The IRS recently announced it had identified and halted an automated attack on its e-filing PIN application available on IRS.gov. Using personal information stolen elsewhere, thieves used malware to generate E-file PINs for stolen social security numbers.
When you attempt to e-file a tax return, the IRS verifies your identity using either the e-file PIN used on last year’s return or your prior year Adjusted Gross Income (AGI). If you don’t have either, you can request a new five-digit PIN from the IRS, either online or by calling 1-866-704-7388.
By generating e-file PINs, criminals can use stolen social security numbers to electronically file fraudulent tax returns and steal refunds without needing the taxpayer’s valid prior year PIN or AGI.
In the attack, which occurred in January, hackers attempted to obtain e-file PINs corresponding to 464,000 unique social security numbers using an automated bot. They successfully generated 101,000 PINs before the IRS blocked it.
In order to generate an e-file PIN, the hackers had to have names, Social Security numbers, dates of birth, and complete addresses as they appeared on 2014 returns. The IRS said that the data used by the hackers was not obtained from the IRS, but a May 2015 security breach at the IRS allowed criminals to gain information such as Social Security numbers, dates of birth, and street addresses for over 300,000 taxpayers using the IRS’ Get Transcript application.
The IRS is notifying affected taxpayers via mail and will be monitoring their accounts to prevent tax-related identity theft.
By Janet Berry-Johnson, CPAPosted on February 10 2016 by admin
Computing the kiddie tax
If the kiddie tax applies to a child, the child’s tax is calculated as the greater of one of two items:
- The tax on all of the child’s income, calculated at the rates applicable to single individuals; or
- The sum of two things:
- The tax that would be imposed on a single individual if the child’s taxable income were reduced by net unearned income, plus
- The child’s share of the allocable parental tax.
The allocable parent tax is the amount of the increase in the parent’s tax liability that results from adding to the parent’s taxable income the net unearned income of the parent’s children who are subject to the kiddie tax. If a parent has more than one child with unearned income subject to the kiddie tax, then each child’s share of the allocable parental tax would be assigned pro rata according to the ratio that its net unearned income bears to the aggregate net unearned income subject to the kiddie tax.
Which tax form should you use?
A parent with a child or children whose unearned income is subject to the kiddie tax must generally complete and file Form 8615 with his or her tax return. However, if the child’s unearned income is less than $10,500 for 2015, the parent may be able to elect to include that income on the parent’s return rather than file a separate return for the child. In this case, the parents should complete Form 8814. However, the IRS cautions that the federal income tax owed on a child’s income may be lower if the parent files a separate tax return for the child, which would enable him or her to take certain tax benefits that cannot be taken on the parents’ return.
Divorced, separated, or unmarried parents
Special rules may apply to children of divorced, separated or unmarried parents. Please contact our office to determine how the kiddie tax may be treated in your situation.
By Danette Jespersen, EAPosted on February 9 2016 by admin
A child with earned income above a certain level is generally required to file a separate tax return as a single taxpayer. However, a child with a certain amount of unearned income (from investments, including dividends, interest, and capital gains) may find that this income becomes subject to tax at his or her parent’s highest marginal tax rate. This is referred to as the “kiddie tax,” and it is designed to prevent parents from transferring income-producing investments to their children, who would generally be taxed at a lower rate.
Does the kiddie tax apply to your situation?
The kiddie tax applies if:
- The child has investment income greater than the annual inflation-adjusted amount ($2,100 for 2015 up from 2014 which was $2,000);
- At least one of the child’s parents was alive at the end of the tax year;
- The child is required to file a tax return for the tax year;
- The child does not file a joint return for the tax year; and
- The child meets one of the following requirements relating to age and income:
- The child was under age 18 at the end of the tax year; or
- The child was age 18 at the end of the tax year and the child’s earned income does not exceed one-half of the child’s own support for the year; or
- The child was a full-time student who was under age 24 at the end of the tax year and the child’s earned income does not exceed one half of the child’s own support for the year (This does not include scholarships.)
This concludes part 1 of the kiddie tax rules. Part 2 will include computing the kiddie tax and which tax form to use.
By Danette Jespersen, EAPosted on February 4 2016 by admin
There was a time that determining the correct home office deduction was complicated and could lead directly to an audit. Luckily, those days are in the past. The IRS no longer considers a home office a red flag, and they have found ways to simplify the process of taking this deduction.
Before 2013, business owners that worked out of their home were required to determine the actual expenses of their home office. This could include items such as utilities, insurance, and mortgage interest. The amount that could be deducted as a business expense was determined by the percentage of the total square footage of your home that was used for office space, but in 2013 that all changed.
For taxable years of 2013 and beyond, the IRS has introduced a simplified option. This allows business owners to multiply a prescribed rate by the square footage of the home that is being used as office space to determine the allowable deduction.
This change permits business owners to reduce the need for recordkeeping as actual expenses no longer need to be tracked.
There are two requirements that a business owner needs to meet to be eligible for the home office tax deduction. First, the area of your home that is used for your office must be used exclusively for conducting business. That means a kitchen table is not a home office, but if you have a room in your home that you use for office space exclusively, that would qualify under the IRS rules.
Secondly, your home office must be your principal place of business. That doesn’t mean you can’t have an office elsewhere, but you need to be using your home office for meetings with clients, or some other activity that would suggest it is not simply an area that you work in from time-to-time.
If you have a home office, don’t hesitate to take the deduction you are entitled to. With the simplified option to determine your deduction, this is one time the IRS has made it too easy to pass up.
By Danette Jespersen, EAPosted on February 2 2016 by admin
In recent years the volume of identity theft incidents has grown at an alarming rate. In 2014, more than 9.9 million Americans fell victim to identity theft. Although often less talked about, tax-related identity theft crimes have risen drastically in recent years too. In 2013 alone, more than 2.4 million taxpayers were affected by identity theft according to Treasury Inspector General for Tax Administration.
Efforts to combat the growing concerns have been underway in the last decade by the various governmental entities. For example, federal and state governments have enacted laws to levy separate and additional penalties for fraud committed using stolen identity information, which prior to the 20th century was not available. Congress has passed and amended numerous federal laws to achieve this including the Fair and Accurate Credit Transaction Act, Fair Credit Reporting Act, Identity Theft Penalty Enhancement Act, and the Identity Theft Enforcement and Restitution Act.
The Internal Revenue Service (IRS) has also joined the efforts. Most recently in August 2015, the IRS, in collaboration with tax preparers, software companies and others, issued temporary regulations to help validate taxpayer and tax return information at the time of filing by eliminating automatic deadline extensions to companies filing their employees’ Form W-2s.
Most people are familiar with signs of non-tax related theft, but may not be as familiar when it comes to tax-related identity theft or how to resolve the situation if it occurs. Some of the most commons indicators you may have become a victim of identity theft are:
- You attempted to file an electronic return, but the IRS has rejected it because a return with your Social Security number has already been filed.
- You receive an IRS notice indicating wages were received for a company you have never been employed with.
- You get a letter from the IRS that a return or multiple returns have already been filed with your Social Security number and you have yet to file yours.
- You receive a balance due notice, refund notice or collection actions for a year you filed but didn’t owe or weren’t due any money.
If you have realized you have fallen victim to tax identity thefts, please do not hesitate to contact us.
By Danette Jespersen, EAPosted on January 28 2016 by admin
Typically, the person who receives the gift doesn’t have to worry about the tax, because that tax liability typically falls on the donor. Well, if the donor happens to be a covered expatriate then that tax liability may now land on you with the new IRS proposed regulation (REG-112997-10). This regulation deals with gifts or bequests received from covered expatriates.
This tax is called Section 2801 tax and should be reported on the new form 708 (Form 708 is not issued yet until this proposed regulation is finalized). Section 2801 tax is a tax on a U.S. citizen who receives a “covered gift” or “covered bequest” on or after June 17, 2008 from a “covered expatriate” whose expatriation date was on or after that date. Below are some definitions to clear up what they mean by “covered”.
- Covered gift – any property acquired directly or indirectly from a covered expatriate.
- Covered bequest – any property acquired directly or indirectly by reason of the death of an individual who, immediately before death, was a covered expatriate.
There are some exceptions to this tax, one being the normal gift tax exclusion amount, which for 2015 is $14,000. So, the covered gifts/ bequests received during the year would be reduced by this amount. Also, if the covered expatriate filed a timely gift tax return and was reported on the expatriate’s estate tax return and paid on time. Another exemption is for the expatriate’s spouse that is still a U.S. citizen (other rules apply here).
The tax imposed for Section 2801 is high. It is calculated by taking your net amount (after gift tax exclusion, $14,000 for 2015) and multiplying it by the highest gift or estate tax rate in effect for the calendar year, which for 2015 is a whopping 40%! This is a way for the IRS to recoup some of the taxes avoided by expatriating.
Note that there are more special rules and exceptions with this and you may want to speak with your accountant about the issue if it relates to you. The IRS has not issued Form 708 yet, but when it does, any gifts received from a covered expatriate received on or after June 17, 2008 will need to be reported. The IRS will set due dates and interest will not be imposed on these payments until said due date, which should be in the final rules once passed.
By Chris MorrisonPosted on January 27 2016 by admin
An employee who worked in the IRS’s Taxpayer Advocate office in Birmingham, AL is facing multiple charges in an identity theft scheme. Four people were arrested and charged last month including Nakeisha Hall, 39, an IRS employee who worked in the Taxpayer Advocate Service office in a role that was supposed to assist taxpayers experiencing problems resulting from identity theft.
Hall worked in the Taxpayer Advocate Service office in Birmingham from July 2007 to November 2011. Since then, she has worked in Taxpayer Advocate Service offices in Omaha, NE; New Orleans, LA; and Salt Lake City, UT.
Hall allegedly obtained taxpayers’ names, birth dates, and Social Security numbers from IRS computers. She used that information to prepare fraudulent income tax returns and submitted them electronically to the IRS. Refunds were loaded onto debit cards and mailed to drop addresses controlled by Hall and her three co-conspirators. The cards were activated using stolen identity information, then money was withdrawn from the cards at ATMs or the cards were used for purchases. The scheme is believed to involve more than $1 million in false claims, according to U.S. Attorney Joyce White Vance.
“Taxpayers trust, and expect, that IRS employees, as a whole, will safeguard their most sensitive personal information. Taxpayers also must trust that IRS employees in the Taxpayer Advocate Service will not only protect their sensitive information but will actively assist them when it has been compromised by others,” Vance said. “An IRS taxpayer advocate who exploits that trust, and with full knowledge of the significant impacts of identity theft, uses her IRS access to compromise taxpayers’ identities and steal a million dollars from the U.S. Treasury is committing a particularly egregious crime that will not go unpunished.”
Hall has been charged with conspiring to commit bank fraud and mail fraud affecting a financial institution, theft of government funds, aggravated identity theft and unauthorized access to a protected computer. The conspiracy charge carries a maximum penalty of 30 years in prison and a $1 million fine.
By Janet Berry-Johnson, CPAPosted on January 26 2016 by admin
Valentine’s Day is upon us, and once I’ve purchased flowers for my fiancée, I will once again join the ranks of many other CPAs across the country preparing thousands of tax returns for clients of all shapes and sizes. While no two clients are the same, there are some common things clients can do to help us prepare returns in an efficient and correct manner.
Let’s start with the basics – get your information organized and returned as quickly as you can! At Henry and Horne we send all of our 1040 clients a packet early in the year called an organizer. This packet contains several pages of information “pro-forma’ed”, or copied from the prior year. Take a minute to flip through this packet and see what fields contain information that was included in last year’s return. Unless circumstances have changed, we will almost certainly need the same information for the current tax year to prepare an accurate return (plus anything new for this year). For example, if you had a brokerage statement from Fidelity or Charles Schwab in 2014, we will ask for that in 2015 unless you indicate that the account closed. By including this information, we do not have to reach out to you and delay preparation of your return. We are always here to answer questions about what should or shouldn’t be included – just ask!
Secondly, (and this applies not just during tax season) make sure you reach out to your accountant before you undertake a large financial decision. Thinking of selling/renting/purchasing a home? Let us know. Investing in an IRA or starting a business? Give us a call. One of an accountant’s greatest fears is calling a client to let them know after the fact that a decision will likely result in more tax or a different outcome than the client initially perceived. Tax law is complicated and almost nothing is clear cut, so by coming to us beforehand, we can alert you to any tax pitfalls so you may make a more educated decision.
While many of our clients and friends will enjoy the beautiful Arizona spring weather, spring training, and other various activities, we will be working hard to make sure your tax returns are complete, accurate and timely. With that said, we could always use a hand. By following the tips above, you can ensure that your CPA will be falling in love with you all over again.
(P.S. – Once your documents are received, they are scanned into our computer system, so if you can help it, no staples please!)
By Brock YatesPosted on January 21 2016 by admin
The IRS gives guidelines on what is deductible for individuals to take on Schedule A of their individual income tax returns, as well as business expenses or casualty losses. People tend to make their own interpretations of the IRS guidelines on tax deductions and the IRS does not always allow what people try to claim. I have recently come across a few articles that list some deductions people have claimed on their tax returns. Some were allowed by the IRS while others were not. Below are a few I find interesting, strange, or funny.
These deductions were disallowed:
- A taxpayer tried to deduct the cost of removing carpet as a medical expense due to the fact that the taxpayer was allergic. The cost of installing wood flooring was also claimed as a deduction.
- A taxpayer that had dry skin tried to deduct the cost of bath oils as a medical expense.
- A taxpayer claimed a theft loss deduction for stolen photographs, souvenirs, and other “memories” that were allegedly stolen by her landlord and thrown away.
- A family pet broke some dishes which the taxpayer tried to claim as a casualty loss.
- A taxpayer claimed a mink coat as a business deduction because his wife wore it to business functions.
- An owner of a failing furniture store tried to deduct $10,000 that he paid to an arsonist as a “consulting fee” to burn down the store. However, he did report the insurance proceeds as income.
These deductions were allowed:
- A taxpayer claimed a medical deduction for a clarinet and clarinet lessons for their child to help correct the child’s overbite.
- An exotic dancer claimed the cost of her breast augmentation. The IRS claimed it was nondeductible but the tax court allowed the claim and stated the implants were depreciable assets as a type of stage prop.
- Posing oil was deducted as a business expense by a professional bodybuilder.
- Cat food was claimed as a business expense and allowed because it was used to attract wild cats which would deter snakes from a scrap yard.
Based on these taxpayers’ experiences, it may be wise to check the deductibility of something before claiming it on your tax return.
By Kelsey OlsenPosted on January 20 2016 by admin
This January many individuals will receive a Form 1095 for the first time. Form 1095 is part of the expanding ACA (Affordable Care Act) information reporting necessary to determine if you had required health insurance coverage in 2015:
The IRS wants you to know these important facts about Form 1095:
- While the information on these forms may help you complete your tax return, they are not needed to file. You can file your federal tax return even if you have not received one of these statements.
- Form 1095-B, Health Coverage, is used by insurers to report certain information to the IRS and to taxpayers about individuals who are covered by health insurance (minimum essential coverage).
- Form 1095-C, Employer-Provided Health Insurance Offer and Coverage is used by employers with 50 or more full-time employees or employers with employer-sponsored self-insured coverage to report the information required about offers of health insurance coverage and enrollment in health coverage for their employees.
- Information on Form 1095-B or Form 1095-C will be used by the IRS to determine if you had required health insurance (minimum essential coverage) and, therefore, aren’t liable for the” no insurance penalty” (the individual shared responsibility payment), unless you qualify for one of the Health Coverage Exemptions.
- For 2015 only, individuals who rely on other information received from employers about their offers of medical insurance coverage for purposes of determining eligibility for the premium tax credit when filing their income tax returns don’t have to amend their returns once they receive the actual Forms 1095-C, or any corrected Forms 1095-C.
- Individuals who worked for multiple employers that are required to file Form 1095-C may receive a Form 1095-C from each employer.
- In general, 1095-B and 1095-C must be sent on paper by mail or hand delivered, unless you consent to receive the statement in an electronic format.
Additional information is available at irs.gov/Affordable-Care-Act/Individuals-and-Families.
By Melinda Nelson, CPA-- Older Entries »
There is nothing more complex than the world of taxes. We know this and yet we chose careers where we face these issues everyday. We get questions day in and day out about new tax laws, forms and news items and how they affect everyday people and businesses. Well, here at Henry & Horne we have set out to do what we do best; help everyday people understand what is going on in the world of state, local, federal, estate and international taxation. We will provide these weekly posts and we encourage you to give us feedback on those posts as well as letting us know what else you would like to know more about. Welcome to "Tax Insights." We hope you find this blog informative and worthy of your time.
Before posting a comment on a blog post please be aware that we do not give free tax advice to non-clients by email, comment response, or phone. Thank you!
- Criminals Attack IRS Website, Generate 101,000 E-Filing PINS
- Beware of Kiddie Tax – Part II
- Beware of Kiddie Tax – Part I
- Simplified Method for Home Office Deduction
- IRS Responds to Identity Theft
- Recent Gift (on or after June 17, 2008) from an Expatriate?
- IRS Taxpayer Advocate Employee Charged with ID Theft
- Make Your CPA Fall in Love During Tax Season
- Interesting Tax Deductions
- Why Did I Get this Form 1095? New ACA Info Statements