 401(k) plan, you have 60 days to roll it over into another qualified retirement plan or IRA.

If you’ve experienced a job loss and have questions about how it affects your tax situation, help is just a phone call away.

• By Leon Clinton
• January 14, 2019

Everyone wants to save money on their taxes, and older Americans are no exception. If you’re age 50 or older, here are six tax tips that could help you do just that.

1. Standard Deduction for Seniors. If you and/or your spouse are 65 years old or older and you do not itemize your deductions, you can take advantage of a higher standard deduction amount. There is an additional increase in the standard deduction if either you or your spouse is blind.

2. Credit for the Elderly or Disabled. If you and/or your spouse are either 65 years or older–or under age 65 years old and are permanently and totally disabled–you may be able to take the Credit for Elderly or Disabled. The Credit is based on your age, filing status, and income.

You may only take the credit if you meet the following requirements:

Your income on Form 1040 line 38 must be less than $17,500 ($20,000 if married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year).

and

The non-taxable part of your Social Security or other nontaxable pensions, annuities or disability income is less than $5,000 (single, head of household, or qualifying widow/er with dependent child); $5,000 (married filing jointly and only one spouse qualifies); $7,500 (married filing jointly and both qualify); or $3,750 (married filing separately and lived apart from your spouse the entire year).

3. Retirement account limits increase. Once you reach age 50, you are eligible to contribute (and defer paying tax on) up to $24,500 in 2018. The amount includes the additional $6,000 “catch up” contribution for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.

4. Early Withdrawal penalty eliminated. If you withdraw money from an IRA account before age 59 1/2 you generally must pay a 10 percent penalty (there are exceptions–call for details); however, once you reach age 59 1/2, there is no longer a penalty for early withdrawal. Furthermore, if you leave or are terminated from your job at age 55 or older (age 50 for public safety employees), you may withdraw money from a 401(k) without penalty–but you still have to pay tax on the additional income. To complicate matters, money withdrawn from an IRA is not exempt from the penalty.

5. Social Security Benefits. Americans can sign up for social security benefits as early as age 62–or wait to receive full benefits at age 66 or 67 (depending on your full retirement age). For some older Americans however, social security benefits may be taxable. How much of your income is taxed depends on the amount of your benefits plus any other income you receive. Generally, the more income you have coming in, the more likely it is that a portion of your social security benefits will be taxed. Therefore, when preparing your return, it is advisable to be especially careful when calculating the taxable amount of your Social Security.

6. Higher Income Tax Filing Threshold. Taxpayers who are 65 and older are allowed an income of $1,600 more ($2,600 married filing jointly and both spouses are 65 or older) before they need to file an income tax return. In other words, older taxpayers age 65 and older with income of $13,600 ($26,600 married filing jointly) or less may not need to file a tax return.

Don’t hesitate to call the office if you have any questions about these and other tax deductions and credits available for older Americans.

• By Leon Clinton
• January 10, 2019