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Taxpayers Should do an End-of-Year Withholding Check-up

As the end of the year approaches, the IRS encourages taxpayers to consider a tax withholding checkup. When taxpayers take a close look to make sure the right amount of tax is withheld now, they can avoid an unexpected tax bill next year.

Here are five examples of taxpayers who would benefit from a withholding check-up:

  • Taxpayers who received large tax refunds in past years
    When a taxpayer has too much tax withheld from their paycheck, they pay too much tax during the year. They can change their withholding to have money upfront rather than waiting for a bigger refund.
  • Taxpayers who owed taxes in years past
    Taxpayers with too little tax withheld might owe money. Under-withholding can lead to both a tax bill and an additional penalty.
  • People with a second job
    This includes people who work in the sharing or ‘gig’ economy. Taxpayers who work more than one job should check the total amount of taxes they have withheld and make adjustments as necessary. This will ensure their withholding covers the total amount of the taxes they owe, based on their combined income from all their jobs.
  • Taxpayers who make estimated tax payments
    Some taxpayers make quarterly estimated tax payments throughout the year. This includes self-employed individuals, partners, and S corporation shareholders.  If these taxpayers also work for an employer, they can often forgo making these quarterly payments by instead having more tax taken out of their pay.
  • People with a new job
    Taxpayers who start a new job should check their withholding to make sure they are having enough taxes withheld. Their total withholding should cover the income tax owed from their new and old jobs combined.

To make sure their employer withholds the right amount of tax, employees can adjust their Form W-4, Employee’s Withholding Allowance Certificate. In many cases, this is all they need to do. The employer uses the form to figure the amount of federal income tax to be withheld from pay. This takes time, so taxpayers should make adjustments as soon as possible so the changes can take affect during the final pay periods of 2017.

The IRS has several resources that help taxpayers determine if they are having the right amount of tax withheld from their pay.

More Information:

Pay As You Go, So You Won’t Owe

Source: https://www.irs.gov/newsroom/taxpayers-should-do-an-end-of-year-withholding-check-up

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Individual Taxpayers: Seven Things to Do When an IRS Letter Arrives

The IRS mails millions of letters to taxpayers every year for many reasons. Here are seven simple suggestions on how individuals can handle a letter or notice from the IRS:

1. Don’t panic. Simply responding will take care of most IRS letters and notices.
2. Read the entire letter carefully. Most letters deal with a specific issue and provide specific instructions on what to do.
3. Compare it with the tax return. If a letter indicates a changed or corrected tax return, the taxpayer should review the information and compare it with their original return.
4. Only reply if necessary. There is usually no need to reply to a letter unless specifically instructed to do so, or to make a payment.
5. Respond timely. Taxpayers should respond to a letter with which they do not agree. They should mail a letter explaining why they disagree. They should mail their response to the address listed at the bottom of the letter. The taxpayer should include information and documents for the IRS to consider. The taxpayer should allow at least 30 days for a response.

When a specific date is listed in the letter, there are two main reasons taxpayers should respond by that date:

  • To minimize additional interest and penalty charges.
  • To preserve appeal rights if the taxpayers doesn’t agree.

6. Don’t call. For most letters, there is no need to call the IRS or make an appointment at a taxpayer assistance center. If a call seems necessary, the taxpayer can use the phone number in the upper right-hand corner of the letter. They should have a copy of the tax return and letter on hand when calling.

7. Keep the letter. A taxpayer should keep copies of any IRS letters or notices received with their tax records.

Additional IRS Resources:

Source: https://www.irs.gov/newsroom/individual-taxpayers-seven-things-to-do-when-an-irs-letter-arrives

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IRS Offers Small Businesses a One-Stop Resource Center for Help Preparing, Filing and Paying Taxes

Small businesses across the country are preparing for their special day — Small Business Saturday – taking place on Nov. 25. The Internal Revenue Service wants new small business owners, including those involved in the sharing economy, to know that IRS.gov has an online resource center to help them learn all they need to know about the tax implications of running a small business. The Small Business and Self-Employed Tax Center offers a variety of useful tools that small business owners can access to prepare, file and pay taxes.

The Center is a virtual one-stop tax shop with an A to Z index that gives answers for most business-related tax questions. It includes the Virtual Workshop, an educational video series that walks small business owners step-by-step through the basics. New owners can learn the ins and outs of their taxes at their own pace with other educational tools and products linked from the page. One of the Center’s newest features is the Sharing Economy Tax Center for those who use various online platforms to rent rooms, provide rides and offer other goods and services. Those involved in the Sharing Economy may visit the Pay as You Go, So You Don’t Owe page to learn more about ways to avoid paying the Estimated Tax Penalty.

Getting an Employer Identification Number (EIN) is often the first step for new small businesses, and the Center’s page makes it easy. There are links to the downloadable tax calendar and a variety of videos. Figuring out what is the best form of business entity to establish is easier with the selecting a business structure section. It explains the tax implications of  setting up a Sole Proprietorship, Partnership, Corporation, S Corporation or a Limited Liability Company (LLC) .

The Center features relevant tax forms and instructions for small businesses. It serves as a resource on how to handle employment taxes, if employees are part of a business, or figuring out self-employment taxes for the sole proprietor. The section on filing and paying business taxes details which IRS forms to use for what sort of business entity and when to file.

The resources on Small Business and Self-Employed Tax Center are not just for new small businesses but can be used for every stage of a small business lifecycle; from starting up and operating a business to selling or closing one. In addition, the page has information on topics like recordkeeping, types of retirement plans and the Affordable Care Act.

Additional IRS Resources:

Checklist for Starting a Business
Small Business Publications
Reporting Payments to Independent Contractors
Estimated Taxes
Electronic Filing Options for Business and Self-Employed Taxpayers
Tax Help in Spanish and Other Languages

Source: https://www.irs.gov/newsroom/irs-offers-small-businesses-a-one-stop-resource-center-for-help-preparing-filing-and-paying-taxes

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Get Ready for Taxes: Donations May Cut Tax Bills

The Internal Revenue Service reminds taxpayers looking to maximize their tax savings before the end of the year to consider charitable giving. Many taxpayers may already be planning on doing so for #GivingTuesday on Nov. 28. Giving money or goods to a tax-exempt charity before Dec. 31 can usually be deducted on that year’s federal income tax return. Taxpayers are urged to consider the following before donating:

Only Donations to Eligible Organizations are Tax-Deductible.

The IRS Select Check tool on IRS.gov is a searchable online database that lists most eligible charitable organizations. Churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in this database.

Itemize to Claim Charitable Donations

Charitable deductions are not available to individuals who choose the standard deduction. Only taxpayers who itemize using Form 1040 Schedule A can claim deductions for charitable contributions. Tax preparation software usually alerts taxpayers to the tax savings options available if itemized deductions exceed the standard deduction. The IRS.gov website can help you answer the question, “Should I itemize?”

Get Proof of Monetary Donations

A bank record or a written statement from the charity is needed to prove the amount and date of any donation of money. Money donations can include various forms apart from cash such as check, electronic funds transfer, credit card and payroll deduction. Taxpayers using payroll deductions should retain a pay stub, a Form W-2 wage statement or other proof showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

Donating Property

For donations of clothing and other household items the deduction amount is normally limited to the item’s fair market value. Clothing and household items must be in good or better condition to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with their tax return.

Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed. Special rules apply to cars, boats and other types of property donations. The IRS.gov website has information to help you determine the value of donated property.

Note Any Benefit in Return

Donors who get something in return for their donation may have to reduce their deduction. Benefits can include merchandise, meals, tickets to an event or other goods and services. A donation acknowledgment must state whether the organization provided any goods or services in exchange for the gift along with a description and estimated value of those goods or services.

Older IRA Owners Have a Different Way to Give

IRA owners age 70½ or older can transfer up to $100,000 per year to an eligible charity tax-free. The transfer can count as their required minimum distribution for the year. Funds must be transferred directly by the IRA trustee to the eligible charity. For details, see Publication 590-B.

Good Records

The type of records a taxpayer needs to keep depends on the amount and type of the donation. An additional reporting form is required for many property donations and an appraisal is often required for larger donations of property. Visit IRS.gov for more information.

Additional IRS Resources:

Source: https://www.irs.gov/newsroom/get-ready-for-taxes-donations-may-cut-tax-bills

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National Tax Security Awareness Week No. 5: Small Businesses: Be Alert to Identity Theft

The IRS, state tax agencies and the nation’s tax industry joined together to warn small businesses to be on-guard against a growing wave of identity theft against employers.

Small business identity theft is a 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 refunds for bogus refunds.

The Internal Revenue Service, state tax agencies and the private-sector tax community — partners in the Security Summit — are marking “National Tax Security Awareness Week” with a series of reminders to taxpayers and tax professionals. The week concludes with warnings about small business identity theft.

In the past year, the Internal Revenue Service has noted a sharp increase in the number of fraudulent Forms 1120, 1120S and 1041 as well as Schedule K-1. The fraudulent filings apply to partnerships as well as estate and trust forms.

Identity thieves are displaying a sophisticated knowledge of the tax code and industry filing practices as they attempt to obtain valuable data to help file fraudulent returns. Security Summit partners have expanded efforts to better protect business filers and to better identify suspected identity theft returns.

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

As with fraudulent individual returns, there are certain signs that may indicate identity theft. Business, partnerships and estate and trust filers should be alert to potential identity theft and contact the IRS if they experience any of these issues:

  • 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 of 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.

New Procedures to Protect Business in 2018

The IRS, state tax agency and software providers also share certain data points from returns, including business returns, that help identify a suspicious filing. The IRS and states also are asking that business and tax practitioners provide additional information that will help verify the legitimacy of the tax return.

For 2018, these “know your customer” procedures are being put in place that include the following questions:

  • The name and SSN of the company executive authorized to sign the corporate tax return. Is this person authorized to sign the return?
  • Payment history – Were estimated tax payments made? If yes, when were they made, how were they made, and how much was paid?
  • Parent company information – Is there a parent company? If yes, who?
  • Additional information based on deductions claimed
  • Filing history – Has the business filed Form(s) 940, 941 or other business-related tax forms?

Sole proprietorships that file Schedule C and partnerships filing Schedule K-1 with Form 1040 also will be asked to provide additional information items, such as a driver’s license number. Providing this information will help the IRS and states identify suspicious business-related returns.

For small businesses looking for a place to start on security, the National Institute of Standards and Technology (NIST) produced Small Business Information Security: The Fundamentals. NIST is the branch of the U.S. Commerce Department that sets information security frameworks followed by federal agencies.

The United States Computer Emergency Readiness Team (US-CERT) has Resources for Small and Midsize Businesses. Many secretaries of state also provide resources on business-related identity theft as well.

The IRS, state tax agencies and the tax industry are working together to fight against tax-related identity theft and to protect business and individual taxpayers. Everyone can help. Take steps recommended by cyber experts and visit the Identity Protection: Prevention, Detection and Victim Assistance for information about business-related identity theft.

Source: https://www.irs.gov/newsroom/national-tax-security-awareness-week-no-5-small-businesses-be-alert-to-identity-theft

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National Tax Security Awareness Week No. 4: Employers, Payroll Officials, Avoid the W-2 Email Scam

The IRS, state tax agencies and private-sector tax groups warned the nation’s business, payroll and human resource communities about a growing W-2 email scam that threatens sensitive tax information held by employers.

These emails 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. This puts workers at risk for tax-related identity theft.

The W-2 scam has emerged as one of the most dangerous and successful phishing attacks as hundreds of employers and tens of thousands of employees fell victim to the scheme in the past year. This scam is such a threat to taxpayers that a special IRS reporting process has been established.

The Internal Revenue Service, state tax agencies and the tax community — partners in the Security Summit — are marking “National Tax Security Awareness Week” with a series of reminders to taxpayers and tax professionals. In part four, the topic is the W-2 scam.

Because the Security Summit partners have successfully made inroads into stopping stolen identity refund fraud, criminals now need more information to file a fraudulent return. That means they need more accurate data about taxpayers, causing them to target tax practitioners, payroll professionals and employers. The Form W-2 contains income and withholding information necessary to file a tax return.

All employers are at risk. In 2017, the W-2 scam made victims of businesses large and small, public schools and universities, as well as tribal governments, charities and hospitals. The scam, which grows larger each year, will likely make the rounds again in 2018.

The Security Summit warns employers – in public and private sectors – to beware of this scheme and to educate employees, especially those in human resources and payroll departments who are often the first targets.

This is an example of a business email compromise or business email spoofing in which the thief poses as a company executive, school official or someone of authority within the organization. The crook will send an email to one employee with payroll access, requesting a list of all employees and their Forms W-2. The thief may even specify the format in which he wants the information. The subject line has hundreds of variations along the lines of “review,” “manual review” or “request.”

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.

Because of the W-2 scam’s threat to tax administration for both federal and state governments, a special reporting process has been established to quickly alert the IRS and state tax agencies. Detailed reporting steps may be found at Form W-2/SSN Data Theft: Information for Businesses and Payroll Service Providers.

Here’s an abbreviated list of how to report these schemes:

  • 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.
  • Email the Federation of Tax Administrators at StateAlert@taxadmin.org to get information on how to report victim information to the states.
  • 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.
  • 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.
  • Forward the scam email to phishing@irs.gov.

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.

As part of the Security Summit effort, the IRS, state tax agencies and the tax industry working together to fight against tax-related identity theft and to protect taxpayers. Everyone can help. Be alert and guard against the W-2 scam.

Taxpayers are also encouraged to visit the “Taxes. Security. Together.” awareness campaign or review IRS Publication 4524, Security Awareness for Taxpayers, to learn more.

Source: https://www.irs.gov/newsroom/national-tax-security-awareness-week-no-4-employers-payroll-officials-avoid-the-w-2-email-scam

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National Tax Security Awareness Week No. 3: Victims of Data Breaches Should Consider These Steps

The number of data breaches was already on a record pace for 2017 before the reported theft of nearly 145 million Americans’ names, addresses and Social Security numbers brought the issue to the forefront.

Every day, data thefts large and small put people’s personal and financial information at risk. There are steps that data theft victims may take to protect their financial accounts and their identities once cybercriminals have their names and other sensitive information.

The Internal Revenue Service, state tax agencies and the tax community — partners in the Security Summit — are marking “National Tax Security Awareness Week” with a series of reminders to taxpayers and tax professionals. Today, the topic is data breaches.

In the first half of 2017, the number of data breaches increased by 29 percent, to a record 791 incidents, according to Identity Theft Resource Center (ITRC) and CyberScout, which sponsored the report. For the past five years, ITRC has tracked data breaches in five key sectors.

Generally, thieves want to take advantage of the stolen data as quickly as possible. That may mean selling the data on the Dark Web for use by other criminals. It may mean the crook tries to access financial accounts for withdrawals or credit cards for charges. It may also mean a thief quickly files a fraudulent tax return in victims’ names for a refund.

Those Who’re Victims Should Consider These Steps:

  • If possible, learn what information was compromised. Was it emails and passwords or more sensitive data such as name and Social Security number?
  • Take advantage of any credit monitoring offers made by the company that was breached.
  • Place a freeze on credit accounts to prevent access to credit records. There may be a fee for requesting one. This varies by state. At a minimum, place a fraud alert on credit accounts by contacting one of the three major credit bureaus. A fraud alert on credit records is not as secure as a freeze, but a fraud alert is free.
  • Reset passwords on online accounts, especially financial, email and social media accounts. Experts recommend at least 10-digit passwords, mixing letters, numbers and special characters. Use different passwords for each account. Use a password manager, if necessary.
  • Use two-factor authentication wherever it is offered on financial, email and social media accounts. Two-factor authentication requires entry of a username and password and then a security code, generally sent via text to a mobile phone you’ve pre-registered.

The scale of the credit bureau breach, which was reported this summer, has prompted many questions, especially about how a victim’s taxes may be affected. Because of the work by the Security Summit, more protections are in place to protect taxpayers from tax-related identity theft. Thieves will need more than a name, address, birth data and SSN to file a fraudulent tax return.

Tips for the 2018 Tax Season; Will Filing Early Help?

The IRS reminds taxpayers that they should file their tax return as early as they can, but not before they are sure they have all the proper information and supporting Forms W-2 and 1099. Taxpayers should always file an accurate tax return. Filing before all information is received puts taxpayers at risk of needing to file an amended tax return, paying interest or penalties or even receiving an IRS notice or audit.

The IRS and states have put many new defenses in place to help protect taxpayers from identity theft. The new IRS protections have worked well to protect taxpayers, and some key indicators of identity theft on tax returns have dropped by around two-thirds since 2015.

These protections are especially helpful if criminals only have names, addresses and SSNs – which was the information stolen in recent incidents. However, there are continuing concerns that cybercriminals will try to build on this basic information by trying to obtain more specific financial details from taxpayers and tax professionals to help them file fraudulent tax returns.

In addition, no one yet knows what thieves may do with information from the data breaches. The Summit partners believe cybercriminals will increasingly look to steal more detailed information from taxpayers, tax professionals and businesses to help file a fraudulent tax return. The volume of victims means everyone – the tax agencies, tax professionals and taxpayers – must be vigilant going into the 2018 tax filing season and be alert to any unusual activity.

Here Are a Few Signs of Tax-Related Identity Theft:

  • An electronically filed tax return rejects because a return with the taxpayer’s SSN already has been filed;
  • Taxpayers receive a letter from the IRS asking them to confirm whether they submitted a tax return being held for review;
  • Taxpayers receive a notice from the IRS indicating that they owe additional tax, have a refund offset or have a collection action for a year in which they did not file a tax return;
  • Taxpayers receive a notice from the IRS that they received wages from an employer for whom the taxpayer did not work.

Taxpayers should file a Form 14039, Identity Theft Affidavit, only if their return rejects because a return using their SSN already has been filed or if told to do so by the IRS. This form is how taxpayers report that they are an identity-theft victim.

The IRS stops the vast majority of fraudulent returns. Each year, the IRS stops returns it deems suspicious and asks the filer to verify whether they filed the return. The IRS will send a notice asking taxpayers to confirm whether they filed the return.

The IRS, state tax agencies and the tax industry are working together to fight against tax-related identity theft and to protect taxpayers. Everyone can help. Visit the “Taxes. Security. Together.” awareness campaign or review IRS Publication 4524, Security Awareness for Taxpayers, to learn more.

Source: https://www.irs.gov/newsroom/national-tax-security-awareness-week-no-3-victims-of-data-breaches-should-consider-these-steps

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Get Ready for Taxes: IRS.gov Offers Free Tax Help

As tax filing season approaches, the Internal Revenue Service encourages taxpayers to visit IRS.gov first for tax tools and resources before calling. Nearly every tax issue can be resolved online.

The recent IRS website redesign makes it easier for people to navigate IRS.gov. The front page is more task-based so actions like paying a tax bill, getting a tax record or checking refund status are easily accessible.

The IRS has also simplified the main navigation tool, added more drop-down menus and made it more mobile-device friendly.

Additionally, the IRS has a special page on IRS.gov with steps to take now for the 2018 tax filing season.

IRS.gov provides many self-service tools and features, including:

  • Where’s My Refund. Taxpayers can check tax refund status 24/7. Updates daily.
  • Get Transcript. Access various transcript types online. Taxpayers may also ask the IRS to mail a Tax Return Transcript to them by requesting it online or by calling 800-908-9946. Allow 5 to 10 days for delivery.
  • Direct Pay. Make tax payments directly from a checking or savings account. People can view their account balance if taxes are owed.
  • Electronic Federal Tax Payment System. EFTPS is convenient and easy. Taxpayers and businesses can use it for various types of federal tax payments including estimated tax payments.
  • Online Payment Agreements. Eligible taxpayers can pay their taxes by easily setting up a monthly payment plan.
  • Answers to Tax Law Questions. The Interactive Tax Assistant takes people through a series of questions and provides the answers.
  • Forms, Instructions and Publications. Taxpayers can download and view popular tax forms, publications and instructions anytime. Increasingly popular eBooks are available as well as PDF and HTML versions. Accessible versions for people with disabilities and prior year forms are also available.
  • Where’s My Amended Return. Taxpayers can track the status of an amended return.

Employers and self-employed taxpayers will find many useful features on IRS.gov as well. The self-employed individuals tax center is a tax resource available around the clock. People can:

Business owners can find free small business tax workshops and seminars at various locations around the country.

Use the Understanding Your IRS Notice or Letter page to get more information and answers to many notice-related questions related to IRS notices and letters.

The Let Us Help You page on IRS.gov provides online tools and resources related to:

  • Identity Theft, fraud and scams
  • Links to help taxpayers determine who needs to file and options to e-file.
  • Assistance with renewing an expiring Individual Taxpayer Identification Number (ITIN) should visit the ITIN information page on IRS.gov.

Source: https://www.irs.gov/newsroom/get-ready-for-taxes-irsgov-offers-free-tax-help

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