I know I wrote about scams and the IRS’s annual Dirty Dozen list of them last week, but the agency has continued to write about them, so I will as well. This is because there’s one more I wanted to mention this week – using frivolous tax arguments.
This one feels different than most of the scams one hears about because it’s not predatory. Those scams feel dangerous, while frivolous tax arguments feel more, well, frivolous if not downright silly.
I mean, just look at the three arguments that the IRS listed in its look at the scam:
If you’re reading this at all, you probably are knowledgeable enough to recognize these as the false claims they are. They apparently do exist, though. I would, however, say that the more dangerous frivolous claims are the ones that do not look as obviously egregious.
Instead, have you ever heard a friend talk about deducting something on your taxes that you never knew one could? Have you heard someone claim a windfall because they’re getting some money they don’t pay taxes on?
Frivolous arguments are not only the ones that tell you that you have to pay no taxes, they can be the ones that tell you that you can pay less taxes. These can be dangerous because those using them are largely not trying to defraud anyone. They think they have legitimate information, but they did not look into it, and now are attempting something they do not know is illegal. This can be avoided with some diligence, though.
Even if we have worked with you and done your tax return for years, don’t be afraid to speak up if you think your tax return is not being maximized to your benefit. It could be that there is information you didn’t know was relevant, thus was never shared, so we didn’t know we could use it. It could be that it would benefit some taxpayers, but it is not something you qualify for. Or it could be that it’s simply bad information.
No matter the answer, though, addressing it with a professional means that you will then have comfort and knowledge and avoid any misdeeds.
Another reason to speak up is because you can get you some money from past years’ tax returns, as well. You only generally get three years to do this, though, so the window for the 2015 tax year is closing.
It’s wild to think about as a whole number, but the IRS estimates that there is $1.4 billion in potential refunds from that year waiting to be claimed. A lot of this comes from people who never filed a tax return. The IRS isn’t exactly tracking them down, though, for if those returns remain unfiled the money becomes property of the government.
So if you or someone you know could be owed some of that money, feel free to reach out.
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Every year around this time the IRS releases its ‘Dirty Dozen’ scams list. The timing is not a mistake, as the tax filing season provides more opportunities for people to try to take advantage of others. So in that spirit, here is a renewed warning for things to look out for.
The largest of these are phishing schemes. This does not only happen around tax time, so make it a general rule to not follow web links from suspicious emails and not to enter personal information onto websites before confirming they are legitimate. In addition, this is starting to occur more often over social media. So know that links encountered there could also be dangerous. Installing security software on your computer can help alert you and steer you away from malicious sites and block malware attempts. Many internet service providers offer this as part of your plan, but even if they don’t it is relatively inexpensive, especially considering the potential costs.
At this time of year, these scams will increasingly use the name of the IRS to frighten people and direct them to places they shouldn’t go and to do things they shouldn’t do. So let this be a reminder that if you aren’t aware of any issue you have with the IRS, the first time you hear from them is not going to be over the computer.
The initial contact from the agency almost always comes via regular postal mail. So let that also make you wary of phone scams from those who say they’re from the IRS. The awareness of these scams is pretty strong, as it seems most everyone has received one of these fake calls, but that has not stopped them from occurring. The fright that they can cause may feel a little larger this time of year, but remain vigilant. Even if you think a call is legitimate, it is okay to take the time to check its credentials before sharing personal information or making payments.
The IRS is also concerned about those trying out scams on their actual tax filing, too. Some of these are easy to understand, like people not reporting income or claiming expenses and deductions for which they do not quality. There are also scams out there where people try to inflate income. Without getting into the mathematical minutiae of this, having a bit more income could help someone’s tax picture by maximizing some tax credits.
Overall, if someone is promising a bigger refund, but there are machinations involve that feel shady, they probably are shady. As always, I think that the best way to handle a tax return is with honesty. Sure, the final numbers may not always be what you would like, but there is value in peace of mind, too. Even if you owe more money than you think you can afford, handling that and figuring out how and when you can pay it (even if it turns out to not be immediate) is better than doing something that could come with greater consequences later.
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It has been a growing trend, and one that does not promise to end anytime soon, that more people are earning money that does not come through a traditional W2 job. This can often be a side hustle for someone who does not consider themselves self-employed, or it can be someone who completely lives off that type of work and embraces the gig economy. Either way, this type of income is subject to self-employment tax. This is how the government gets you to pay into social security and Medicare when those monies aren’t being taken out of a paycheck.
And just so you know, enforcement of this could be about to go up.
The Treasury Inspector General for Tax Administration (TIGTA) released a report last month saying that the Tax Gap (difference between the taxes owed to the government and what is paid on time) for the self-employment portion was $69 billion (yes, really, with a B). TIGTA is an office that provides independent oversight of the IRS to promote fair administration of the tax system. And yes, it is fair that the IRS actually gets to collect the money that is owed to it. This seems to indicate that those who have been getting away without paying all their tax from side gigs could be subject to increased inspection as the IRS is urged to put more of its energies there.
If you are unsure about where you stand in this situation, that’s not a good sign. Just start from the standard rule that if you earn money, the IRS wants to know about it, and very likely wants to tax it. So if you are earning money, it most likely should be on your tax return.
I think a lot of this money that goes unreported does not do so through willful negligence. If someone is unfamiliar with the tax system, those various 1099 forms that come in the mail at the beginning of the year could be meaningless to them and left in a pile on the desk or thrown in the trash. This could be a young person making a little extra money, not feeling like they actually have a job, and then not understanding they have income to report and taxes to pay. This could be someone who has been in the workforce for years, knows how to handle their taxes off their one W2, and don’t realize that there is more to their tax picture.
Something else that this group does not understand, though, is that if they receive a 1099 form, a copy of it has also made its way to the IRS. Many of these can be of a small amount that slip through the cracks. Those small numbers obviously add up to a big one for the IRS, (really, with a B) and if they are going to put more effort into finding taxpayers who ignore them, it can be worth not ignoring them. After all, if it is a small number, it will only take a small number to handle the tax liabilities caused by it.
Let this be a warning then to be sure that you are reporting all that you should on your tax return. Yes, it is great to get some tax-free money, but it will not be tax free (and will come with penalties and interest) if the government finds you should have paid them some of it. And as always if you need help navigating through this part of your tax picture, we remain here to help.
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It’s not often during tax season that I feel like I get a chance to breathe, but I have had that chance over the past week. The political landscape has calmed (granted, only partially and only in some areas) and the lack of a shutdown threat has let the tax season progress in a more regular fashion. This means I have got to see some of my business tax clients, and it is always heartening to see people who have grabbed their own dreams and are pursuing them toward their own ends.
Throughout the year, I hear from people who are looking to jump into this world of starting their own business. This isn’t (only) to toot my own horn, but I find that those I speak to before they fully begin the endeavor fare better than those who are already mired in the world (and often looking for a rope to help pull them out). This is mostly because those who are the most successful are the ones who are the most prepared for what they are taking on.
You should start any business with passion, fervor, and vigor, but those are not enough to guarantee success. The Small Business Administration, though, has provided some more keys and recently put out a 10-step guide to starting a business. If this is something you are interested in, please take a look, for it gives a nice overview of things you might not know you should think about. And for those you are really interested, it allows you to drill down into the topics and learn more about them.
This list features big ideas (what will be your type of business structure?), fun ideas (what will be your business name?) and the mundane stuff you have to do (get federal and state tax IDs). It’s a great primer.
Please allow me to take a little extra time here to highlight the final entry of getting a business bank account. For it is tax time, and those businesses that operate in a way that involves having to determine between personal and business transactions in the same account, well, they’re not having fun right now. A separate account is a simple action that can save so many headaches.
I also want to add another entry to the ideas, though. I understand that it’s usually not one of the first considerations when beginning a new venture, but also make sure you do a little bit of research when hiring your first employee. It’s not that difficult to start off paying a couple contractors to help you start, and it doesn’t need to be that difficult to bring on an employee once you grow, but it’s something you want to do in the right way to make sure you aren’t setting yourself up for any potential penalties.
Please use this information to brainstorm and look into things a little deeper if you have been thinking about starting your own business. Just know that you are bound to develop more questions, and when you do, we remain here to help you move further down the path.
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Now we can really get down to business.
The shadow of looming government shutdowns seems to be over. This hopefully means that things will remain largely status quo until the tax deadline, and maybe the IRS will actually be caught up from that original shutdown by then.
In recent weeks, I have urged being a little more active in your tax prep while things were a little uncertain, and I will not stop that now. For while some things are in order, there remain other things that aren’t.
For now, there are an ever growing number of stories about people who were expecting tax refunds – because they always got one in the past – but are paying a tax bill this year. It could be much better to find out about that surprise bill on March 1st than April 15th. That way if you need to make some moves to pay the amount, you will have more time to do so and can lessen the stress of doing it.
Those are going to be the stories that get the most play because of the fear they can cause. But sure, there will also be people who fill find more money than expected coming back to them under the new rules. The timing of filing a return may not be as crucial if you find yourself in that camp, but why not get the money sooner? No matter what you are going to do with it, you can’t do it by letting the government keep it in its no-interest holding cell.
Now that we can expect these refunds to come on a regular schedule, too, I wanted to mention a way to find out when you will get that money.
Let me start by just saying that there are no secret tricks to get your money faster. The IRS has a pretty standard schedule, and if there are no issues with your return, getting your refund will follow that schedule. Filing electronically puts you on the fastest schedule, but once you’re there, that’s all you can do. We do not have any clandestine means to move up the line. If we did, I promise we would tell you about them.
We also do not have any more information than what the IRS gives you with its Where’s My Refund tool, available at www.irs.gov/refunds. Through that site you can put in some basic information and find the status of your return and when you can expect a refund.
Beyond that, there’s no secret tricks to taxes at all if you put together a legitimate and legal tax return. The best legitimate and legal return, though, comes with enough time to not rush through it, so make sure to book your appointment as soon as you can.
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