A number of tax scams exist with the goal of stealing your identity, stealing your money, or even filing fraudulent tax returns using your private information. Tax scammers work year-round, not just during tax season, and anyone could be a potential target. Stay alert to the ways criminals pose as the IRS to trick you out of your money or personal information.

IRS-Impersonation Telephone Scam

An aggressive and sophisticated telephone scam targeting taxpayers, including recent immigrants, has been making the rounds throughout the country. In this type of scam, callers fraudulently claim to be IRS employees. These con artists can sound very convincing using fake names, false IRS identification badge numbers, they may sound knowledgeable of the victim’s circumstances from information gathered through online resources, and usually they alter the caller ID (caller ID spoofing) to make it appear as though the IRS is calling. Victims are often told they owe money to the IRS and this “debt” must be paid promptly through either a pre-loaded debit card or wire transfer. Should a victim refuse to cooperate, the scammers use the threat of arrest, deportation, and even suspension of a business or driver’s license. Often times the caller may become hostile and insulting in order to lend an air of authority to their empty threats. Not as common, yet still one tactic scammers may use, involves telling victims they are owed a refund in an attempt to trick the victim into sharing private financial information.

Fraudulent IRS Emails — Phishing

The practice of tricking victims into revealing private personal and financial information through the use of fraudulent emails and/or over the internet is known as “phishing”. Oftentimes, scammers create official looking IRS electronic correspondence to fool their victims. These emails may include a web link that directs the victim to a website appearing as official as the email and many times will mimic the look and layout of the official IRS website.  At this point, victims may see online forms which request personal and financial information, such as Social Security number, bank account information, or credit card numbers.

Fraudulent IRS Emails — Malware

This practice is, to an extent, a variation of the phishing email scam. Fraudsters will also attempt to trick the victim through the use of official looking IRS electronic correspondence. Emails may include links or files which the victim is meant to click or download, respectively. This act may trigger the download of a malicious piece of software which in turn could expose or compromise the computer or network. The goals of this scam may be to gather private and confidential information, track activity, access files, or take control of a network or system. While not isolated to businesses, this form of scam is a greater risk to businesses as internet security must be practiced by all in the organization and one “slip up” could compromise the entire network.   

Ways to Protect Yourself

As the saying goes, “Eternal vigilance is the price of liberty”. The best way to protect against the above scams, or others that may not yet be as widespread, is to remain aware of their existence, how they are perpetrated, how to protect against them, and how to minimize the likelihood of exposure. The following tips could help in protecting you and your information from prying eyes:

• The IRS will only initiate contact with a taxpayer by letter correspondence, sometimes called “snail mail”. Any contact by email, phone or text should be disregarded and deemed suspicious.

• There may be contact with a taxpayer using methods other than “snail mail”, however these will only take place after establishing a line of communication with the taxpayer.

• The IRS does not require a taxpayer to fill out online forms revealing personal information in order to either receive a refund or as part of an examination. If the IRS requires additional information, this will be requested, again, through a letter from the IRS.

• Information such as Social Security Numbers and/or EINs are in the IRS databases thus there is no need for a request. Anyone requesting this information can be viewed as suspicious.

• Personal information should not be provided over the phone, through the mail, or on the internet unless the taxpayer initiated the contact or is sure he or she knows with whom he or she is dealing.

• Financial information should be protected. Do not give out any financial information over the phone or via email.

• Protect personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for internet accounts.

• Do not click or download anything from email which purport to be from the IRS. If possible, do not open the emails.

• Report any instances of tax scams to the IRS.

• Suspicious emails should be reported and forwarded to the IRS at phishing@irs.gov.

If you feel you have been the victim of a tax scam, alert the IRS at IRS-Phishing or notify the Treasury Inspector General for Tax Administration at 800-366-4484.

The timing of different retirement distributions could drastically affect the amount of taxes paid throughout retirement. To start, the various retirement accounts available have different tax treatments and consequences.

For example, withdrawals from traditional IRA accounts are taxed as ordinary income. If any amounts were contributed on an after-tax basis, then those amounts are not subject to tax. Likewise, Traditional 401(k) accounts are also taxed as ordinary income when funds are withdrawn.  In contrast, both Roth IRA and Roth 401(k) account withdrawals are tax free, although the account holder must be older than 59½ and the first contribution must have been made at least five years prior to the withdrawal.

In order to time withdrawals to minimize tax liabilities, taxpayers must evaluate whether and when they will stop working and when they plan on applying for Social Security. Social Security benefits are available at age 62 however if a taxpayer continues working, receiving Social Security may push the taxpayer into a higher tax bracket. The taxpayer could end up paying taxes on their wage or business income, Social Security income, and any additional withdrawals from any retirement plans.

Many advisors recommend taxpayers make withdrawals first from taxable accounts, then from tax deferred accounts and lastly, Roth accounts withdrawals from which are tax free. This way, the taxable accounts are paid first, and the tax-deferred accounts have longer to grow and increase in value. While this method does allow for less paid in taxes later on in a taxpayer’s life, it may mean the taxpayer is paying an increased amount of taxes for a few years upfront with little to no taxes in later years. By taking stock of where retirement income is coming from and creating a proportional withdrawal strategy, however, a taxpayer can spread out their taxable income evenly over retirement and potentially reduce taxes paid on Social Security benefits.

Each individual’s situation and hopes for retirement will be different, so it is essential to take a thorough look at your projected income for retirement and plan ahead. Additionally, periodic adjustments during retirement years are also important as tax laws, tax rates, and needs change.

Transaction Coding

Most systems have incorporated some form of machine learning into transaction coding. When bank feeds are imported, each transaction needs to be coded to add the account code in the chart of accounts.  Class, tracking codes, and other custom data may need to be added as well. Rules can be set so that the accounting application can pre-code the transactions; in this case the accountant or business owner simply approves or corrects the entry.

Invoice Fetching

It starts with a picture of a receipt. Invoice fetching applications can turn pixels into data using sophisticated OCR (optical character recognition). The data is then turned into a business transaction that can be imported into an accounting system.

Auditing

The books of many government agencies, nonprofits, and large businesses need to be audited on a regular basis. Auditing can be an expensive process. Smart programs can review a company’s data and assess where the risks and anomalies are so that the audit program can be modified to focus on the more important parts. This reduces risk and cost for parties involved. 

Accounts Payable

Artificial intelligence can help speed up the matching of purchase orders, packing slips, and invoices so that accounts payable tasks can benefit from both accuracy and efficiency.  It can also automate approvals and search for duplicate invoices in order to avoid overpayments. 

Accounting Tasks That Are Clerical

Robotic Process Automation (RPA) is a platform that allows users to create automation without involving the IT department. Think Excel macros or Zapier on steroids. Any workflow with an overwhelming number of clerical steps could be a candidate for RPA. 

AI allows accountants to spend less time on routine tasks and leverage that freed up time on higher-level analysis work. As AI becomes more affordable, small businesses, accountants and bookkeepers will benefit from this transformative trend.

To learn how to leverage new technology to streamline your businesses’s accounting functions contact us.

Beginning in 2018, the personal casualty and theft loss deduction is restricted to casualty losses incurred in a federally declared disaster area. Additionally, the casualty and theft deduction is only available to those who itemize their deductions, not to those who take the standard deduction.

In the instructions for the 2018 Form 4684 (Casualties and Theft Loss Deductions), the IRS defines a disaster loss as “a loss that occurred in an area determined by the President of the United States to warrant federal disaster assistance and that is attributable to a federally declared disaster. It includes a major disaster or emergency declaration.” A list of federally declared disasters can be found at https://www.fema.gov/Disasters.

There are two tests that must both be passed to qualify for the deduction:

1.     A loss must exceed $100 per casualty and,

2.     Net total loss must be greater than 10 percent of your AGI (adjusted gross income)

You may still elect to deduct the casualty loss in the first tax year before the tax year in which you incurred the disaster loss. IRS Publication 976 provides information about personal casualty losses resulting from disasters that happened in 2016 and certain 2017 disasters, including Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, and the California wildfires.

An exception to the rule limiting the personal casualty and theft loss deduction to losses incurred in a federally declared disaster area applies if you have personal casualty gains for the tax year. In this case, you can reduce your personal casualty gains by any casualty losses that are not attributable to a federally declared disaster. Remaining losses must pass the two tests listed above.

In a recent publication clarifying some of the new tax reform laws (Publication 5307), the IRS touched on how some of the laws enacted in 2018 make it easier for retirement plan participants to access their retirement plan funds. This may allow affected taxpayers to:

·      waive the 10% additional tax on early distributions or,

·      include a qualified hurricane distribution in income over a 3-year period or,

·      repay their distributions to the plan or,

·      have expanded loan availability or,

·      extend the loan repayment period

We certainly hope neither you nor your loved ones were affected by a disaster last year, however if you were, we have your Six…tax-wise, that is.  

One of the biggest challenges for small businesses is managing cash flow. Often it seems there’s not enough cash to meet all obligations, so it makes sense to speed up cash flow when and where you can. Here are five tips you can use to get your cash faster or slow down the outflow.

1.     Stay on top of cash account balances.

If you’re collecting money in more than one account, be sure to move your money on a regular basis when your balances get high. One example could be, a PayPal account.  If money is coming in faster than you’re spending it, transfer the money to your main operating account so the money isn’t just sitting there. 

2.     Invoice faster or more frequently.

The best way to smooth cash flow is to make sure outflows are in sync with inflows. If you have a payroll weekly yet only invoice monthly, your cash flow is likely to dip more often than it rises. When possible, invoice more frequently or stagger your invoice due dates to smooth out your cash balances. 

Take a look at how long it takes you to invoice for your work after it’s been completed.  If it’s longer than a few weeks, consider changing your invoicing process by shortening the time it takes to send out invoices. That way, you’ll get paid sooner.  

3.     Collect faster.  

Got clients who drag their heels when it comes to paying you? Try to get a credit card on file or an ACH authorization so you’re in control of their payment.

Put a process in place the day the invoice becomes due. Perhaps the client has a question or misplaced the bill. Also, be aggressive about following up when the bill is 45, 60, and 90 days past due. Turn it over to collections quickly; the older the bill is, the less likely it is to get paid. 

4.     Pay off debt.

As your cash flow gets healthier, make a plan to pay off any business loans or credit cards that you have. The sooner you can do this, the less interest expense you’ll incur and the more profit you’ll have. 

Interest expense can really add up. If you have loans at higher interest rates, you could try to get them refinanced at a lower rate, thus helping you save on interest expenses paid.    

5.     Reduce spending.

You don’t always have to feel like you’re sacrificing in order to reduce spending. Look at your expenses from last year, ask yourself:

• What did you spend that was a really great investment for your business?

• What did you spend that was a colossal mistake?

• What do you take for granted that you can cut?

• Where could you re-negotiate contracts to save a little?

• Where could you tighten up if necessary? 

Managing cash flow is always a challenge, these tips will help give you a little cushion to make it easier. 

The provision mentioned above is known as Section 199A, more specifically the part of this provision that has created such fervor is known by several names (accountants are still trying to settle on one as a standard), among them are: 199A deduction, 20% deduction, TCJA deduction, QBI Deduction, QBID or Qualified Business Income Deduction. We will refer to it simply as QBID to keep things consistent.

What does it do? How does it benefit my business? Glad you asked. At its most simple, this is a deduction for ‘pass-through businesses’ which allows business owners to reduce profits by up to 20% and only be taxed on the other 80%. A necessary warning: as many things in the Internal Revenue Code, nothing is ever quite this simple however. There are multiple tests and criteria that must be taken into consideration to determine whether a business qualifies, and readers are encouraged to be aware of these before expecting a clear 20% haircut off their profits for 2018 and later.

First, what is a pass-through? If your business is set up as an S-corporation, or an LLC – single member or otherwise, or a Partnership, or even if you just report your business income on Schedule C on your personal return, the QBID may be available to you. The QBID is primarily based on what your QBI or Qualified Business Income is, keep in mind this number may differ from your actual net profit, so beware and be aware of this. Second, limitations exist based on such things as your industry, total business income, taxable income, how much you paid in wages, and even whether you’re married. Third, the QBID may apply to different businesses differently even if the owner happens to be the same person. Lastly, while the deduction is connected to the business, much like reporting your business income in the past, claiming this deduction and enjoying the tax savings is shown on your individual return (Form 1040).

In short, as a business owner you may benefit from making a portion of your income tax-free, which you can then reinvest into your business, add to your retirement savings, take the family on vacation, or whatever your heart desires.

The application and eligibility of the QBID to your business or businesses in practice can be complex. You are highly encouraged to discuss this with a tax professional.

This time of year and into April, we begin to hear a different vocabulary come to life: “Credit.”  “Exemption.”  “Adjusted Gross Income.”  It can seem as though your accountant speaks an entirely different language.

While we take great efforts to explain the tax terms we use with out clients, we’ve compiled a list of some of these terms for those of you who’d like to be more “in the know.” Not only will this better equip you to keep up at your next social gathering, but it will allow you to ask the right questions when you meet with your tax professional.

TY = Tax Year

If you file your taxes on time, the tax year is always one year behind the year we’re in. In 2019, you will be filing your TY 2018 tax return.

FY = Fiscal Year

Fiscal year is a one-year period for accounting purposes. Most businesses make their fiscal year the same as the calendar year: January 1st through December 31st. Others run their business with start and stop dates different from the calendar year. A common fiscal year is July 1st to June 30th.

EIN = Employer Identification Number

This is a unique identification number assigned to a business by the IRS.

Form 8879 = IRS e-file Signature Authorization

This form must be signed for your return to be e-filed, and it can be digitally signed.

Form 1040 = U.S. Individual Income Tax Return

This is the main form used when reporting individual income. It includes the taxpayer’s basic information, dependents, and tax calculations. If the taxpayer is a sole proprietor or a single-member LLC, their business activity is reported on their personal tax return.

Form 1120 = U.S. Corporation Income Tax Return

When reporting C corporation income, this form is used. S corporations are reported on Form 1120S. 

AGI = Adjusted Gross Income

AGI is equal to your total income subject to income tax minus specific deductions you may be eligible to take. AGI is calculated before applying the standard or itemized deduction. Many credits are subject to AGI limitations, meaning that if your AGI is above a certain amount, you may be disqualified from certain deductions and credits.

MFJ = Married Filing Jointly

This is one of five possible filing status categories.

MFS = Married Filing Separate

This is another one of five possible filing status categories. You may see these acronyms frequently in tax articles explaining how new laws affect the different types of taxpayers.

TCJA = Tax Cuts and Jobs Act

The name bestowed upon the latest tax law changes approved by Congress, many of which went into effect for TY 2018.

SSTB = Specified Service Trade or Business

This term specifically relates to Section 199A, which is a new tax law that allows for up to a 20% deduction on “qualified business income” (“QBI”) for any “qualified trade or business” (“QTB”) other than a “specified trade or business” (“SSTB”). This deduction is available to sole proprietors and passthrough entities. 

This list will get you started, and if you run across another tax term, feel free to reach out and ask us what it means.