The IRS has completed their Dirty Dozen tax scam series, warning individuals and businesses about popular schemes and scams targeting taxpayers. Information to help recognize a scam, and steps to take for those who have been targeted or have fallen prey to such predators. The final scams to be aware of are:
The IRS reminds taxpayers that Tax Day, April 18, is also the deadline for first quarter estimated tax payments for tax year 2023. These payments are usually due from those who do not have taxes withheld from their paychecks throughout the year, such as the self-employed, retirees, investors, businesses and corporations. Income not subject to withholding includes interest, dividends, capital gains, alimony and rental income. Paying estimated taxes in a timely fashion will lessen and even eliminate any penalties. Eligible taxpayers in recent disaster areas in California, Alabama, Georgia and now Tennessee have several deadlines extended to make their estimated payments. A current list of areas qualifying for disaster relief can be found at Tax Relief in Disaster Situations.
“I don’t need to report income since I didn’t receive a Form 1099-K.” “If I file an extension, I don’t have to pay anything until October.” Find the truth about these and other myths before Tax Day.
Filing Season Scams Abound
The IRS has issued an alert warning taxpayers of new scams that urge people to claim false tax credits with inaccurate wage information. One scheme encourages people to use tax software to manually fill out Form W-2, Wage and Tax Statement with false income information. Scam artists instruct people to use the bogus information in their electronically-filed return with the aim of getting a large refund. A variation of the scam involves using Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals to claim a credit based on income earned as an employee. These credits are not available for 2022 tax returns.
Another warning has been renewed, urging people to carefully review the Employee Retention Credit (ERC) guidelines before trying to claim the credit. Third parties are aggressively pushing ineligible people to use this, misleading people and businesses into thinking they can claim these credits. Penalties are wide-ranging and may include a $5000 fine or criminal prosecution. Those who have participated in such schemes can amend a previous return or consult with a trusted tax professional.
The IRS has announced an expansion of digital scanning, having already scanned more than 120,000 paper Forms 940 since the beginning of the year. This is a 20-fold increase compared to all of 2022. The effort will expand soon to include scanning of Forms 1040 and Forms 941. The IRS has used various technologies to scan tax returns over the years, but recently took a leap forward thanks to the Inflation Reduction Act. Most tax returns are filed electronically but millions of forms are still filed by paper. With an increased capability to scan and electronically process these paper returns, the IRS will be able to shorten overall processing time.
The IRS reminds retirees who turned 72 during 2022 that, in most cases, Saturday, April 1, 2023 is the last day to begin receiving payments from Individual Retirement Arrangements (IRAs), 401(k)s and similar workplace retirement plans. These payments, called required minimum distributions (RMDs) are normally made by the end of the year. However, those who reached age 72 during 2022 are covered by a special rule that allows them to wait until as late as April 1, 2023 to take their first RMD. This delayed deadline only applies to the RMD for the first year. In subsequent years the RMD must be made by the year’s end. This means that those who opt for their 2022 RMD by April 1 must still receive their 2023 RMD by December 31, 2023. Both RMDs are taxable and will be reported on the 2023 tax return. Visit the RMD FAQs page for more information.
5 Scams to Avoid by Paul Davis
Financial scammers are always attempting to find new and interesting ways to get access to your money. While scammers often make little mistakes that show their hands to their targets, you might find yourself already in communication or even scammed before you catch on.
To help you stay safe and anticipate possible scams, here is a list of five that we have heard about from different banks, government agencies, and more that you should be aware of.
This was brought to our attention by Bank of America but it is a variation on a common theme. In this scam, someone will spoof your bank via text and send you a fraudulent security alert.
The text could look like this:
Bank of America: Did you pay $100 to Alibaba Travel in Cairo, Egypt? Click Link to resolve this issue.
Of course you did not pay money to whatever store the text is asking you about so you click the link. At this point, the scammer asks you to prove your identity by sending money through Zelle, Paypal or another app. The apps may vary but the end goal is the same: getting access to some or all of your finances.
Once you enter the information into their app, they get either access to your bank or a large amount of money.
Never click links in texts from official sources like banks, the IRS, Social Security, or the Sheriff’s Office. These links can look official but be used to gain important personal information the scammers can use against you or sell to other scammers.
Always find a number or email address independently of any information that was sent to you. For example, if you think your bank has sent you a text, go to their website, find their customer contact information and call them to ask if they have reached out to you.
This helps verify whether something is legitimate and does not expose you to data harvesting by interacting with a spammer’s text or email.
In 28 years of business, we have seen many people come to us for help after messing up on taxes. It gets worse when the taxpayer has been scammed by either well-meaning and underqualified tax preparers or by a thief posing as a tax preparer.
This scam can result in your tax refund being deposited into someone else’s account, it can result in someone falsely claiming certain deductions in order to increase their percentage-based fees, or it can result in your identity being completely stolen.
The IRS has a list of items to check when you are looking for a tax preparer. These include looking up your tax preparer’s certification and a number of other tips.
Obligatory self-mention: Danielle Hoyles and Melynda Rushing both meet all the IRS’s recommended tips for picking a tax preparer.
You receive a phone call or text:
Los Angeles County Sheriff is trying to find you to enact an arrest warrent against you for failure to apear at a recent court case. Please text or call this number to resolve this urgent issue.
The urgency of having some law enforcement agency like a Sherrif’s Department or the IRS coming after you is used to convince you to give the scammer important information, access to your bank accounts, or just $500 in Walmart cards.
If you have ever dealt with legal issues, you will remember that requests like this (warrants, restraining orders, etc.) have to be delivered by certified mail. In addition, the same tips apply from the pay yourself scam. If you have any questions, find a contact number from a different source and reach out to the named agency directly.
Finally, if something sounds too good (or too bad) to be true, it usually is not true. If you receive a phone call saying you just won $1,000,000 and you have not entered Publisher’s Clearinghouse or bought and registered a winning lotto ticket, the phone call is a scam. Likewise, if you receive an arrest warrant text from a locality you have never been in, it is probably a scam.
This is another scam that can be enacted by a friend or by a thief. Either way, the basic principle is asking you to send them money that they will pay off via some means. This can be a payday scam (please send me $100 that I will pay you tomorrow on payday), a starting business scam (I am sending you a $2000 check, $1000 for you and $1000 for another contractor. Can you send him the $1000 so we can get started?).
The basic principle is that the well-meaning or nefarious scammer is using interpersonal issues to drive urgency while not having the means or intention to pay you back.
If it’s a friend, realize that “you’re never really helping someone who’s incompetent with money by simply handing them cash.” ~Dave Ramsey
If it’s a customer or other stranger, don’t do any financial or labor commitments until you have cleared the payment in question.
Is your distant relative who is selling the newest at home opportunity working on starting a small business or a victim of a pyramid scam?
These have varied from annoying chain letter scams to Wolf of Wall Street levels of corruption, but all true pyramid schemes have one thing in common.
The only thing they sell is the money-making opportunity.
A salesperson sells something more than the opportunity to sell the opportunity to sell. A multi-level marketing business opportunity has to have something that it is selling in order to be a legitimate business: cosmetics, health-food, and more are all common legitimate industries that use peer-to-peer and multi-level marketing to grow.
But if all that your cousin’s niece’s best friend is selling is the opportunity to make a lot of money by signing up a lot of people, you are most likely looking at a scam.
Scammers use our fears, anxieties, and sometimes greed to distract us from living our normal lives. Don’t lose focus on living your life by people interrupting you with urgent-sounding but improbable information.
Take time to research and choose your tax preparers. Reach out to your bank if you are worried about account security.
Stay safe, and remember that we are open all year round to help you deal with taxes no matter the time!
Refund Myths Addressed
The IRS is debunking some common refund myths circulating among taxpayers.
The best way to find out the status of your refund is to use the Where’s My Refund tool, or the IRS2Go app.
Retirement Distributions Waived For 2020
Seniors and retirees do not have to take their usual required minimum distribution (RMD) from their IRA or workplace retirement accounts in 2020, thanks to coronavirus relief measures passed this year. The waiver includes RMDs for individuals who turned 70 ½ in 2019 and took their first RMD in 2020. Those who have already taken their RMD have the option of returning it to their qualified plan. These provisions apply to most retirement plans, including traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, and others.
Annual “Dirty Dozen” Unveiled
The IRS has published its list of the 12 most common tax scams perpetrated by criminals this year. Taxpayers should be aware and vigilant in regards to spotting and avoiding these scams, especially the ones on the rise in the wake of the pandemic and economic impact payments (EIPs). Scams on the list include phishing emails, fake charities, threatening phone calls, EIP or refund theft, organizations “overselling” Offer In Compromise assistance, payroll scams, ransomware, and more.
Foreign-Taxed Income Guidelines
The IRS has published final regulations on how income from foreign corporations subject to a high rate of foreign tax shall be treated. The final regulations allow taxpayers to exclude certain high-taxed income of a controlled foreign corporation from their Global Intangible Low Taxed Income (GILTI) computation on an elective basis. The IRS also released proposed regulations regarding that high-tax exception with the GILTI exclusion, and welcomes public comments on the subject.
Little Giant Tax Services are are here to help you with your tax filing throughout the next few months of stay at home orders. At this time, the IRS is not accepting physical returns. If you want to have one of our staff help you e-file your return, please call or email us.
The IRS recently extended the filing and payment deadline for most individual taxpayers to July 15, from April 15. Now they have extended that same relief to trusts, estates, corporations, and other non-corporate filers. Additionally, those with estimated tax payments typically due June 15, 2020 can wait until July 15 to make that payment, without penalty.
The Treasury and IRS have released a new tool for certain individuals to register to receive economic impact payments. Those who have not filed taxes for 2018 or 2019, and also did not receive Social Security payments or Railroad Retirement benefits will need to use the new web tool to register and input their information in order to receive payment. This may apply to individual and joint filers who do not make enough to file a tax return, but will not apply to students or others who are claimed as dependents on another tax return. A new tool is being built to check the status and expected date of all economic impact payments, and should be online by the end of this week.
Taxpayers who have scheduled quarterly payments for April 15 have until midnight eastern time on the 13th to reschedule their payment for July 15, 2020. Those who have scheduled electronic funds transfer (EFT) or debit, credit, or digital wallet payments can reschedule those payments, but those adjustments must be made right away.
The IRS is aggregating all pertinent tax information regarding Coronavirus tax relief in one central site. Whether you are a taxpayer, employer, small business owner, health plan administrator, or just wanting to know the latest deadline updates, you can find it here.
The Bipartisan Budget Act of 2018 required the IRS to create a new filing option for seniors. 1040-SR features larger print and a standard deduction chart, and is available to taxpayers age 65 or older who prefer a form with increased readability. The form may be used to file taxes this year, by April 15, and allows income reporting from sources such as investment income, Social Security and retirement plan distributions, annuities or similar deferred-payment arrangements. The form can be used whether selecting the standard deduction or itemizing deductions.
In an effort to streamline the process by which organizations can apply for tax-exempt status, the IRS has revised Form 1023. Additionally, charities applying for 501(c)(3) tax-exempt status can now file their form electronically. The IRS expects this new process to reduce errors and improve application processing time. The payment, which remains $600, can be made directly from a bank account or by credit or debit card.
The IRS has been litigating many abusive micro-captive insurance schemes, which have the potential to avoid or evade taxation of income. They have been doing it with some success, as evidenced by an almost 80% rate of acceptance among those who received a settlement offer. The IRS is also establishing an additional 12 teams of examiners to open audits on thousands of taxpayers in the near future. The IRS urges taxpayers involved in these abusive transactions to immediately consult with an independent, competent tax advisor “on the proper treatment for past and future tax years to consider best available options.”
The IRS has launched Identity Theft Central, a resource designed to improve online access to information on identity theft and data security protection for taxpayers, tax professionals and businesses. This new, streamlined page is a single source for information regarding identity theft, phishing, and other scams and schemes. It includes information for businesses and tax professionals to keep data safe and understand their responsibilities, and information for individuals on how to avoid falling victim to identity theft (and steps to take if that has already happened).
The IRS has warned about a recent gift card scams, one of the many scams that people need to be aware of.
These scams follow many of the traits of a typical phone scam: someone calls you from a source that you wouldn’t question. They tell you that something bad has happened (in recent cases, your identity is stolen). Then, they get you to do something that gives them access to your income. In this case, they attempt to convince you that you need to buy different gift cards and give them the card numbers in order to prove that you are who you say you are.
If you think this sounds silly, remember that aware and alert people don’t fall to scammers, but anyone can fall to this type of scam when tired, scared about an actual IRS issue, or too nervous or hopeful from some other issue.
If someone contacts you and asks for immediate payment, purchasing gift cards, giving your info, or some other time sensitive activity, remember these principles:
If you happen to be targeted by a scammer, you have several options to notify governmental enforcement:
Don’t get scammed by fraudsters pretending to be with the IRS. If you are worried about IRS collections or other issues, come by our office for an appointment and we will discuss your tax needs.