Identity theft has been making headlines frequently in recent years. The motive behind stealing someone’s identity is to use their personal information for financial gain. In the world of taxes, identity theft is when someone uses another person’s Social Security number (SSN) or Employer Identification Number (EIN) to file a tax return in efforts to acquire a refund that is not rightfully theirs.
In the case of having your identity stolen, you will be notified by the IRS that a tax return using your SSN has already been filed. The IRS has recognized this issue and has made continuous efforts to seize identity theft with a strategy of prevention, detection and victim assistance - the agency has saved millions of dollars in refunds from getting into the wrong hands.
However, do not completely rely on the IRS to keep your information save. Understand and implement tips such as these to protect yourself against having your identity stolen:
1. Taxes. Security. Together. This is an IRS awareness program launched 2015 to inform people about ways to protect their personal data. Visit this link to learn more: www.IRS.gov/TaxesSecurityTogether.
2. Protect your Records. Taxpayers should not carry their Social Security card on them unless it is necessary for a specific situation. The same goes with providing your SSN – there are instances that require it, but question if that instance should call for such information. At home, protect personal computers with anti-spam and anti-virus software. Passwords should be changed routinely for online accounts.
3. Don’t Fall for Scams. Impersonating banks, credit card companies and even the IRS in hopes of stealing personal data is extremely common. Recognizing and avoiding those inauthentic communications is pivotal in protecting your information. It is important to note, the IRS WILL NOT call a taxpayer threatening a lawsuit, arrest or to demand immediate payment.
4. Report Tax-Related ID Theft. Reporting an ID Theft case is important – according to the IRS, if you are unable to e-file your return because someone already filed using your SSN:
File a tax return by paper and pay any taxes owed.
File an IRS Form 14039, Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. Include it with the paper tax return and/or attach a police report describing the theft if available.
File a report with the Federal Trade Commission using the FTC Complaint Assistant.
Contact Social Security Administration at www.ssa.gov and type in “identity theft” in the search box.
Contact financial institutions to report the alleged identity theft.
Contact one of the three credit bureaus so they can place a fraud alert or credit freeze on the affected account.
Check with the applicable state tax agency to see if there are additional steps to take at the state level.
5. IRS Letters. You may receive a letter asking for verification of your identity by calling a special number or visiting an IRS Taxpayer Assistance Center. This would happen in the instance of what the IRS considers, a “suspicious return.”
6. IP PIN. If your identity theft is confirmed, the IRS may issue you an IP PIN. The IP PIN consists of six unique digits that the taxpayer uses to e-file their return. For each year thereafter, they will receive an IRS letter with a new IP PIN.
7. Report Suspicious Activity. Fairly obvious, but if you suspect or know of an individual or business that is committing tax fraud, you should visit the following site and take the indicated steps: How to Report Suspected Tax Fraud Activity.
One of the largest issues we hear about from our clients is fictitious communication from The IRS – the agency does not initiate contact via social media or text message. Initial contact will usually come in the mail. Utilize the aforementioned tips to ensure you are doing everything you can to keep your identity safe. In the unfortunate circumstance that a tax return is fraudulently filed with your information, reach out to us and we will be happy to help!
The idea of working from home is undoubtedly admirable. In addition to not having a commute, the costs that come with using a home office can really help self-employed individuals with their tax bill. These expenses are classified into two categories:
Direct Expenses: relating to costs that are incurred specifically for the space that is considered the "home office." For example, the costs of painting or repairing the home office, depreciating the furniture and fixtures used in the office, etc.
Indirect Expenses: relating to costs that are incurred for the entire house. Such as, utility
costs, depreciation, insurance, mortgage interest, real estate taxes, etc. The allocable share of
these costs will be applied as a home office deduction. For example, if your home’s total footage is 1,000 Sq ft. and your home office is 200 Sq ft., 20% of the total indirect expenses would be deductible.
Of course, there are plenty of rules (discussed below) that one must satisfy in order to utilize such tax deductions. If you meet any of these three tests, you will be able to deduct your home office expenses.
Principal place of business: You're entitled to home office deductions if you use your home
office, exclusively and on a regular basis, as your principal place of business. Your home office is
your principal place of business if it satisfies either a "management or administrative activities" test, or a "relative importance" test. You satisfy the management or administrative activities test if you use your home office for administrative or management activities of your business. You meet the relative importance test if your home office is the most important place where you conduct your business, in comparison with all the other locations where you conduct that business.
Note: With your home office serving as a “principal place of business,” the costs of traveling between your home and other work locations are considered deductible transportation expenses.
Home office used for meeting patients, clients, or customers: You're entitled to home office deductions if you use your home office, exclusively and on a regular basis, to meet or deal with patients, clients, or customers. The patients, clients or customers must be physically present in the home office.
Separate structures: You're entitled to home office deductions for a home office, used
exclusively and on a regular basis for business, that's located in a separate unattached
structure on the same property as your home-for example, an unattached garage, artist's studio,
workshop, or office building.
In last week’s blog post, we discussed the tax effects of selling your home. As a refresher, when selling your primary residence, a capital gains exclusion of $250,000 (single) or $500,000 (married) is applicable – subject to certain rules. When selling a home that contains a home office, that same exclusion will not apply to the portion of your profit equal to the amount of depreciation you claimed on the home office. This can be an important factor when deciding whether or not to establish a home office for tax purposes.
Home office deductions can be tricky, and each person’s situation is different. We understand that self-employed individuals want to run a thriving business, while minimizing their tax bill – reach out to us and make sure you’re taking advantage of ALL of your allowable deductions!
Selling a property - whether it be your primary residence or a vacation home – can be an exciting, yet overwhelming process. From marketing the property, to signing all the paperwork, you are likely going to be accompanied by a headache or two during the process. However, fear not, because we at Sturgill & Associates are going to act as a dose of aspirin, and take care of at least one of those headaches!
Is the profit from the sale of my proprety taxable?!
Good question! And the answer is, it depends!
You are selling your Primary Residence:
The sale of your home in which you occupy as your primary living space has a “Capital Gains Exclusion” up to $250,000 for single individuals, and $500,000 for those Married Filing Joint.
For example, if you purchased your home in 2010 for $200,000 and sold it today for $400,000, the profit from that sale would be completely tax-free. Note that if you were married filing jointly, you could have sold that same property for $700,000, and had $500,000 of tax-free profit.
However, to qualify for this tax break, there are three tests you must meet:
- Ownership: The property must have been owned for at least two
years during the five years prior to the date of sale - continuity does
not matter. For example, using the same scenario as above - if you
lived in that $200,000 home for 12 months in 2010, lived somewhere
else from 2011 to 2013, and returned in 2014 - the 2 out of 5 year test
would still be met.
- Use: The home must be used as your principal residence for at least
two (2) of the five (5) years prior to the date of sale.
- Timing: You have not excluded the gain on the sale of another home
within two (2) years prior to this sale.
You are selling your second (or vacation) home:
The sale of a second home will result in capital gains taxes on the net proceeds from the sale - net proceeds is defined as the sales price minus closing costs and what you paid for it (basis). The term basis is usually referencing the property’s original cost, however it is important to keep track of what you spent on improvements (i.e. kitchen remodel, new central AC unit, etc.) because those items add to your basis.
For example, you bought a vacation home for $200,000 and remodeled the kitchen for $20,000 - if that was the only improvement you made to the property, your basis would then be $220,000. Now you go to sell that property for $300,000, with closing costs of $15,000 and a basis of $220,000, your profit subject to capital gains tax would be $65,000. If the property was sold for less than it’s basis resulting in a loss, the loss is NOT deductible.
It is important to note that the above mentioned “improvements” to a property are also applicable to a primary residence. Large equipment replacements and/or renovations to your home also increase the basis you have in your principal residence.
As always, situations arise that are more complex than the examples above. We are here to help! Reach out to us and we will be more than happy to assist you in the process. Remember to leave us a comment or Direct Message on Facebook telling us what topic you want to read about next week!
It’s wedding season (or just around the corner)! According to the popular wedding site, The Knot, the most popular months for weddings are August, September, and October. A lot of thought goes into weddings these days - from flowers and color schemes, to meal courses and DJs. It’s not surprising that many couples struggle to plan beyond their wedding day, and even less surprising that they may not understand how their tax situation will be impacted by marriage.
Here are some basic considerations to keep in mind:
- Inform the Social Security Administration (SSA) - when filing an income tax return, the
names and Social Security numbers on your form must match your records at the SSA
- You can report the change by filing Form SS-5
- You must notify the IRS by filing Form 8822. You should also inform the U.S. Postal Service
by visiting your local post office.
- Provide your employer with a new Form W-4
- This is required – keep in mind, if both you and your new spouse are employed, your
combined income may push you into a higher tax bracket
- This IRS tool will help you fill out a new Form W-4:
Married Filing Jointly
- Couple will report their combined income and deductions (even if one spouse has no income or
- You can be held jointly liable for all the taxes, interest, and penalties incurred on income
earned by your spouse
Married Filing Separately
- Alternative status to Married Filing Jointly – can be beneficial in specific situations
- Separate filers are often excluded from tax breaks that joint filers are eligible for
Same – Sex Couples and Domestic Partners
- According to the IRS, “If you are legally married in a state or country that recognizes same-
sex marriage, you generally must file as married on your federal tax return."
- This is true even if the couple currently resides in a jurisdiction that does not recognize
- Registered Domestic Partners, however, are not considered married for Federal tax purposes
It is also important to note that even newlyweds married in the upcoming most popular wedding months, will file using one of these statuses for the current tax year. For example, if you get married anytime in 2017 (1/1 - 12/31), you will be considered “married” by the IRS for the entire 2017 tax year.
You are now ready for marriage (as far as taxes go)! Enjoy your wedding day and all that comes with it!
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