Small businesses should be on-guard against a growing wave of identity theft and W-2 scams. Employers hold sensitive tax data on their employees - such as Form W-2 data - which is highly valued by identity thieves.
All employers are targets for the W-2 scam. This scheme has become one of the more dangerous email scams. Here's how it works:
This scam is such a threat to taxpayers that a special IRS reporting process has been established. Here's an abbreviated list of how a business should report these schemes. They should:
The IRS urges everyone with any type of online account to review new, stronger standards to protect their passwords. Doing so will help protect against savvy cybercriminals who wants to access people’s accounts and steal their identities.
Here are three steps people can follow to build a better password:
In addition to creating strong passwords, people can:
The IRS reminds holiday shoppers to protect their tax and financial data from identity thieves. All it takes is a few extra steps to prevent cybercriminals from stealing sensitive data, such as financial account information, Social Security numbers, and credit card information. Thieves could use this data to file a fraudulent tax return in 2019.
This tip is part of National Tax Security Awareness Week. The IRS is partnering with state tax agencies and its partners in the Security Summit to remind to taxpayers and tax professionals about the importance of protecting data.
Cybercriminals want to turn stolen data into quick cash. They do this by draining financial accounts, charging credit cards, creating new credit accounts or even using stolen identities to file a fraudulent tax return for a refund.
Here are seven steps taxpayers can follow to help protect their accounts and their money:
Did you know the IRS is prohibited from releasing information you report, except in limited circumstances? You have to grant specific authorization to allow someone to discuss your return with the IRS, receive copies of your returns or tax notices, or negotiate with the IRS on your behalf.
For example, say you receive an IRS notice, and you want your tax preparer to resolve the issue for you. The only way your preparer can help is if you have given permission allowing an exchange of information with the IRS.
Here are three ways to grant authority for access to certain tax information:
The person you authorize will not automatically receive copies of IRS notices, but can review your information for the specific tax period. The authorization expires one year from the original due date of the return.
Form 8821, Tax Information Authorization. This form is a disclosure authorization that allows the person you choose to automatically receive notices and other information about your taxes for periods you specify. You can revoke the authorization by submitting a signed copy of the original with the word "Revoke" written across the top.
Form 2848, Power of Attorney and Declaration of Representative. The power of attorney lets someone who is eligible to practice before the IRS represent you and, in some cases, sign agreements and other documents on your behalf. You can revoke a power of attorney by filing a new one for the same tax period, or by sending a signed copy of the original with the word "Revoke" written across the top.
Other forms may be required, depending on the type of tax information and how much authority you want to grant. Give us a call for help granting authorization.
Tax reform legislation enacted in December 2017 offers a new tax credit for employers who provide paid family and medical leave. Here are several facts about how this credit works and which employers are eligible to claim it:
The credit ranges from 12.5 percent to 25 percent of wages paid during an employee's leave.
For purposes of this credit, family and medical leave includes leave for one or more of the following reasons:
Please call us if you have questions or would like further information.
Safekeeping tax records helps for future filing, amended returns, audits
WASHINGTON — With the tax filing season quickly approaching, the Internal Revenue Service wants taxpayers to understand how long to keep tax returns and other documents.
This is the seventh in a series of reminders to help taxpayers Get Ready for the upcoming tax filing season. The IRS has recently updated its Get Ready Page https://www.irs.gov/individuals/steps-to-take-now-to-get-a-jump-on-next-years-taxes with steps to take now for the 2019 filing season.
The IRS generally recommends keeping copies of tax returns and supporting documents at least three years. Employment tax records should be kept at least four years after the date that the tax becomes due or paid, whichever is later. Tax records should be kept at least seven years if a return claims a loss from worthless securities or a bad debt deduction. Copies of previously-filed tax returns are helpful in preparing current-year tax returns and making computations if a return needs to be amended.
Tax records should be kept safe and secure regardless of whether they are stored on paper or kept electronically. Paper records should be kept in a secure location, preferably under lock and key, such as a secure desk drawer or a safe. Records retained electronically should be backed up electronically and encrypted when possible. The IRS also suggests scanning paper tax and financial records into a format that can be encrypted and stored securely on a flash drive, CD or DVD with photos or videos of valuables.
Disposing of records
Tax records contain sensitive data such as Social Security numbers, income amounts and bank account information. Tax documents not properly disposed of can land in the hands of criminals and lead to identity theft. Once past their useful date, records should be disposed of properly. Paper tax returns and supporting documents should be shredded before being discarded. Old computers, back-up drives and media contain sensitive data. Deleting stored tax files will not completely erase them. Using special wiping software ensures the removal of sensitive data.
Taxpayers still keeping old tax returns and receipts stuffed in a shoe box may want to rethink their approach. When records are no longer needed the data should be properly destroyed.
More information is available on IRS.gov at How long should I keep records?
Most of the time, year-end tax planning is based on tried-and-true principles. For instance, people often end up accelerating deductions into the current year to offset their tax liabilities, while deferring income to the next year. But this year-end is much different than most.
Major tax legislation at the end of 2017 has suspended many prized deductions for 2018 through 2025, while cutting tax rates. As a result, your year-end tax planning will likely need some new moves. Here are a handful of the biggest changes to consider:
Altered and eliminated tax deductions
Enhanced tax deductions
Upcoming alimony change: If you're planning on divorcing at year-end, consider that alimony payment deductions are eliminated for divorce settlements reached on or after Jan. 1, 2019.
Depending on your total itemized deductions, it may or may not make sense to accelerate certain deductions into this year. A review of your year-to-date deductions should be completed before you make any moves.
Call today if you have questions about your 2018 year-end tax plan.
Despite other wholesale changes for individuals for 2018 through 2025, the main tax benefits for charitable donations have been preserved. If you expect to itemize this year, you can realize big write-offs, especially for contributing appreciated property to charity.
The lowdown on gifts of propertyFor starters, you may deduct the current fair market value (FMV) of property if you've owned it for more than a year. Otherwise, the deduction is generally limited to your initial cost. This provides a unique tax opportunity for donating property that has appreciated in value.
For instance, say you own a painting with a FMV value of $15,000 that cost you $5,000 10 years ago. If you donate it to a museum, you can deduct the entire $15,000. There's no tax on the $10,000 of appreciation while you owned the painting - ever!
Other rulesThere are special rules that may come into play. For instance, the property must be used to further the charity's tax-exempt mission. So, if the museum displays your painting to the public, you should qualify for a deduction.
And the rules differ slightly for property that has depreciated in value. Accordingly, your deduction is limited to the property's FMV, no matter how long you've owned it.
In Grainger v. Commissioner (TC Memo 2018 - 117), a taxpayer tried an innovative strategy. An avid shopper, she bought clothing items at discounted prices and immediately donated them to charity, claiming a deduction for the full retail price. But the tax court said she could only deduct her actual cost.
Donation reminder checklistIf you decide to donate property to charity, keep these points in mind:
Call if you have questions about your charitable gifts and how it'll affect your 2018 tax plan.
WASHINGTON — The Internal Revenue Service today reminded eligible employees that now is the time to begin planning to take full advantage of their employer’s health flexible spending arrangement (FSA) during 2019.
FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, many employers are offering their employees the option to sign up for an FSA this fall for participation that begins in 2019.
Interested employees wishing to contribute during the new year must make this choice again for 2019, even if they contributed in 2018. Self-employed individuals are not eligible.
An employee who chooses to participate can contribute up to $2,700 during the 2019 plan year. That’s a $50 increase over 2018. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, the employer may also contribute to an employee’s FSA.
Throughout the year, employees can then use funds to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.
Under the use-or-lose provision, participating employees often must incur eligible expenses by the end of the plan year or forfeit any unspent amounts. But under a special rule, employers may, if they choose, offer participating employees more time through either the carryover option or the grace period option.
Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year — for example, an employee with $500 of unspent funds at the end of 2019 would still have those funds available to use in 2020. Under the grace period option, an employee has until two and a half months after the end of the plan year to incur eligible expenses — for example, March 15, 2020, for a plan year ending on Dec. 31, 2019. Employers can offer either option, but not both, or none at all.
Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA. More information about FSAs can be found in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, available on IRS.gov.
WASHINGTON — The Internal Revenue Service today reminded small business taxpayers that changes to the tax law mean they can immediately expense more of the cost of certain business property. Many are now able to write off most depreciable assets in the year they are placed into service.
The Tax Cuts and Jobs Act (TCJA), passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead. Among those for business owners are tax rate changes for pass-through entities, changes to the cash accounting method for some, limits on certain deductions and more.
Section 179 expensing changes
A taxpayer may elect to expense all or part of the cost of any Section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. These changes apply to property placed in service in taxable years beginning after Dec. 31, 2017. For most businesses, this means the 2018 return they file next year.
Section 179 property includes business equipment and machinery, office equipment, livestock and, if elected, qualified real property. The TCJA also modifies the definition of qualified real property to allow the taxpayer to elect to include certain improvements made to nonresidential real property. See New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act for more information.
New 100 percent, first-year ‘bonus’ depreciation
The 100 percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify. The law also allows expensing for certain film, television, and live theatrical productions, and used qualified property with certain restrictions.
The deduction applies to business property acquired after Sept. 27, 2017, and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. In general, the bonus depreciation percentage is reduced for property placed in service after 2022. See the proposed regulations for more details.
Taxpayers may elect out of the additional first-year depreciation for the taxable year the property is placed in service. If the election is made, it applies to all qualified property that is in the same class of property and placed in service by the taxpayer in the same taxable year. The instructions for Form 4562, Depreciation and Amortization, provide details.
Business owners can refer to the Tax Reform Provisions that Affect Businesses page for updates.
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