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Receive Copies of Fraudulent Tax Returns- What did thieves try to steal?

Tax identification theft is becoming all too common. Victims know how frustrating the experience can be. Thankfully, the IRS is willing to help.

The frustration

If you are a victim of IRS identity theft, your first instinct is to find out what was filed and who filed it. In the past, most requests by victims of this theft could not receive this information. The IRS often stonewalls these requests because of active investigations and because it wishes to protect other potential victims’ identification.

There is help

As long as you follow IRS instructions, you are now able to get transcripts of what thieves attempted to do with your tax information. But be forewarned. The IRS may mask or redact information on the fraudulently filed tax return. Its goal is to provide you with enough information to determine how your personal information was used on the tax return without putting other information at risk.

To receive a transcript you must:

  • First, file an identity theft Form 14039, Identity Theft Affidavit
  • Then file Form 4506-F, Identity Theft Victim’s Request for Copy of Fraudulent Tax Return

To be successful in your request, your name and Social Security number (SSN) must be listed as the primary or secondary taxpayer on the fraudulent tax return. Plan on receiving an acknowledgement from the IRS within 30 days and a copy of the transcript within 90 days. Be prepared to have to work through masked or redacted information to determine what was stolen.

Why the stolen information may be important

  • You can see what personal information has been stolen. What has been compromised? Name, address and SSN? Do they have your dependent’s or spouse’s information? Perhaps they also have your income and withholding data. Knowing this will help you plan the extent of data protection you will need.
  • There may be clues as to where the identity theft occurred. Of the information stolen, who had access to it? Did the data breach involving your information happen through the IRS or somewhere else?
  • There may be more tax years impacted than you thought. Request information from the year you first became aware of the identity theft at the IRS. But you may wish to request information from a prior year and from the year following the theft. The IRS has access to up to six years of tax returns. Try to determine whether the theft is ongoing or a one-time occurrence.

The request requires specific information. You can read more about it in the IRS’s Instructions for Requesting Copy of Fraudulent Returns.

Thankfully, the IRS is now more helpful in sharing fraudulent information to allow victims to take action to protect themselves.

2020 Social Security Changes Announced

The Social Security Administration announced a 1.6 percent boost to monthly Social Security and Supplemental Security Income (SSI) benefits for 2020. The increase is based on the rise in the Consumer Price Index over the past 12 months ending in September 2019.

For those still contributing to Social Security through wages, the potential maximum income subject to Social Security tax increases 3.6 percent this year, to $137,700. A recap of the key amounts is outlined here:

2020 Key Social Security Benefits

What does it mean for you?

  • Up to $137,700 in wages will be subject to Social Security taxes, up $4,800 from 2019. This amounts to $8,537.40 in maximum annual employee Social Security payments. Any excess amounts paid due to having multiple employers can be returned to you via a credit on your tax return.
  • For all retired workers receiving Social Security retirement benefits the estimated average monthly benefit will be $1,503 per month in 2020 – an average increase of $24 per month.
  • SSI is the standard payment for people in need. To qualify for this payment you must have little income and few resources ($2,000 if single/$3,000 if married).
  • A full-time student who is blind or disabled can still receive SSI benefits as long as earned income does not exceed the monthly and annual student exclusion amounts listed above.

Social Security & Medicare Rates

The Social Security and Medicare tax rates do not change from 2019 to 2020.

Note: The above tax rates are a combination of 6.20 percent Social Security and 1.45 percent for Medicare. There is also 0.9 percent Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures. Please note that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed individuals pay both halves of the tax.

Donating to Charities? Do it RIGHT!- Donation basics to ensure a tax deduction

Too often a charitable tax deduction is disallowed upon review by the IRS. Do not let this happen to you. Here is what you need to know.

Cash In 0% Capital Gains Tax Rate

Think all your stock sales will be subject to capital gains tax? Think again. With proper planning some of your gains may not be taxed at the federal level. Here is what you need to know.

Social Security Planning Starts Now- Even those in their 20s should review this tip!

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Understanding Tax Terms: Health Savings Accounts (HSA)

If Benjamin Franklin were alive today, his famous quote “Nothing is certain, except death and taxes.” might include a third item — paying medical expenses. Medical expenses, in one form or another, are unavoidable. Fortunately a health savings account (HSA) is a great way to cut your spending on medical expenses.

A major tax break

If you have a high deductible health insurance plan (deductible of at least $1,350 for an individual or $2,700 for a family), you can add an HSA to pay for medical expenses with pre-tax income. Contributions to an HSA can be made via payroll deduction or directly to the account and deducted as an adjustment on your tax return. This approach effectively reduces your medical bills by as much as 37 percent!

Tips to maximize your HSA

Once your HSA is established, here are three simple ideas you can use to take full advantage of this great tax-savings vehicle:

  1. Maximize your HSA contributions every year. Set an annual goal to contribute the full amount allowable by the IRS into your HSA. Unlike other funds, HSA contributions do not have to be spent each year. Unused balances can remain in the account, giving you a great way to build up a nice emergency fund over the years. The 2019 total contribution limits are $3,500 for single taxpayers and $7,000 for a family (add $1,000 if you are 55 or older). You have until April 15 of the next year to make contributions, but when figuring out how much to contribute, remember to include contributions by your employer in your total.
  2. Pay for all medical expenses with your HSA. Typically you can pay for medical expenses directly from your HSA account via a debit card. If not, track all payments you make for medical expenses and take matching distributions from your HSA. If you don’t have enough in your HSA to cover an expense, make a contribution to your HSA first and then pay the bill. Keep ALL your medical bills and receipts to prove that the distributions are for qualified medical expenses.
  3. Prioritize HSA contributions. HSA contributions are tax-deductible and distributions are tax-free (for qualified medical expenses). Traditional IRA distributions, on the other hand, are taxable. 

Knowing you will always have medical expenses, prioritize your HSA contributions to take advantage of its additional tax benefits.

IRS Expands ID Protection Program

Unless you experience identity theft, the IRS will not provide you with access to their Identity Protection PIN program … until now. Read on to learn about the new voluntary participation in this identity theft enhancement.

Tax Breaks for Adult Students- These benefits are not just for kids!

Really? There are educational tax breaks for older taxpayers? Yes. Here is what you need to know.

Lower This Year's Tax Obligation- Action to take now!

Now is a good time to assess your current situation and address those lingering tax moves that may improve your tax picture for 2019. Here are five things to consider:

1. Check on your withholdings. Review your taxable income and the amount of tax you’ve paid to Uncle Sam so far this year. How do the numbers compare to last year? Based on your analysis, you may have to adjust your paycheck withholdings or make quarterly estimated tax payments during the balance of the year to avoid underpayment penalties or a surprising tax bill.

2. Build up your retirement accounts. Don’t neglect your retirement savings during the remainder of the year. In fact, setting aside more money for retirement can lower this year’s tax bill. For instance, if you have a 401(k) plan at work, you can defer up to $19,000 of salary in 2019, plus an extra $6,000 if you’re age 50 or older.

3. Identify potential taxable events. It’s easy to overlook one-time events that will have an impact on your 2019 tax liability. For instance, if you win a prize at a church raffle, the prize is generally taxable to you. Perhaps you changed jobs, lost a child as a dependent, or got married. Each of these events can create a change in your tax obligation. Review your records now to avoid any unpleasant tax surprises later.

4. Consider business property needs. If you acquire business property, you can often choose to write off the cost in the first year the property is placed in service under the latest tax laws. If it makes sense, consider combining the benefits of the Section 179 expensing deduction, up to a maximum of $1 million (indexed for inflation), with 100% bonus depreciation for both new and used property.

5. Account for gig taxes. Finally, workers in the gig economy (like Uber and Lyft drivers) should understand the basic tax rules. Generally, income from such jobs is fully taxable, but you may be entitled to offsetting deductions. Essentially, you’re treated like a self-employed individual. Estimated quarterly tax payments are often required for these workers.

Should you wish a review of your situation, call now. It’s better to be prepared than surprised when it comes to your tax obligation.

Leveraging Gift Rules to Your Advantage

As you or family members approach retirement years, it is important to have a basic understanding of the IRS gift giving rules. With this understanding, there are opportunities to leverage this tax law without creating a tax problem.

The rules

  • You may give up to $15,000 to any individual (donee) in 2019 and avoid any gift tax filing requirements. 
  • If married you and your spouse may transfer up to $30,000 per donee. 
  • If you provide a gift to your spouse who is not a U.S. citizen, the annual exclusion amount is $155,000. 
  • Gifts in excess of this annual amount trigger the need to file a gift tax form with your individual tax return. The excess gift amounts are then added to your estate for potential estate taxation. 
  • The estate tax currently has a maximum rate of 40% and the donor of the gift (or their estate) is responsible for paying the tax.

Using the rules to your advantage

Remember, you can transfer up to $15,000 ($30,000 if married) to anyone you wish each year tax-free. Additionally, most states also adhere to this federal law. So if you wish to move assets to loved ones without the burden of future taxation, consider the following ideas.

  • Make periodic gifts. Remember the gift-giving limit is per calendar year. To take full advantage of this tax-free transfer, consider starting now and make periodic payments. Every year you miss out on this annual limit reduces the amount a couple can transfer tax-free to each individual donee by up to $30,000 per year.
  • Fund college saving. Consider donating money into 529 College Saving plans for children and grandchildren. This can be done with automated deposits into the account. The account could be established by you or your grandchild’s parent.
  • Pay medical and education bills direct. If you are concerned about exceeding the annual limit for gifts to a single person, consider paying bills directly. Examples of this strategy might be paying medical bills directly to a hospital or directly paying college bills for a loved one.
  • Donate property. Gifts can include property as well as cash. You can donate investments or other physical property. If you do this, document the fair market value of the property when you transfer it. The IRS requires this documentation to ensure the value of the property transferred is consistently valued by you and the person receiving the gift.
  • Help build a down payment. Often children burdened with college debt cannot afford to save the down payment required to own their first home. You can aid in this by helping build a down payment through gift transfers.
  • Leave a cushion. Remember the annual limit. If you provide a gift for the maximum allowable to an individual, you may not provide any other gifts to this person during the year or the event would be deemed excess gift giving and require filing a gift tax form.

Keep it in perspective

Understanding and leveraging the annual gift tax rules can create tremendous tax savings. But this strategy should be done in conjunction with understanding your personal financial needs. Providing gifts of funds that you might later need for your own retirement can be problematic. It is best to review your gift plans prior to taking action.