After a couple of weeks writing about potential scams that surround the tax world, it is time to look at something different. I am going to go in the complete opposite direction and talk about if you receive actual communication from the IRS.
First off, this feels scary. The minute you receive a piece of mail from the IRS just the agency’s logo sends your brain spinning into awful places envisioning a problem you cannot afford to handle. Do not let this fear take over, though. No matter what is inside the envelope, you will not improve the situation by ignoring it.
So next, assess what the matter really is. It is possible that it is minor and can be taken care of with minimal pain.
Realistically, however, this is probably something that is going to take more work than that. If we prepared your tax return, contact us. We will help guide you through the process. And it is a process that is going to be time-sensitive, so don’t hold off. The more time we have to handle things, the better we can do so.
This is especially key if the issue leads to an audit. In that situation, we can offer the assistance to back up why your tax return looks the way it does. This is where so much of the advice we give in this space during the tax season comes into play – the more paperwork you have properly recorded and filed, the easier it is to give the answers that will be needed.
If you did your own tax return and received that notice, that can be even more disconcerting, for you will immediately question if you did things right. Reaching out for professional help could be even more crucial at that point to try to mitigate any potential damage.
No matter what the situation, though, remember to not be ruled by fear, assess the situation, and get help if needed. Handling problems head-on is always the best choice of action in the long run.
This also seems like a good time to talk to those who have not filed their 2018 taxes yet. The IRS may not have contacted you about this yet, but they are going to if you do not stay on top of this. And again, avoiding it will not help.
Remember, too, that if you owe taxes, you are not getting away with not paying them even if you have filed an extension. That amount owed was still due back in April and is building interest and penalties. It is even possible that you have not filed yet because you know you are going to owe money and you don’t think you can afford the bill. That bill is only to grow as you ignore it, though. Leniency is not gained by hiding and you may be able to start working out a process that will ease the burden if you handle it now.
So yes, even those who are on extension, I know you have a few months left to go, but it can be to your advantage to get to work now.
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When I wrote about tax scams last week, I really didn’t plan on sticking to the same subject this week. Since then, though, I read this article from Accounting Today, and I thought it was necessary to go a little further. And this week, my overarching tip comes in two words:
I tend to talk about the larger tax scams, which can themselves be smart, allowing us to empathize with their victims. Most of them play on fear, an emotion we all experience. They also involve ignorance of the tax audit and collection process. Heck, even as a professional in this area, there are always new things that I learn about it, so it cannot be expected that laypeople will know all the rules.
There are also some smaller-scale schemes out there, though. I realize I may not have given them enough time and in them is where that two-word advice should be used. As an example from the article, a tax refund was delivered in cash to a client in a parking lot. If what you’re doing looks (and probably feels) illegal, chances are really good that it is. This is aside from the fact that the exchange involved $1,400 when the taxpayer was actually owed a refund of more than $8,500.
I don’t write about things like this often because I am confident in the work that my company does and do not operate in such ways. Watching out for such things, however, is something that is good advice beyond the tax realm. When you are giving people access to personal and financial information, you need to feel safe and secure in what they are doing. If someone’s way of doing business seems off, there are enough other people out there who will do what you need. Also, don’t let cost come into this calculus too strongly. There is often a reason when someone’s price seems too good to be true.
The article also mentioned a couple of lawyers who were caught after trying to evade paying all the taxes they owed. These are people who must have known that what they were doing was not on the up-and-up. I could even imagine that they thought their knowledge of the system gave them an advantage in trying to abuse it. Let this be a warning then that there is never a guarantee that punishment can be avoided.
A final commonality between some of these stories is how fraudulent tax returns often involve false credits and deductions. I’m sure that many people whose tax returns were handled by immoral preparers did not know that part of their return was fraudulent. If you are paying a professional to help you, you are relying on their expertise to lead you in the right direction. Being smart in those cases involves having these professionals explain to you what they are doing, and in a way that you can understand. They are your guides through a world that you do not know, but they should be able to talk you through it in a way that makes sense.
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Keeping yourself safe from potential identity theft and watching out for scams remains important even removed from tax season. The IRS knows this and is taking steps to keep your information safe.
Last week, the agency announced that it would stop faxing tax transcripts this month. It also plans to stop third-party mailing of tax returns and transcripts in July. The IRS has found that criminals can impersonate taxpayers or authorized third parties to get those transcripts and use them to file fraudulent returns. This doesn’t mean that you can never get a legitimate transcript if you need one. In fact, it is still easy for a taxpayer to do it themselves online by verifying their identity.
At the same time, the IRS is also raising the alarm on a couple of new scams aiming to get your personal information. Two of biggest are claiming that your social security number is going to be suspended or canceled and demands from a Bureau of Tax Enforcement.
We will take on the SSN one first. Let this be the most giant red flag you can ever encounter when it comes to scams. If someone wants your social security number, and you aren’t 100% sure who they are and that they should have it, don’t give them any information.
These demands are often coming through frightening robocall voicemails. They talk of potential punishments that sound awful, and they would be if they were true. But if these calls come out of nowhere and speak vaguely of things that you cannot connect to legitimate information that is because they are not real.
Another trick that I like to do with these calls is do a Google search of the number these calls come from. A large percentage of the time this will return a list of people at least searching for the number if not labeling it as a scam. Either way, that should make you feel more confident that you can ignore it.
As for the Bureau of Tax Enforcement, it sounds real legitimate, doesn’t it? Well, it doesn’t actually exist. When you get a letter in the mail, though, that threatens a tax lien or levy because of delinquent taxes, paying money to the Bureau of Tax Enforcement sounds like a valid way to keep that from happening.
This one feels extra dangerous because it bypasses some of the warnings that are often put out for how to avoid schemes. One is that the first contact from the IRS will come through the mail and not via phone, email, or social media. Well, they bypassed that. It also seems to be seeking a legitimate way of payment. You’re sending a check to a seemingly legit organization and not wiring money, buying odd gift cards, or using any other unorthodox form of odd payment. The money is also not demanded quickly.
This shows how scammers are always trying to stay a few steps ahead of knowledge getting out to the public. They are not simply going to be defeated in one arena and then give up. So be sure you also stay ready to take in new information and remain diligent when something doesn’t feel quite right.
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How you feel about the Tax Cuts and Jobs Act at this point probably largely has to do with how your tax return looked this year. The numbers from a country-wide standpoint said that things largely remained unchanged from the government’s standpoint. That does not, however, mean that there were not some big changes on a personal level.
That’s why in the time since the tax season ended I have written a bit about being proactive and making changes to help your own situation. It would take some huge surprises for the rules to change again before next year. So you need to do what you can to leverage your situation underneath the current system.
Possibly in an actual bit of surprise, though, the IRS may be helping with this.
Over the last week, the agency has issued a draft of a new W-4 form. Remember that form you filled out when you started your job to say how you wanted your taxes handled and then never thought about again? Yeah, that form.
The changes here are largely due to the TCJA, so allow me to get a little tax jargon-y for only a paragraph. That W-4 form you may still vaguely remember was based on withholding allowances, which was tied to the amount of the personal exemption. This is why it had a little questionnaire about your family and life situation to help you determine how you may want to fill out the form. This worked pretty well for most people. The revamped rules, though, have led to a more complicated form, but one that will be better at actually taking into account your personal situation.
First, let me state that this new W-4 is a draft only. The real form will only come out later this year. Also, it will be for the year 2020 so any changes you want to make for this year must be done on a current form. It is still worth looking at the changes made, though.
One of the new things on the draft version of the form is the ability to account for multiple jobs. This even includes if you are married filing jointly and both you and your spouse work. This is key because your total income could be much higher than what you earn at the job for which you are filling out the form.
In the same vein, there will also be spots in include income earned from other areas and possible deductions. This is a much fuller version of your total tax picture than was seen on the W-4 form in the past (although you also had the opportunity to withhold additional amounts of money if you so chose).
This new form is a bit more complicated and will take a little more work to accurately fill out. This may feel daunting, and it could even be argued that it will increase the chance of errors. The idea, however, is that it is designed to give a fuller picture and more accurately report what should be withheld form one’s paycheck to fulfill your tax obligation. These are only good things.
Accomplishing good things aren’t always something you can do on your own, though, so as always we remain here to help you make your tax picture work to your best advantage, even if that involves filling out some new forms.
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