The IRS recently issued its annual list of the Dirty Dozen tax scams to watch out for throughout the year. Here are three top scam themes to come out of the list, plus ways to protect yourself from them:
1. Phishing: With phishing, a criminal uses the bait of an email or fake website to lure victims into providing personal information. For instance, the sender may pretend to be from the IRS.
In a recent twist, criminals are directing refunds to their victims’ bank accounts, and then using lies, threats and intimidation to convince the victims to hand over the money using various methods to collect the refunds.
To combat phishing:
- Report IRS-related expeditions to firstname.lastname@example.org.
- Remember that the IRS generally doesn’t initiate contact via email.
- Educate yourself about taxpayer rights on the IRS website.
2. Untrustworthy phone calls: The IRS has reminded taxpayers to beware aggressive phone scams from criminals posing as IRS agents. About 12,716 victims have collectively paid more than $63 million through phone scams since October 2013.
Typically, the caller demands that you pay a bogus tax bill in cash, usually through a wire transfer or a prepaid debit or gift card. They may also leave urgent callback requests via robo-calls or phishing emails. The IRS advises the following:
- Don’t give any information. Hang up immediately.
- Contact the U.S. Treasury Inspector General for Tax Administration (TIGTA) to report the call. Review the IRS Impersonation Scam Reporting. Alternatively, call 800-366-4484.
- Report calls to the Federal Trade Commission. Use the FTC Complaint Assistant on the FTC website.
3. Identity theft: Be alert to tactics aimed at stealing your identity — not just during tax filing season, but all year long. Luckily, strides are being made to protect taxpayers. For example, the number of taxpayers reporting ID theft declined from 2016 to 2017 by 40 percent.
The IRS says it will continue to pursue tax returns that use someone else’s Social Security information. But taxpayers can help themselves. Here’s how:
- Always use security software with firewall and anti-virus protections.
- Don’t click on links or download attachments from unknown or suspicious emails.
- Protect personal data.
Finally, treat personal information like cash; don’t leave it lying around. Call Carl Heinemann, your Chattanooga CPA, if you have questions about your tax information safety.
The new Tax Cuts and Jobs Act (TCJA) includes numerous provisions designed to stimulate business growth, including changes in depreciation rules. A business entity can now write off the entire cost of qualified property the year it is placed in service. The following four changes may benefit businesses of all shapes and sizes:
1. Section 179’s increased expensing limit
Under Section 179 of the tax code, a business can expense the cost of qualified property placed in service during the year. The TCJA doubles the expensing limit to $1 million and increases the phaseout threshold to $2.5 million. (Note: The maximum Section 179 deduction can’t exceed the amount of business income.)
2. Increased bonus depreciation
The TCJA also authorizes a 100 percent bonus depreciation write-off for the cost of qualified property, doubled from 50 percent. This change is effective for property placed in service after Sept. 27, 2017. In addition, the new law expands the definition of qualified property to include used property acquired and placed into service at your company. However, the 100 percent bonus depreciation deduction is temporary. It begins to phase out after five years and vanishes completely after 2026.
3. Shortened real estate depreciation period
Generally, building improvements must be depreciated over a lengthy 39-year period. However, a faster 15-year write-off was previously permitted for qualified leasehold improvement property, qualified restaurant improvement property and qualified retail improvement property. The TCJA consolidates these provisions with the intent of providing a 15-year depreciation period for qualified improvement property.
4. Better business vehicle tax breaks
Luxury car rules limit the annual deductions a business can claim for business vehicles. Fortunately, the TCJA increases the business vehicle tax deduction limits for 2018 and thereafter. For instance, the maximum first-year deduction limit for a passenger car is multiplied by more than three, to $10,000 from $3,160. Plus, the vehicle may be eligible for an $8,000 bonus depreciation allowance.
We can help you learn more about these depreciation tax breaks and how they affect your situation. Give Carl Heinemann, your Chattanooga CPA, a call today.
The new Tax Cuts and Jobs Act (TCJA) includes significant changes for individuals and businesses alike, enhancing some tax breaks and eliminating or reducing others. One new provision creates a new tax credit for employers who pay wages for family and medical leaves.
Currently, the new credit has a short shelf life, taking effect in 2018 and only lasting through 2019. However, there’s a chance it will be extended by future legislation.
Eligible employers can claim a credit equal to a percentage of wages paid to qualifying employees on leave under the Family and Medical Leave Act (FMLA).
Here’s how it works
The IRS has yet to issue official guidance, but here are some of the basics:
- To qualify for the credit, the employer must provide at least two weeks leave at a rate of at least 50 percent of regular earnings.
- The credit percentage ranges from 12.5 percent to 25 percent of the paid leave based on the amount of wages. For instance, the credit is equal to only 12.5 percent of the wages if the employer pays the minimum 50 percent of the regular pay rate, but gradually increases to a maximum of 25 percent if the employer pays the normal wages.
- The credit is available only for wages paid to workers employed at the company for at least a year who are paid no more than $72,000 annually in 2017, adjusted for inflation in future years.
- Family and medical leave must be offered to both full- and part-time workers.
- Employers need to have a written policy that includes two weeks paid leave for family and medical leave at 50 percent or more of wages for full-time employees. And the amount must be prorated for part-time employees.
- Leave that is paid for or required under state and local law shouldn’t be considered when determining the amount of paid family and medical leave
provided by the employer.
No double dipping
Finally, if the employer claims the credit, they can’t also deduct the wages as regular business expenses. Usually, the credit will be more valuable to employers than the deduction.
If you have questions about how this credit affects your situation, give Carl Heinemann, your Chattanooga CPA, a call.
If you want a tax-advantaged retirement account outside your employer’s plan, you have two main options: a traditional IRA or a Roth IRA. You may prefer one over the other, depending on your short-term savings goals, years until retirement and assumptions about future tax rates.
Traditional IRA vs. Roth IRA basics
You can generally deduct contributions to a traditional IRA, which lowers your tax bill. On the other hand, with a Roth IRA, you pay taxes upfront. So you may have to earn $7,500 pre-tax to sock away the annual maximum of $5,500 in a Roth IRA.
With a traditional IRA, taxes are deferred. When you’re retired and withdraw money, it’s counted as regular income and taxed accordingly. However, with a Roth IRA you’re generally allowed to make tax-free withdrawals in retirement. That means that if you expect to be in a higher tax bracket in the future, a Roth IRA may make the most sense.
Roth recharacterizations: a thing of the past?
When Roth IRAs were originally created in the late 1990s, Congress provided a way to move or “convert” funds from a traditional IRA to a Roth account. Although taxpayers had to pay taxes on the amount converted, some considered the future benefit of tax-free withdrawals preferable to the current benefit of tax-deferred contributions. Congress also let taxpayers change their mind about Roth conversions, and “recharacterize” them back to traditional IRA accounts.
But the Tax Cuts and Jobs Act signed last year eliminated the ability to reverse a Roth conversion using the recharacterization process as of Jan. 1, 2018.
There is some wiggle room left to undo Roth conversions made during 2017, if you complete the recharacterization by Oct. 15, 2018.
Retirement planning can get complicated. If you’d like help evaluating your tax-advantaged account options, give Carl Heinemann, your Chattanooga CPA, a call.
You’ve probably encountered your share of challenging clients. They nitpick. They haggle endlessly about prices and hourly rates. They fuss and fume about every aspect of your work. When the project is over and the goods are delivered, they pay late — or not at all.
How do you screen out time-wasters and garner good clients for your business?
- Clarify what a “good client” looks like. Although each business will establish its own parameters, at a minimum you’ll want to consider the range of client budgets you’re willing to accept. Say, for example, you run a roofing business. You may decide that projects under a certain budget aren’t worth your time and that projects above a certain size exceed your firm’s level of expertise. Or, if you’re in the business of website design, you might specify the minimum level of technical knowledge you’ll require.
- Communicate parameters clearly. Use your business website to explain the types of customers you’re looking for. If you plainly state, for example, that you only service clients in a particular geographical area, folks outside your region will tend to filter themselves out. Of course, you can always make exceptions. But the more details you can spell out, including specifics about your pricing, the more likely you’ll narrow the field to the best potential clients.
- Consider a potential customer’s reputation. Depending on your industry and long-term expectations, you may want to check out a prospective client before taking on a project. Make discreet inquiries of others in your industry group. You may find it helpful to know if the client has been willing to take feedback on past projects, if they respond in a timely manner, or if other businesses have complaints about them.
Good clients form the backbone of any successful business. Be diligent to find and keep the best ones.