1099 Filing Date Just Around The Corner
1099 Filing Requirement
Form W-9 and 1099 Worksheet
If you operate a business and engage the services of an individual (independent contractor) other than one who meets the definition of an employee and you pay him or her $600 or more for the calendar year, you are required to issue him or her a Form 1099 at the end of the year to avoid penalties and the prospect of losing the deduction for his or her labor and expenses in an audit. The due date for mailing the recipient his or her copy of the 1099 that reports 2015 payments is February 1, 2016, while the copy that goes to the IRS is due at the end of February. It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later in the year and have the total for the year exceed the $599 limit. As a result, you may have overlooked getting the information from the individual needed to file the 1099s for the year. Therefore, it is good practice to always have individuals who are not incorporated complete and sign an IRS Form W-9 the first time you engage them and before you pay them. Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversights and protects you against IRS penalties and conflicts. If you have been negligent in the past about having the W-9s completed, it would be a good idea to establish a procedure for getting each non-corporate independent contractor and service provider to fill out a W-9 and return it to you going forward. IRS Form W-9, Request for Taxpayer Identification Number and Certification, is provided by the government as a means for you to obtain the data required to file 1099s for your vendors. It also provides you with verification that you complied with the law in case the vendor gave you incorrect information. We highly recommend that you have a potential vendor complete a Form W-9 prior to engaging in business with them. The W-9 is for your use only and is not submitted to the IRS. The penalties for failure to file the required informational returns have been doubled this year and are $250 per informational return. The penalty is reduced to $50 if a correct but late information return is filed not later than the 30th day after the February 29, 2016, required filing date, or it is reduced to $100 for returns filed after the 30th day but no later than August 1, 2016. If you are required to file 250 or more information returns, you must file them electronically. In order to avoid a penalty, copies of the 1099s you’ve issued for 2015 need to be sent to the IRS by February 29, 2016. They must be submitted on magnetic media or on optically scannable forms (OCR forms). This firm prepares 1099s for submission to the IRS. This service provides recipient copies and file copies for your records. Use the 1099 worksheet to provide this office with the information needed to prepare your 1099s.
IRS reports a date error on the recent Identity Protection PIN letters
Each year the IRS issues special filing numbers that take the place of Social Security Numbers (SSN) for taxpayers whose identity has been compromised or is suspected of being compromised. The purpose is to prevent ID thieves from being able to use stolen SSNs to file fraudulent returns. The IRS blocks those SSNs from being filed, thus thwarting the ability of ID thieves to use the stolen SSN to file. Meanwhile, the taxpayer uses the special six-digit number called the “identity protection pin number” (IP PIN) to file his or her legitimate return. The IRS issues these numbers just before the beginning of tax filing season to affected taxpayers for use in filing their tax returns. The IRS just recently issued the IP PINs for filing 2015 tax year returns. However, the letter mistakenly indicated the IP PINs were for the 2014 tax year, which was a typo. The just-released numbers issued on form letter CP01A are in fact to be used to file 2015 tax returns.
IRS Announces 2016 Standard Mileage Rates
2016 standard mileage rates
Business, charitable, medical and moving rates
Switching between the actual expense and the standard mileage rate methods
Special allowances for SUVs
As it does every year, the Internal Revenue Service recently announced the inflation- adjusted 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (or a van, pickup or panel truck) will be:
54.0 cents per mile for business miles driven (including a 24-cent-per-mile allocation for depreciation). This is down from 57.5 cents in 2015;
19 cents per mile driven for medical or moving purposes. This is down from 23 cents in 2015; and
14 cents per mile driven in service of charitable organizations.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. The rate for using an automobile while performing services for a charitable organization is statutorily set and has been 14 cents for over 15 years. Taxpayers always have the option of calculating the actual costs of using their vehicle for business rather than using the standard mileage rates. With the extension of the bonus depreciation though 2019, using the actual expense method may be a worthwhile consideration in the first year the vehicle is placed in service. The bonus depreciation allowance adds an additional $8,000 to the maximum first year depreciation deduction of passenger vehicles and light trucks that have an unloaded gross vehicle weight of 6,000 pounds or less. However, the standard mileage rates cannot be used if the actual method (using Sec. 179, bonus depreciation and/or MACRS depreciation) has been used in previous years. This rule is applied on a vehicle-by-vehicle basis. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously. Employer reimbursement – Where employers reimburse employees for business-related car expenses using the standard mileage allowance method for each substantiated employment-connected business mile, the reimbursement is tax-free if the employee substantiates to the employer the time, place, mileage and purpose of employment-connected business travel. Employees whose actual employment-related business mileage expenses exceed the employer's reimbursement can deduct the difference on their income tax return as a miscellaneous itemized deduction subject to the 2%-of-AGI floor. However, an employee who leases an auto and is reimbursed using the mileage allowance method can't claim a deduction based on actual expenses unless he does so consistently beginning with the first business use of the auto. Faster Write-Offs for Heavy Sport Utility Vehicles (SUVs) – Many of today's SUV vehicles weigh more than 6,000 pounds and are therefore not subject to the luxury auto depreciation limit rules; so taxpayers with these vehicles can utilize both the §179 expense deduction (up to a maximum of $25,000) and the bonus depreciation (the §179 deduction must be applied first and then the bonus depreciation) to produce a sizable first-year tax deduction. However, the vehicle cannot exceed a gross unloaded vehicle weight of 14,000 pounds. Caution: Business autos are 5-year class life property. If the taxpayer subsequently disposes of the vehicle early, before the end of the 5-year period, as many do, a portion of the §179 expense deduction will be recaptured and must be added back to income (SE income for self-employed individuals). The future ramifications of deducting all or a significant portion of the vehicle's cost using §179 should be considered. If you have questions related to best methods of deducting the business use of your vehicle or the documentation required, please give this office a call.
Jointly or Separately – How to File After Saying I Do
Married Filing Jointly
Married Filing Separately
A taxpayer’s filing status for the year is based upon his or her marital status at the close of the tax year. Thus, if you get married on the last day of the tax year, you are treated as married for the entire year. The options for married couples are to file jointly or separately. Both statuses can result in surprises for individuals who previously filed as unmarried. The surprises can be both pleasant and unpleasant. Individuals filing jointly must combine their incomes, and if both spouses are working, combining income can trigger a number of unpleasant surprises, as many tax benefits are eliminated or reduced for higher-income taxpayers. The following are some of the more frequently encountered issues created by higher incomes:
Being pushed into a higher tax bracket
Causing capital gains to be taxed at higher rates
Reducing the child care credit
Limiting the deductible IRA amount
Triggering a tax on net investment income that only applies to higher-income taxpayers
Causing Social Security income to be taxed.
Reducing the Earned Income Tax Credit
Reducing or eliminating medical and/or miscellaneous itemized deductions
Causing the overall itemized deductions to be phased out
Causing the personal exemption deduction to be phased out
Filing separately generally will not alleviate the aforementioned issues because the tax code includes provisions to prevent married taxpayers from circumventing the loss of tax benefits that apply to higher-income taxpayers by filing separately. On the other hand, if only one spouse has income, filing jointly will generally result in a lower tax because of the lower joint tax brackets and the additional exemption provided by the non-working spouse. In addition, some of the higher-income limitations that might have applied to an unmarried individual with the same amount of income may be reduced or eliminated on a joint return. Filing as married but separate will generally result in a higher combined income tax for married taxpayers. The tax laws are written to prevent married taxpayers from filing separately to circumvent a limitation that would apply to them if they filed jointly. For instance, if a couple files separately, the tax code requires both to itemize their deductions if either does so, meaning that if one itemizes, the other cannot take the standard deduction. Another example relates to how a married couple’s Social Security (SS) benefits are taxed: on a joint return, none of the SS income is taxed until half of the SS benefits plus other income exceeds $32,000. On a married-but-separate return, the taxable threshold is reduced to zero. Aside from the amount of tax, another consideration that married couples need to be aware of when deciding on their filing status is that when married taxpayers file jointly, they become jointly and individually responsible (often referred to as “jointly and severally liable”) for the tax and interest or penalty due on their returns. This is true even if they later divorce. When using the married-but-separate filing status, each spouse is only responsible for his or her own tax liability. If you would like to evaluate the impact of marriage on your tax liability before saying “I do,” please give this office a call.
Don’t Be a Victim to IRS Phone and E-Mail Scams
Thieves use taxpayers' natural fear of the IRS and other government entities to ply their scams, including e-mail and phone scams, to steal your money. They also use phishing schemes to trick you into divulging your SSN, date of birth, account numbers, passwords and other personal data that allow them to scam the IRS and others using your name and destroy your credit in the process. They are clever and are always coming up with new and unique schemes to trick you. These scams have reached epidemic proportions, and this article will hopefully provide you with the knowledge to identify scams and avoid becoming a victim. The very first thing you should be aware of is that the IRS never initiates contact in any other way than by U.S. mail. So if you receive an e-mail or a phone call out of the blue with no prior contact, then it is a scam. DO NOT RESPOND to the e-mail or open any links included in the e-mail. If it is a phone call, simply HANG UP. Additionally, it is important for taxpayers to know that the IRS:
Never asks for credit card, debit card, or prepaid card information over the telephone.
Never insists that taxpayers use a specific payment method to pay tax obligations.
Never requests immediate payment over the telephone.
Will not take enforcement action immediately following a phone conversation. Taxpayers usually receive prior written notification of IRS enforcement action involving IRS tax liens or levies.
Phone Scams Potential phone scam victims may be told that they owe money that must be paid immediately to the IRS or, on the flip side, that they are entitled to big refunds. When unsuccessful the first time, sometimes phone scammers call back trying a new strategy. Other characteristics of these scams include:
Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
Scammers may be able to recite the last four digits of a victim's Social Security number. Make sure you do not provide the rest of the number or your birth date.
Scammers alter the IRS toll-free number that shows up on caller ID to make it appear that the IRS is calling.
Scammers sometimes send bogus IRS e-mails to some victims to support their bogus calls.
Victims hear background noise of other calls being conducted to mimic a call site.
After threatening victims with jail time or driver's license revocation, scammers hang up. Soon, others call back pretending to be from the local police or DMV, and the caller ID supports their claim.
DON'T GET HOODWINKED. This is a scam. If you get a phone call from someone claiming to be from the IRS, DO NOT give the caller any information or money. Instead, you should immediately hang up. Call this office if you are concerned about the validity of the call. IRS E-Mail Scam Always remember, the first contact you will receive from the IRS will be by U.S. mail. If you receive e-mail or a phone call claiming to be from the IRS, consider it a scam. Do not respond or click through to any embedded links. Instead, help the government combat these scams by forwarding the e-mail to email@example.com. Unscrupulous people are out there dreaming up schemes to get your money. They become very active toward the end of the year and during tax season. They create bogus e-mails disguised as authentic e-mails from the IRS, your bank, or your credit card company, none of which ever request information that way. They are trying to trick you into divulging personal and financial information they can use to invade your bank accounts, make charges against your credit card or pretend to be you to file phony tax returns or apply for loans or credit cards. Don't be a victim.
Scammers become very active toward the end of the year and during tax season. What they try to do is trick you into divulging your personal information, such bank account numbers, passwords, credit card numbers, Social Security numbers, etc. You need to be very careful when responding to e-mails asking you to update such things as your account information, pin number, password, etc. First and foremost, you should be aware that no legitimate company would make such a request by e-mail. If you get such e-mails, they should be deleted and ignored, just like spam e-mails. We have seen bogus e-mails that looked like they were from the IRS, well-known banks, credit card companies and other pseudo-legitimate enterprises. The intent is to trick you and have you click through to a website that also appears legitimate where they have you enter your secure information. Here are some examples:
E-mails that appeared to be from the IRS indicating you have a refund coming and that IRS official need information to process the refund. The IRS never initiates communication via e-mail! Right away, you know it is bogus. If you are concerned, please feel free to call this office.
E-mails from a bank indicating it is holding a wire transfer and needs your bank routing information and account number. Don't respond; if in doubt, call your bank.
E-mails saying you have a foreign inheritance and require your bank information to wire the funds. The funds that will get wired are yours going the other way. Remember, if it is too good to be true, it generally is not true.
We could go on and on with examples. The key here is for you to be highly suspicious of any e-mail requesting personal or financial information. What's In Your Wallet? What is in your wallet or purse can make a big difference if it is stolen. Besides the credit cards and whatever cash or valuables you might be carrying, you also need to be concerned about your identity being stolen, which is a far more serious problem. Thieves can use your identity to set up phony bank accounts, take out loans, file bogus tax returns and otherwise invade your finances, and all an identity thief needs to be able to do these things is your name, Social Security number, and birth date. Think about it: your driver's license has two of the three keys to your identity. And if you also carry your Social Security card or Medicare card, bingo! An identity thief then has all the information he needs. You can always cancel stolen credit cards or close compromised bank and charge accounts, but when someone steals your identity and opens accounts you don't know about, you can't take any mitigating action. So if you carry your Social Security card along with your driver's license, you may wish to rethink that habit for identity-safety purposes. What You Should NEVER Do: Never provide financial information over the phone, via the Internet or by e-mail unless you are absolutely sure of with whom you are dealing. That includes:
Social Security Number – Always resist giving your Social Security number to anyone. The more firms or individuals who have it, the greater the chance it can be stolen.
Birth Date – Your birth date is frequently used as a cross check with your Social Security number. A combination of birth date and Social Security number can open many doors for ID thieves. Is your birth date posted on social media? Maybe it should not be! That goes for your children, as well.
Bank Account and Bank Routing Numbers – These along with your name and address will allow thieves to tap your bank accounts. To counter this threat, many banks now provide automated e-mails alerting you to account withdrawals and deposits.
Credit/Debit Card Numbers – Be especially cautious with these numbers, since they provide thieves with easy access to your accounts.
There are individuals whose sole intent is to steal your identity and sell it to others. Limit your exposure by minimizing the number of charges and credit card accounts you have. The more accounts have your information, the greater the chances of it being stolen. Don't think all the big firms are safe; there have been several high-profile database breaches in the last year. Email Phishing Phishing (pronounced 'fishing') is the attempt to acquire sensitive information such as usernames, passwords, and credit card details (and sometimes, indirectly, money) by masquerading as a trustworthy entity in an electronic communication. Communications purporting to be from popular social websites, auction sites, banks, online payment processors or IT administrators are commonly used to lure the unsuspecting public. Phishing e-mails may contain links to websites that are infected with malware. Phishing is typically carried out by e-mail spoofing or instant messaging, and it often directs users to enter details into a fake website that looks and feels almost identical to a legitimate one. In the meantime, imagine trying to file your return and it gets rejected as already filed. You attempt to get a copy of the return but can't because you don't have the ID of the other unfortunate taxpayer who was used as the other spouse on the return. All the while, the scammers are enjoying their ill-gotten gains with impunity. Fake Charities Another fraud and ID theft scam associated with tax preparation involves charity scams. The fraudsters pop up whenever there are natural disasters, such as earthquakes or floods, trying to coax your client into making a donation that will go into the scammer's pockets and not to help the victims of the disaster. These same crooks might also steal your client's identity for other schemes. They use the phone, mail, e-mail, websites and social networking sites to perpetrate their crimes. When disaster strikes, you can be sure that scam artists will be close behind. It is a natural instinct to want to provide assistance right away, but potential donors should exercise caution and make sure their hard-earned dollars go for the purpose intended, not to line the pockets of scam artists. You need to make your clients aware of this type of fraud. The following are some tips to avoid fraudulent fundraisers:
Donate to known and trusted charities. Be on the alert for charities that seem to have sprung up overnight in connection with current events.
Ask if a caller is a paid fundraiser, who he/she works for and what percentage of the donation goes to the charity and to the fundraiser. If a clear answer is not provided, consider donating to a different organization.
Don't give out personal or financial information—including a credit card or bank account number—unless the charity is known and reputable.
Never send cash. The organization may never receive the donation, and there won't be a record for tax purposes.
Never wire money to a charity. It's like sending cash.
If a donation request comes from a group claiming to help a local community agency (such as local police or firefighters), ask the people at the local agency if they have heard of the group and are getting financial support.
Check out the charity with the Better Business Bureau (BBB), Wise Giving Alliance, Charity Navigator, Charity Watch, or IRS.gov.
Protecting Against Identity Theft To give you an idea of just how big a problem identity theft has become for the IRS, it currently has more than 3,000 employees working on identity theft cases and has trained more than 35,000 employees who work with taxpayers to recognize identity theft and provide assistance when it occurs. When ID theft happens, it becomes a huge problem for the taxpayer and the taxpayer's tax preparer. So, the best way to combat ID theft is to protect against it in the first place and avoid becoming one of those unfortunate individuals who have to deal with it. Here are some tips to prevent you from becoming a victim:
Never carry a Social Security card or any documents that include your Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN).
Don't give anyone your own or a family member's SSN or ITIN just because they ask. Give it only when required.
Protect financial information.
Check your credit report every 12 months. Secure personal information at home.
Protect personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for Internet accounts.
Portable computers, tablets and smartphones can be stolen or lost. Limit the amount of personal information they contain that can be used for ID theft. Be extra vigilant against theft.
Don't give personal information over the phone, through the mail or on the Internet without validating the source.
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