Fall 2015 Vol. XX. No. 1 Newsletter

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Fall Notes:

winterIt’s been a while since our last newsletter (Jan 2015) – this edition will address a growing concern among our clients, Identity Theft & Data Security. Please be sure to check the front page of our website periodically where we post current new topics. This month’s post includes a description of the new IRS mileage allowances. Behind the scenes, Ellen Silverstein, CPA begins her 22nd year as my associate working with both corporate and individual tax returns; Becky and Robin, our fabulous bookkeepers continue to provide their expertise with Quickbooks.

For those of you who are new to our practice, we specialize in accounting, taxation & consulting with small-to-medium sized closely held businesses, and, during the season we prepare many individual income tax returns. Our style is always consultative, with an old school attitude of getting face-to-face with our clientele.

What we do: In our practice, we maintain a desire and commitment to develop strong personal relationships with our clients in an effort to provide the best accounting and tax solutions consistent with our clients ’ unique goals, needs and attitudes. Our professionals (Ellen, Robin, Becky), our most valuable asset(s), work diligently to earn the respect, privilege, and business of each client relationship.

What we achieve: We explain how to get more out of your financial systems & reports and how to strengthen your working relationships with other professionals. We identify which key metrics to monitor on an ongoing basis in order to assess business growth. We identify and understand the financial indicators that a bank or other lender will use to look at your business and assess its health. We are always re-examining the growth goals that you have developed. Combined with forward tax planning and tax preparation, this is your recipe for success.

Identity Theft – Part I.

Your personal income tax data might not be secure. That’s the lesson taxpayers learned after the IRS reported a breach of its tax system by sophisticated hackers. Tax information on 104,000 filers was stolen by scammers this past spring. Hackers used the IRS’s “Get Transcript” web tool to gain unauthorized access to taxpayer information. Armed with Social Security numbers stolen elsewhere, they answered several personal verification questions to access filers’ tax return transcripts. These contain extremely sensitive tax data, including the amounts that were entered on most of the lines on the 1040 and its accompanying forms. The scammers took the stolen information and filed phony tax returns in the victims’ names. They sent in 36,500 fake returns, and up to 13,000 of these got past the IRS’s fraud detection system, resulting in around $39 million in false refunds.

The IRS has taken a number of steps to limit the damage from the intrusion. It has shuttered its online transcript retrieval service for individuals. Folks who need copies of previous years’ tax information will have to apply by mail (e.g. for student loans & mortgage applications). We preparers can still use e-Services to get transcripts for our clients. Victims will be able to apply for special identity protection ID numbers to thwart the filing of any more phony returns under their SSN.

In light of the hack, the IRS will strengthen authentication procedures. The criminals were able to scan databases and social media to get enough information to answer the basic security questions. So the IRS will make the questions more difficult, making it harder for scammers to check someone’s Facebook page for the answers. The IRS is also working to fight identity theft by partnering with tax software firms, payroll companies and state tax agencies to share data on any uncovered scams.

Supreme New Ruling:

Maryland’s method for taxing residents’ out-of-state income is unconstitutional, the Supreme Court rules. The case involved an Ellicott City resident who owned part of an S-Corp firm that earned income in many states. Under Maryland law, individual residents can take a credit against their Maryland income tax for the income tax paid to other states, but the credit isn’t allowed against the separate income tax levied by each county (the Local tax). As a result, a portion of a Maryland resident’s out-of-state income could be taxed twice. In a 5-4 decision, the high court decided this was improper (Comptroller v. Wynne).

Identity Theft and Taxes – Part II. 10 Things You Need to Know:

  1. Protect your Records: Don’t carry your Social Security card or other documents with your SSN on them. Only provide your SSN if it’s necessary and you know the person requesting it. Routinely change passwords for Internet accounts.
  2. Don’t Fall for Scams: The IRS will not call you to demand immediate payment, nor will it call about taxes owed without first mailing you a bill. Beware of threatening phone calls from someone claiming to be from the IRS. If you have no reason to believe you owe taxes, report the incident to the Treasury Inspector General at 1-800-366-4484.
  3. Report I.D. Theft to Law Enforcement: If your SSN has been compromised and you think you may be the victim of tax-related ID theft, file a police report. It’s also important to contact one of the three credit bureaus so they can place a freeze on your account.
  4. Complete an IRS Form 14039 Identity Theft Affidavit: Once you’ve filed a police report, file an IRS Affidavit. Print the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must paper file.
  5. Understand IRS Notices: Once the IRS verifies a taxpayer’s identity, the agency will mail a particular letter to the taxpayer. The notice says that the IRS is monitoring the taxpayer’s account. Some notices may contain a unique Identity Protection Personal Identification Number (PIN) for tax filing purposes.
  6. PIN’s: If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, they will be issued a PIN. The PIN is a unique six-digit number that a victim of ID theft uses to file a tax return.
  7. Data Breaches: If you learn about a data breach that may have compromised your personal information, keep in mind not every data breach results in identity theft. Further, not every identity theft case will involve taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.
  8. Suspicious Activity: If you know of an individual or business that is committing tax fraud, you can visit IRS.gov and follow the chart on how to report suspected tax fraud activity.
  9. Combating ID Theft: Over the past few years, nearly 2,000 people were convicted in connection with refund fraud related to identity theft. During 2014, the IRS stopped more than $15 billion of fraudulent refunds, including those related to identity theft. Also, as the IRS improves its processing filters, the agency has also been able to halt more suspicious returns before they are processed.
  10. Options: Information about tax-related identity theft is available online. There is a special section on IRS.gov devoted to identity theft and a phone number for victims to obtain immediate assistance.

Upon Further Review:

The 2014 audit rate fell to 0.86% for individuals, about one out of every 120 returns. 2013’s audit rate was 0.96%. IRS’s audit staff has fallen by over 600 agents, partly due to budget cuts and reassigning employees to work on identity theft cases. The drop in examination coverage applies to all income classes -- it’s off by over 12% for filers with incomes under $200,000 and by more than 7% for higher-income taxpayers. What are the odds that the IRS will audit you? While the IRS audited only 0.86% of all individual tax returns last year, the risk of an examination is greater for those underreporting income, taking higher than average deductions, claiming 100% use of a business vehicle, maintaining a home office, or deducting rental losses.

We are continuing to monitor IRS press releases for the following expiring tax provisions. We’ll let you know if Congress acts before year-end to extend the following:

  • the educators’ $250 supplies tax deduction
  • state sales tax as an itemized deduction
  • mortgage insurance premiums as an itemized deduction
  • tuition and fees deduction for college expenses


2015 Dollar Limitations for Retirement Plans:

Annual dollar limit for defined contribution plans, SEP’s 

$53,000

Maximum salary deferrals for 401(k), 403(b) plans 

$18,000

Catch-up contribution limits for 401(k), 403(b) plans   

$6,000

Maximum salary deferral for SIMPLE IRA plans    

$12,500

Maximum IRA contribution          

$5,500

Catch-up contribution limits for IRA’s    

$1,000

Social Security taxable wage base

$118,50

 

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Matthew R. Horowitz, C.P.A.
(410) 312-7622 • email
10015 Old Columbia Rd. Suite B-215, Columbia, Maryland 21046