Monthly Archives: August 2016

Employment-Related Identity Theft and the IRS!

Identity theft has so many ways to rear it’s ugly head and and it has, over the years, found its way into the employment sector.

A shadowed person wearing a hooded sweatshirt.

Do You Have an Employment Clone That You Don’t Know About?

Having known people who have fallen victim to this type of debilitating scam I decided to look to see how that can affect a person’s taxes and what the IRS either has done or is doing to counter or at least make the victim aware.

Well I found that the IRS does not currently notify taxpayers it identifies as victims of employment-related identity theft, nor has it established an effective process to ensure that it sends the required notice to the Social Security Administration (SSA) to alert the SSA of earnings not associated with a victim of employment-related identity theft.

These are two significant findings in an audit report by the Treasury Inspector General for Tax Administration (TIGTA). Employment-related identity theft occurs when someone uses the identity of another person to gain employment. So, taxpayers may first realize that they are victims of this type of crime when they receive an IRS notice of a discrepancy in the income they reported on their tax return. The IRS’s Automated Underreporter (AUR) program identifies such discrepancies when it matches taxpayer income reported on third-party information returns (e.g., Form W-2, Wage and Income Statement) to amounts that taxpayers report on their individual income tax returns.

The TIGTA conducted this audit to evaluate the IRS’s AUR processes to identify and assist victims of identity theft. During the period February 2011 to December 2015, the IRS identified almost 1.1 million taxpayers who were victims of employment-related identity theft. In April 2014, the IRS started a pilot initiative to begin notifying taxpayers that they may be a victim of employment-related identity theft. The TIGTA’s review of the pilot notification initiative found that the IRS did not sufficiently design the pilot to include a representative sample of employment-related identity theft victims. Furthermore, the TIGTA found that the IRS has not established an effective process to ensure that it sends the required notice to alert the SSA of earnings not associated with a victim of employment-related identity theft.

If you would like to read the full report you can access it here => www.treasury.gov/tigta/auditreports/2016reports/201640065fr.pdf.

Do you think that budget cutting of the IRS has made this agency laggard in being pro-active in this ongoing fight?

If you ever receive a notice from the IRS (or even the State) don’t go it alone. Don’t wait….Time is of the Essence. Give Solid Tax Solutions a call at (845) 344-1040. We are available year-round.

You can also find out more about us through our website: SolidTaxSolutions.com.

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Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

Do You Need to ‘Timely’ Send Out Your Tax Return?

Hi all! For those of you who want to send tax returns to the IRS by Private Delivery Service (i.e., don’t or can’t e-file) but wonder if the tax return will reach the IRS in a ‘timely’ manner and can you use just any ole’ PDS……well the answers are right below.

In most cases the IRS considers ‘timely mailing as timely filing’. That is, if the tax return, payment, election, etc. is mailed on or before the due date, the IRS considers it filed on time, regardless of when it arrives. Prior to 1997, this rule only applied to the U.S. Postal Service. Thus, if you mailed your return by a private delivery service, the IRS considered it filed on time only if it arrived on time. Now, certain private delivery services are afforded the same status as the post office. The delivery services and the type of service are:

The list of designated PDSs effective April 11, 2016 is as follows:

DHL Express

  • DHL Express 9:00
  • DHL Express 10:30
  • DHL Express 12:00
  • DHL Express Worldwide
  • DHL Express Envelope
  • DHL Import Express 10:30
  • DHL Import Express 12:00
  • DHL Import Express Worldwide

Federal Express (FedEx)

  • FedEx First Overnight
  • FedEx Priority Overnight
  • FedEx Standard Overnight
  • FedEx 2 Day
  • FedEx International Next Flight Out
  • FedEx International Priority
  • FedEx International First
  • FedEx International Economy

United Parcel Service (UPS)

  • UPS Next Day Air Early AM
  • UPS Next Day Air
  • UPS Next Day Air Saver
  • UPS 2nd Day Air
  • UPS 2nd Day Air A.M.
  • UPS Worldwide Express Plus
  • UPS Worldwide Express

FedEx and UPS are not designated with respect to any type of delivery service not identified above. Therefore, for UPS regular ground service doesn’t qualify.

Notes:

Only the services listed above for each carrier qualifies for this special rule. Other services provided by these carriers are not covered.

You may still want to use the postal service. The rules for substantiating the “postmark” on private delivery services varies. Don’t forget, it’s not just the mailing but proving the date of mailing that counts. Check with the delivery service on their policy for the various types of delivery. Obtaining a proof of mailing from the U.S. Postal Service may be more convenient.

In addition, just keep in mind that the rules for  the states vary. Check the individual state. For example, at least one state accepts delivery by the above carriers, but to a different address than if you’re sending the return or other item by U.S. Postal Service. And, as of the writing of this blog post, one state has not accepted the updated list.

References:

  • Notice 2016-30
  • Notice 2015-38
  • Notice 2004-83
  • Notice 2002-62
  • Notice 2001-62
  • Notice 1998-47
  • Notice 1997-50
  • Rev. Proc. 97-26
  • Rev. Proc. 97-19

___________________________________________________________________________________________________

Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

Are You Making Money With Pokémon Go? The IRS Is Watching!

Pokémon GO has been downloaded an estimated 30 million times since its release on July 5 with more daily active users than the mobile versions of Pandora, Twitter, and Netflix . Millions of users every day log in and attempt to catch different types of Pokémon, ranging from Pidgey to Charmander to Squirtle and, of course, the most recognizable Pokémon, Pikachu.

pokemon-go-money-6819527Q

Last month, I touched on the Pokémon GO phenomenon. You can read that article here.

The amount of money being spent is mind-blowing with millions of dollars being generated every day. Nintendo, which controls one third of Pokemon, has seen its stock value double and because of the way iPhone charges users, Apple is said to be in a position to make billions. Not surprisingly, entrepreneurs are looking for ways to crack the Pokémon GO market, too. Here are a few ideas generating interest:

  • Drive: One cab driver in Mexico came up with the idea of driving customers around to help them “hunt” for Pokémon. Emilio Cacho, a 29-year-old cab driver, started calling his cab “Poketaxi” after offering his services to players. Mr. Cacho, who charges by the hour as a “Pokémon hunter”, has received more than 20 calls since he got started. BUT WAIT! Do you want to hear the irony? Cacho doesn’t even play the game, saying, “I don’t even know how to play, but I downloaded the app to help my clients.” And Cacho isn’t alone – there’s also a Pokémon bus.
  • Walk: You don’t even have to be a cab driver to earn extra cash You can just use your feet. You can take a user’s Pokémon GO account for a walk. Those users that are too busy to catch creatures on their own or maybe don’t want to deal with the heat are willing to pay. Ads are showing up online like this one on Craigslist in Houston (will walk for $15/hour).
  • Write: If you’ve figured out all of the best spots and strategies for catching Pokémon, why not share your expertise? You can write your own “how to” guide to help new users figure out the game. You can post your tips online via the web, newsletter, or eBook to sell or monetize.
  • Make a Video: If writing isn’t your strong suit, why not share your expertise? “How to” videos are popping up online every day telling users how to find the best creatures, what to spend money on (and what to avoid), and master tips. Monetizing those videos with ads can bring in extra revenue.
  • Promote: Small businesses have figured out that advertising Pokéstop locations can be a great advertising tool: attaching specials to Pokéstop locations can bring in new customers. Some businesses are even using lures (you have to buy these) to attract Pokémon to woo customers. New ideas for promotion are constantly bouncing around the internet. The possibilities are practically endless.

If you’re hoping to pick up some extra cash in the Pokemon GO craze, here’s what you need to keep in mind from a tax perspective (Oh, you didn’t think it would be that easy…….did you?):

  1. Income is Income. It doesn’t matter if your extra income is from walking Pokémon accounts or investing in the stock market, income is reportable unless it’s otherwise excluded.
  2. Understand What’s Business and What’s Just for Fun. Income may be income but how it’s reported can vary depending on whether you’re engaged in a business or a hobby. Hobbies and businesses are reported on differently on your Federal Income Tax return and they are treated differently for purposes of self-employment tax (business income is subject to self-employment tax while hobby income is not). When it comes to deductions, if you earn income in the pursuit of a hobby, you can offset the income with deductions but you cannot claim deductions that exceed your income – there’s no loss for a hobby. So if you spend more than you make, you’re out of luck. If, however, you earn income in the pursuit of a business, you can not only offset the income with deductions, you can carry any losses forward or backward. These rules are sometimes referred to as the “hobby loss rules” and they are important. To distinguish a bonafide business from a hobby, the Internal Revenue Service (IRS) looks at a bunch of different factors including whether you expect to make money (if so, you’re typically a business) as well as whether you are actually making money (again, typically a business). So how seriously you treat your new pursuit will matter. For more on distinctions between a hobby and a business, click here.
  3. Keep Good Records. It may seem like all good fun when you’re chasing a Pikachu, but you want to be able to verify your income and your expenses. The best way to do this is contemporaneously. If you’re working by the hour, keep a log of your time. Save your invoices and document income. When it comes to expenses, keep receipts and describe the nature of the expense (you can write this right on the receipt, or use a scanner and upload the image with an explanation). But, don’t get rid of those receipts immediately after Tax Day. You can read an article from our blog describing how long to keep your tax records by clicking here.
  4. You May Need to Prorate Some Expenses. Typically, you can only deduct expenses that are primarily for business use. Sometimes, you may have items like your cell phone or your car that are used for business and personal reasons. When it comes to those expenses, all is not lost. You can typically deduct the business portion of the expense. To figure that out, you’ll want to document your use and note when it’s for business. The easiest way to do this is to keep a log of your time and mileage. If, at the end of the year, you find, for example, that 30% of the use was for business, then you can typically deduct 30% of the expense. Some exceptions apply (for example, the IRS always considers a primary home landline personal, even if you jump up and down all the while swearing that it’s used solely for business). And, be careful, cars can be tricky.
  5. You May Need to Make Estimated Payments. The extra few hundred dollars you earn from walking or ad revenue might not drastically affect your tax bill, but if you’re making a significant amount of money, you’ll want to plan ahead. If you expect to owe more than $1,000 at tax time from your extra efforts, you’ll want to make estimated payments. Estimated taxes must be paid quarterly: if you skip a payment or pay late, you may be subject to a penalty.
  6. Consider Hiring a Tax Professional. Don’t assume that hiring a good tax professional will be complicated or expensive. If your tax situation becomes more complicated from your side business, especially since all of your income will no longer be reported by your employer on a form W-2, you may need help. Don’t hire just on cost.

Sometimes, a side business is just that. But if it turns out to be something more, don’t ignore the business side of things.

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Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

 

THE IRS MAY TAKE SOCIAL SECURITY BENEFITS TO SATISFY TAX DEBTS!

To satisfy tax debts, the IRS may levy a taxpayer’s Social Security benefits. However, a provision of the Internal Revenue Code requires the IRS to release levies that cause economic hardship.

An IRS Building.

Social Security Recipients Who Have Tax Debts May Receive a Visit From the IRS!

In addition, taxpayers have the right to claim an exemption against the levy, which allows them to receive a minimum amount of the Social Security payment and prevent all or part of the levy.

The Treasury Inspector General for Tax Administration (TIGTA) initiated an audit to determine whether the IRS appropriately applied manual levies to Social Security benefits. IRS Revenue officers make levy determinations of Social Security benefits on a case-by-case basis and exercise judgment in making the determination to levy. While there are special procedures and thresholds for levying Individual Retirement Accounts (IRA) and 401(k) retirement accounts, there are no special considerations or procedures for revenue officers when levying Social Security benefits. In these cases, the revenue officers follow procedures for levying assets in general. In most cases, revenue officers are compliant with these general IRS procedures when levying Social Security benefits. However, for 15 percent of the audit’s sample, TIGTA found that IRS revenue officers took levy action on Social Security recipients that likely caused or exacerbated economic hardship. These levies may be due in part to a change in collection policies that appears to give equal weight to nonlegal considerations (such as whether taxpayers are “cooperative” within the subjective determination of revenue officers) and the legal requirement to release the levy when the IRS determines that the levy is creating an economic hardship for the taxpayer. In these cases, revenue officers could have discerned from the facts that the taxpayers were experiencing economic hardship.

In Addition, while existing procedures allow revenue officers to manually levy up to 100 percent of Social Security benefits, taxpayers have the right to claim an exemption from the levy. However, in 28 percent of the sampled cases, IRS revenue officers used the wrong form to levy Social Security benefits. As a result, the IRS did not consider exemption amounts before establishing the levy. Of these cases, 6 percent involved taxpayers who suffered greater Social Security levies than allowed by law.

The TIGTA believes the IRS needs to adjust its policies and procedures to allow revenue officers, with appropriate discretion, not to levy if facts and circumstances clearly show that taxpayers are in or on the threshold of an economic hardship.

If you would like to see the complete report (ah yes, nice summertime reading), go to: www.treasury.gov/tigta/auditreports/2016reports/201630043fr.pdf.

Is this an example of to much force used by the IRS? Is it misguided?

__________________________________________________________________________________________________

Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

YOUR BUSINESS MAY BE OPERATING IN MORE THAN ONE STATE….AND THAT MIGHT BE A BIG AND COSTLY SURPRISE TO YOU!!

      Why you might ask?

Well let me tell you….since you asked.

Each state has its own regime for corporate income tax, sales tax, use tax, and other revenue raisers. Typically, you are subject to a state’s taxes if you have a nexus to the state.  Nexus means having a substantial physical presence within a state, such as maintaining offices, warehouses, or a sales force. The presence may be permanent or temporary.

However, as states look to expand their ability to tax, the concept of nexus is growing as well, and may cause you to become subject to a state’s taxes without any conscious decision on your part to transact business there. so, for example, merely traveling on business by airplane creates nexus in a number of states. And with the advent of online sales, a number of states have created “click-through nexus“, where online (remote) sellers with a certain level of sales are deemed to have sufficient nexus to collect sales tax in the state where the sales occur (the location of the buyer even though the seller is in another state).

The 2016 Bloomberg BNA survey of State Tax Departments found some startling information that you should know about when it comes to nexus. (Note: You can download a complimentary copy of the survey, but you have to provide your email, name, company, and zip code).

Key Findings From the Survey:

      • Using FedEx or UPS to deliver goods in another state can create sales tax nexus for remote sellers (this is so in 1 out of 4 states).
      • Because of the complicated tax rules, some businesses may be subject to double taxation (i.e., tax on the same income, sales, etc. in more than one state). While there may be some deductions or credits for taxes paid in one location against taxes in other, the write-offs may not fully account for the taxes.
      • Guidance on how pass-through entities (S Corporations, Partnerships) should apportion income to the states in which there is nexus is largely unclear; only 6 states have clear guidance rules.

Bottom line

Talk with your tax advisor to determine your business’s exposure to taxes in states that you may not think have a physical presence in. If you learn you will be treated as having a nexus elsewhere, then discuss ways to minimize your tax bill in any of these other states.

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Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).