Tax Plan Comparison: An Election Preview

Tax Plan Comparison: An Election Preview

TAX PLAN COMPARISION: AN ELECTION PREVIEW

During an election year, there are many opinions and proposals announced from the presidential candidates. We are not expressing any political opinion as to the presentation of either political parties platform as it relates to taxes for the upcoming election. The following is being presented for information purposes only. It is still important that all Americans become educated on the issues, watch the debates and most important of all – VOTE! And always, if you have any questions or concerns, please do not hesitate to reach out to the office.

 

TAX MATTER CURRENT LAW REPUBLICAN DEMOCRATIC
Tax Rates Seven tax brackets: 10%, 12%, 22%, 24%, 43%, 35% and 37% applicable to tax years beginning after December 31, 2017 and before January 1, 2026. Considering 10% middle class tax cut. Otherwise, Fiscal Year 2021 Budget would extend the 2017 Tax Cuts and Jobs Act (TCJA) provisions past 2025, making the rates permanent. Increase the top rate to 39.6% for taxpayers making more than $400,000 which would result in a tax increase.
Capital Gains The top rate is 20% for long term capital gain and qualified dividends.  Other rates for taxpayers below 12% tax bracket pay 0% and all other taxpayers pay 15%. Seeks to cut the capital gains rate by executive order, would reduce the maximum long term capital gains rate to 15%. Tax at top ordinary income rate (39.6%) for taxpayers with over $1 million in income. Would also reform the benefits for the opportunity zone.
Wealth Accumulation No taxation on accumulation of wealth, may be subject to estate tax liability No wealth tax Generally, does not support a wealth tax
Earned Income Tax Credit (EITC) Refundable credit   for any eligible individual who meets certain criterial. A portion of the credit can be refundable. Would extend the expanded provision for eligibility of the credit. A valid Social Security number (eligible for work) would be required to claim the credit. Expand the EITC to older workers. Extend dependent care credit to $8,000 and part will be refundable. Provision for 50% to be reimbursed for families making less than $125,000.
Itemized Deductions The itemized deduction for state and local taxes (SALT) is capped at $10,000 Extend the current legislation due to expire in 2025 Cap itemized deductions at 28%. Restore the PEASE limitation for incomes above $400,000. End the SALT cap of $10,000
Student Loans Loan forgiveness is includable in income unless the student is permanently disabled or deceased. Also, certain exceptions for specific professions in underserved areas. Supports the passage of school choice legislation that would spend $5 billion a year on tax credits for donations to private school scholarships Student loans will be cancelled, tax-free, after borrowers have been enrolled in the income-based repayment plan for 20 years.
Virtual Currency Treated as property for tax purposes and taxpayers are required to report on Form 1040 if they own virtual currency Has indicated “not a fan” of cryptocurrencies No specific plan announced
Employee Qualified Retirement Plans Eligible employees can contribute a portion of their salary, tax deferred, into a qualified retirement plan. Minimum distributions required when the taxpayer turns 72 Would extend the provisions due to expire in 2025 Create “automatic 401(k)” for workers without access to a qualified plan. Allow 401(k) plans to offer hardship withdrawals for survivors of domestic violence or sexual assault penalty-free (still subject to ordinary income tax). Offer tax credits to small businesses to offset the cost of starting or maintaining a retirement plan.
Premium Tax Credit Tax credits to lower income taxpayers to help pay premiums when purchasing health insurance through the Exchange. Would repeal the Affordable Care Act. Eliminate the 400% income cap on eligibility for the premium tax credit. Create a $5,000 tax credit for  using informal caregivers, including family members.
Corporate Tax Rate Currently 21% for all C Corporations No change 28% tax rate with a minimum of 15% for companies reporting more than $100 million in the U.S. but paid no federal income taxes.
Business Credit None None A 10% “Made in America” tax credit for companies that create jobs for American workers. It would also apply when a company is increasing wages above the pre-COVID baseline for jobs paying less than $100,000
Qualified Business Income Deduction (QBID) Taxpayers, other than corporations, may be eligible to deduct up to 20% of qualified business income from a partnership, S Corporation, or sole proprietor No change to current law End special qualifying rules, including those for real estate investors. Allow deduction for all taxpayers making $400,000 or less
Estate Tax Exemption amount of $11.58 million in 2020. Assets transferred at death receive a step-up in basis to the fair market value on the date of death. The increased exemption amount reverts back to $5 million after 2025 The increased exemption amount would be extended beyond 2025 Eliminate the stepped-up in basis rule that allows people to pass capital gains onto their heirs with no tax after death.
Tax Compliance Tax compliance is operated on a voluntary system requiring taxpayers to file annual tax returns. The tax gap, the difference between what is estimated to be owed and what the IRS collects, is approximately $440 billion per year The federal budget would ensure that taxpayers comply with their obligations and that tax refunds are only paid to those who are eligible. This includes improving the oversight of paid tax preparers, giving the IRS increased authority to correct errors on tax returns, requiring a social security number to claim certain credits, and increasing wage and information reporting No specific plan announced

 

Thank You For Voting Us #1, Again

Thank You For Voting Us #1, Again

A big THANK YOU to all of our local supporters for voting us #1 again in the Wicked Local Readers Choice Awards. This year we have again, won #1 Favorite Accountant in Wrentham and #1 Favorite Financial Planner in Wrentham. We also brought home the Bronze Award for Regional Favorite in the Accountant category. It means a tremendous amount to us that we continue to have this support. So, THANK YOU!

Tax Breaks for Teachers and Educators

Tax Breaks for Teachers and Educators

While many schools are switching to hybrid or remote learning models, teachers and other educators should remember that they can still deduct certain unreimbursed expenses such as classroom supplies, training, and travel. Deducting these expenses helps reduce the amount of tax owed when filing a tax return.

To qualify for the deduction, the taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide. They must also work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

Teachers and other educators can also take advantage of various education tax benefits for ongoing educational pursuits such as the Lifetime Learning Credit or, in some instances depending on their circumstances, the American Opportunity Tax Credit.

How the Educator Expense Deduction Works

Educators can deduct up to $250 of unreimbursed business expenses. If both spouses are eligible educators and file a joint return, they may deduct up to $500, but not more than $250 each. The educator expense deduction is available even if an educator doesn’t itemize their deductions. To take advantage of this deduction, the taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours during a school year in a school that provides elementary or secondary education as determined under state law.

Those who qualify can deduct costs of books, supplies, computer equipment, and software, classroom equipment, and supplementary materials used in the classroom. Expenses for participation in professional development courses are also deductible. Athletic supplies qualify if used for courses in health or physical education.

Keep Good Records

Educators should keep detailed records of qualifying expenses noting the date, amount, and purpose of each purchase. This will help prevent a missed deduction at tax time. Taxpayers should also keep a copy of their tax returns for at least three years. Copies of tax returns may be needed for many reasons. A tax transcript summarizes return information and includes adjusted gross income and available free of charge from the IRS.

Questions?

Don’t hesitate to call if you have any questions about tax deduction available to educators including teachers, administrators, and aides.

IRS Announces Interest Payments to 13.9 Million Refund Recipients

IRS Announces Interest Payments to 13.9 Million Refund Recipients

Receiving a tax refund might be the only thing people like about filing their return, and it looks like some taxpayers are getting just a little more money from the Department of Treasury.

The Internal Revenue Service announced last week that it “will send interest payments to about 13.9 million individual taxpayers who timely filed their 2019 federal income tax returns and are receiving refunds.” As with seemingly everything else in 2020, this is a direct result of the coronavirus pandemic.

Why are 13.9 million taxpayers receiving a tax refund interest payment?

Federal law requires the IRS issue interest payments to taxpayers who file on time after a disaster postpones the filing deadline. In this case, the obvious culprit is COVID-19 pushing Tax Day back to July 15, 2020. But before people start exchanging socially distanced air high fives, there are a few things they’ll need to know:

  • Interest payments will not be issued to businesses nor taxpayers who received their refund before April 15
  • The interest payment will in most cases not arrive at the same time as the refund payment
  • The average interest payment is $18
  • The interest payment is taxable if it’s $10 or more

The longer it takes for a timely filed tax refund to arrive after the original deadline (April 15, 2020), the more interest the IRS will owe. And since the interest is calculated using the adjusted quarterly rate (compounded daily), that can sometimes result in using a blended rate for refunds that “span quarters.”

Here are the rates specifically cited by the IRS:

  • 5% for the second quarter
  • 3% for the third quarter

Interest payments affected by the blended rate will be calculated using “the number of days falling in each calendar quarter.” Perhaps making it a little easier to report a taxable interest payment, the IRS will send letters containing Form 1099-INT at the beginning of next year.

How are these tax refund interest payments being issued?

Taxpayers should generally expect to receive their tax refund interest payment the same way they received their tax refund: “In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account …. [and] everyone else will receive a check.”

If you have any questions about the amount you received, please do not hesitate to contact the office.

Dirty Dozen Tax Scams: 2020 Edition

Dirty Dozen Tax Scams: 2020 Edition

The “Dirty Dozen” is a list of common tax scams that target taxpayers. Compiled and issued annually every year by the IRS, this year it includes many aggressive and evolving schemes related to coronavirus tax relief, including Economic Impact Payments. The criminals behind these bogus schemes view everyone as potentially easy prey and everyone should be on guard, especially vulnerable populations such as the elderly.

While tax-related scams usually increase at tax time, this year, scam artists are using pandemic to try stealing money and information from honest taxpayers. As such, taxpayers should refrain from engaging potential scammers online or on the phone.

Here are this year’s “Dirty Dozen” tax scams:

1. Phishing

Taxpayers should be alert to potential fake emails or websites looking to steal personal information. IRS Criminal Investigation has seen a tremendous increase in phishing schemes utilizing emails, letters, texts, and links. These phishing schemes are using keywords such as “coronavirus,” “COVID-19” and “Stimulus” in various ways.

These schemes are blasted to large numbers of people to get personal identifying information or financial account information, including account numbers and passwords. Most of these new schemes are actively playing on the fear and unknown of the virus and the stimulus payments.

Don’t click on links claiming to be from the IRS and be very wary of emails and websites as they may be nothing more than scams to steal personal information. As a reminder, the IRS will never initiate contact with taxpayers via email about a tax bill, refund or Economic Impact Payments.

2. Fake Charities

Criminals frequently exploit natural disasters and other situations such as the current COVID-19 pandemic by setting up fake charities to steal from well-intentioned people trying to help in times of need. Fake charity scams generally rise during disaster times like these.

Fraudulent schemes normally start with unsolicited contact by telephone, text, social media, e-mail, or in-person using a variety of tactics. Bogus websites use names similar to legitimate charities to trick people to send money or provide personal financial information. They may even claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds.

Taxpayers should be particularly wary of charities with names like nationally known organizations. Legitimate charities will provide their Employer Identification Number (EIN) if requested, which can be used to verify their legitimacy. Taxpayers can find legitimate and qualified charities using the search tool on IRS.gov.

3. Threatening Impersonator Phone Calls

IRS impersonation scams come in many forms such as receiving threatening phone calls from a criminal claiming to be with the IRS where the scammer attempts to instill fear and urgency in the potential victim. These types of phone scams or “vishing” (voice phishing) pose a major threat. Scam phone calls, including those threatening arrest, deportation or license revocation if the victim doesn’t pay a bogus tax bill, are reported to the IRS year-round and are very common. These calls often take the form of a “robocall” (a text-to-speech recorded message with instructions for returning the call).

The fact is, the IRS will never threaten a taxpayer or surprise him or her with a demand for immediate payment. Nor will it threaten, ask for financial information over the phone, or call about an unexpected refund or Economic Impact Payment. Taxpayers should contact the real IRS or consult a tax and accounting professional if they are worried there is a tax problem.

4. Social Media Scams

Social media enables anyone to share information with anyone else on the Internet. Scammers use that information as ammunition for a wide variety of scams. As such, taxpayers need to protect themselves against social media scams, which frequently use events like COVID-19 to try tricking people. These methods of trickery include emails where scammers impersonate someone’s family, friends or co-workers.

Social media scams have also led to tax-related identity theft. The basic element of social media scams is convincing a potential victim that he or she is dealing with a person close to them that they trust via email, text or social media messaging.

Using personal information, a scammer may email a potential victim and include a link to something of interest to the recipient which contains malware intended to commit more crimes. Scammers also infiltrate their victim’s emails and cell phones to go after their friends and family with fake emails that appear to be real and text messages soliciting, for example, small donations to fake charities that are appealing to the victims.

5. Economic Impact Payment or Refund Theft

Great strides have been made against refund fraud and theft in recent years, but they remain an ongoing threat. Due to the coronavirus pandemic, this year, criminals turned their attention to stealing Economic Impact Payments as provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Much of this stems from identity theft whereby criminals file false tax returns or supply other bogus information to the IRS to divert refunds to wrong addresses or bank accounts.

Recent victims of this type of scam include residents of nursing homes and other care facilities when concerns were raised that people and businesses may be taking advantage of vulnerable populations who received the payments. Economic Impact Payments generally belong to the recipients, not the organizations providing the care.

As a reminder, economic impact payments do not count as a resource for determining eligibility for Medicaid and other federal programs They also do not count as income in determining eligibility for these programs.

6. Senior Citizen Fraud

Seniors are more likely to be targeted and victimized by scammers than other segments of society and fraud targeting older Americans is pervasive. Financial abuse of seniors is a problem among personal and professional relationships but seems to be less of a problem when the service provider knows that a trusted friend or family member is keeping an eye out and taking an interest in the senior’s affairs.

Also, as older Americans become more comfortable with evolving technologies, such as social media, scammers have moved in to take advantage. Phishing scams linked to Covid-19, for example, have been a major threat this filing season. Seniors need to be alert for a continuing surge of fake emails, text messages, websites, and social media attempts to steal personal information.

7. Scams Targeting Non-English Speakers

IRS impersonators and other scammers also target groups with limited English proficiency. These scams target those potentially receiving an Economic Impact Payment and request personal or financial information from the taxpayer.

Phone scams are often threatening in nature and pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language. These calls frequently take the form of a “robocall” (a text-to-speech recorded message with instructions for returning the call), but in some cases may be made by a real person. These con artists may have some of the taxpayer’s information, including their address, the last four digits of their Social Security number or other personal details, which makes the phone calls seem more legitimate.

One of the most common scams is the IRS impersonation scam where a taxpayer receives a telephone call threatening jail time, deportation or revocation of a driver’s license from someone claiming to be with the IRS. Taxpayers who are recent immigrants often are the most vulnerable and should ignore these threats and not engage the scammers.

8. “Ghost” Tax Return Preparers

Selecting the right return preparer is important because they are entrusted with a taxpayer’s sensitive personal data. Most tax professionals provide honest, high-quality service, but dishonest preparers pop up every filing season committing fraud, harming innocent taxpayers or talking taxpayers into doing illegal things they regret later.

Taxpayers should always avoid so-called “ghost” preparers who expose their clients to potentially serious filing mistakes as well as possible tax fraud and risk of losing their refunds. With many tax professionals impacted by COVID-19 and their offices potentially closed, taxpayers should take particular care in selecting a credible tax preparer.

Ghost preparers don’t sign the tax returns they prepare. They may print the tax return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost preparer will prepare but not digitally sign as the paid preparer. By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on returns.

Unscrupulous preparers may also target those without a filing requirement and may or may not be due to a refund. They promise inflated refunds by claiming fake tax credits, including education credits, the Earned Income Tax Credit (EITC), and others. Taxpayers should avoid preparers who ask them to sign a blank return, promise a big refund before looking at the taxpayer’s records or charge fees based on a percentage of the refund.

Taxpayers are ultimately responsible for the accuracy of their tax return, regardless of who prepares it.

9. Offer in Compromise (OIC) Mills

Taxpayers need to be wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for “pennies on the dollar” through an Offer in Compromise (OIC). These offers are available for taxpayers who meet very specific criteria under the law to qualify for reducing their tax bill. But unscrupulous companies oversell the program to unqualified candidates so they can collect a hefty fee from taxpayers already struggling with debt.

These scams are commonly called OIC “mills,” which cast a wide net for taxpayers, charge them pricey fees and churn out applications for a program they’re unlikely to qualify for. Although the OIC program helps thousands of taxpayers each year reduce their tax debt, not everyone qualifies for an OIC. In Fiscal Year 2019, there were 54,000 OICs submitted to the IRS. The agency accepted 18,000 of them.

10. Fake Payments with Repayment Demands

Criminals are always finding new ways to trick taxpayers into believing their scam including putting a bogus refund into the taxpayer’s actual bank account. Here’s how the scam works:

A con artist steals or obtains a taxpayer’s data including Social Security number or Individual Taxpayer Identification Number (ITIN) and bank account information. The scammer files a bogus tax return and has the refund deposited into the taxpayer’s checking or savings account. Once the direct deposit hits the taxpayer’s bank account, the fraudster places a call to them, posing as an IRS employee. The taxpayer is told that there’s been an error and that the IRS needs the money returned immediately or penalties and interest will result. The taxpayer is told to buy specific gift cards for the amount of the refund.

The IRS will never demand payment by a specific method. There are many payment options available to taxpayers and there’s also a process through which taxpayers have the right to question the amount of tax we say they owe. Anytime a taxpayer receives an unexpected refund and a call from us out of the blue demanding a refund repayment, they should reach out to their banking institution and the IRS.

11. Payroll and HR Scams

Tax professionals, employers, and taxpayers need to be on guard against phishing designed to steal Form W-2s and other tax information. These are Business Email Compromise (BEC) or Business Email Spoofing (BES). This is particularly true with many businesses closed and their employees working from home due to COVID-19. Currently, two of the most common types of these scams are the gift card scam and the direct deposit scam.

Gift card scam. In the gift card scam, a compromised email account is often used to send a request to purchase gift cards in various denominations.

Direct deposit scam. In the direct deposit scheme, the fraudster may have access to the victim’s email account (also known as an email account compromise or “EAC”). They may also impersonate the potential victim to have the organization change the employee’s direct deposit information to reroute their deposit to an account the fraudster controls.

BEC/BES scams have used a variety of ploys to include requests for wire transfers, payment of fake invoices as well as others. In recent years, the IRS has observed variations of these scams where fake IRS documents are used to lend legitimacy to the bogus request. For example, a fraudster may attempt a fake invoice scheme and use what appears to be a legitimate IRS document to help convince the victim.

The Direct Deposit and other BEC/BES variations should be forwarded to the Federal Bureau of Investigation Internet Crime Complaint Center (IC3) where a complaint can be filed. The IRS requests that Form W-2 scams be reported to phishing@irs.gov (Subject: W-2 Scam).

12. Ransomware

Ransomware is malware targeting human and technical weaknesses to infect a potential victim’s computer, network, or server and is a rapidly growing cybercrime. It doesn’t just affect individuals either. Recently, Garmin Ltd., a GPS, and fitness-tracker company was the victim of a ransomware attack and asked to pay $10 million in “ransom” to restore its systems.

Malware is a form of invasive software that is often frequently inadvertently downloaded by the user. Once downloaded, it tracks keystrokes and other computer activity. Once infected, ransomware looks for and locks critical or sensitive data with its encryption. In some cases, entire computer networks can be adversely impacted.

Victims generally aren’t aware of the attack until they try to access their data, or they receive a ransom request in the form of a pop-up window. These criminals don’t want to be traced so they frequently use anonymous messaging platforms and demand payment in virtual currency such as Bitcoin.

Cybercriminals might use a phishing email to trick a potential victim into opening a link or attachment containing the ransomware. These may include email solicitations to support a fake COVID-19 charity. Cybercriminals also look for system vulnerabilities where human error is not needed to deliver their malware.

If you think you’ve been a victim of a tax scam, please contact the office immediately.