Wednesday December 19, 2018
IRS Summertime Tax Tips
- Summer Jobs - Many students and younger individuals work during the summer. They may not have earned enough to owe income tax, but their employers will withhold Social Security and Medicare taxes from their pay. If the individual is self-employed, he or she must pay Social Security and Medicare taxes even if there is no income tax obligation. These taxes will also count toward future Social Security benefits. The employer should send a Form W-2, Wage and Tax Statement, by January 31, 2019. It will show the withholding amount for state and federal taxes, Social Security and Medicare. Taxpayers will need this form in order to file their annual tax returns.
- Withholding - Seasonal or part-time workers should check their withholdings to be sure that the correct amount of tax is withheld. The Withholding Calculator on IRS.gov will help with that process. Taxpayers can estimate their income, credit adjustments and deductions in order to determine the correct withholding amount.
- July Weddings - Newlywed taxpayers may want to recheck some items after the honeymoon. A name change should be reported to the Social Security Administration and an address change should be reported to the United States Postal Service. This will ensure that any tax forms or items needed to file taxes are sent to the correct address. Once again, the Withholding Calculator at IRS.gov will be helpful, particularly if there are two wage earners.
- Summer House Clean Up - Summertime presents a good opportunity to conduct a home cleanup and clear-out effort. Many taxpayers will find that some household goods are no longer needed. If a taxpayer makes a donation of household goods that are in "good used condition or better" to a qualified charity, the taxpayer may receive a charitable deduction. The charity should provide a receipt that includes the date of the gift and description of the items. If the value of the gift is over $5,000, the taxpayer will need to obtain a qualified appraisal to substantiate the deduction.
- Volunteer and Drive - Many taxpayers with good hearts will volunteer for charitable organizations. Driving activities while on organization-sponsored trips qualify for a deduction of $0.14 per mile for charitable travel. Volunteers will need to record the date of the trip date and the mileage in order to itemize their deductions.
- Day Camp Credit - Working parents with children under 13 years of age may qualify for the Child and Dependent Care Credit. This is not permitted for overnight camps, but a day camp may count for the credit. IRS Publication 503, Child and Dependent Care Expenses, will be helpful for taxpayers who desire to claim this credit.
- Remember to File for Tax Refund - Even if the amount of income earned is not enough to require filing of an income tax return, there is still a good reason to file. If the taxpayer's employer has withheld funds for federal income tax, the taxpayer will qualify for a refund if he or she files a tax return. Taxpayers can file any time within three years and receive the refund without penalty.
Security Awareness for Tax ProfessionalsIn IR-2018-147, the Service launched a summertime security campaign for tax professionals. The campaign is a response to growing efforts by tax scammers to steal data from CPAs, attorneys, enrolled agents and other tax preparers.
Acting IRS Commissioner David Kautter noted, "The IRS and the Security Summit partners urge all tax professionals to take stronger security steps to protect themselves and their clients. With the help of the Summit partnership, the IRS has made major progress protecting taxpayers in the battle against tax-related identity theft. But the threat remains, and we need the help of tax professionals to take basic steps to safeguard their tax systems and taxpayer data."
The campaign is titled, "Protect Your Clients; Protect Yourself: Tax Security 101."
The IRS Security Summit continues to make progress, but there are still many data thefts and claims for fraudulent refunds. The Service recently updated IRS Pub. 4557, Safeguarding Taxpayer Data. Professional tax preparers should also check IRS Publication 5293, Data Security Resource Guide for Tax Professionals.
Under The Gramm-Leach-Bliley Act, professional tax preparers must create a security plan to protect client data. The Federal Trade Commission is tasked with administration of this requirement for data safety.
The IRS outlined basic protection steps that all professional advisors should take.
- Phishing Emails - Do not click on links if you do not know the sender of the email. Tax scammers will make the email appear as though it is coming from the IRS, a tax software provider, a cloud storage provider or a state tax agency. Educate staff to be on guard for emails claiming to be sent from any of these entities.
- Data Security Plans - You should use IRS Pub. 4557 to create a written security plan.
- Anti-Virus Software - Install your security software on your desktop computers, laptops, routers, tables and phone. Be sure the software is on an automatic update plan.
- Passwords - Passwords should be at least eight characters. The passwords can use uppercase and lowercase characters, numbers and special keys. A password software manager is a good way to help protect your passwords. The password manager program will normally use a 256-bit encryption method.
- Backup - Each day, you should backup all of your client data. The backup should be on a secure external source and not continuously connected to your network.
- Retired Computers or Drives - It is essential to clear the data on old drives. Deleting files does not actually remove the data. The retired computers or drives must either be physically destroyed or wiped by a software program that clears all sensitive data.
IRS Commissioner Nominee Rettig Answers QuestionsIn preparation for his Senate hearings, IRS Commissioner Nominee Charles Rettig answered written questions from Sen. Ron Wyden (D-OR). The questions covered both general topics and specifically focused on syndicated conservation easement tax shelters.
Wyden noted that Rettig had represented many high net-worth individuals. He asked if Rettig could identify with the "everyday guy."
"Through decades of experience working across the table from the IRS, I have seen the difficulties faced by taxpayers of all kinds - from large taxpayers, to small businesses, to low income taxpayers who need help," responded Rettig. He continued, "I've also devoted a significant amount of time assisting taxpayers who can't afford professional help on a pro bono basis."
Wyden wondered what actions Rettig would take if an Administration Official urged enforcement against an individual.
Rettig responded, "It is unlawful for the President, Vice President or any employee of the Executive Office of the President or Vice President to request directly or indirectly any officer or employee to conduct or terminate an audit or other investigation of any particular taxpayer. If confirmed, I will work to ensure that the law is upheld and appropriate steps are taken if it is violated."
Finally, Wyden discussed Notice 2017-10 and the IRS effort to limit the use of syndicated conservation easement tax shelters. Wyden noted, "Please describe what actions you will take as Commissioner, if confirmed, against the promoters of these abusive shelters identified in Notice 2017-10."
Rettig responded, "If confirmed, I will work with IRS officials to ensure an appropriate enforcement strategy is in place to uphold the law as Congress intended."
Editor's Note: Nominee Rettig was discreet, but did not directly answer Sen. Wyden's question on conservation easement tax shelters. In 2017, the IRS reviewed 104 conservation easements. About 40% appeared to be syndicated easements. These syndicated easements claimed a deduction to cost ratio of 9 to 1. The IRS considers a deduction to cost ratio of 2.5 to 1 to be an indicator of a possible tax shelter. The syndicated conservation easement tax shelter question will arise again at the Senate Finance Committee Hearing for Nominee Rettig.