As 2017 winds down, it is important for business owners to analyze how the year has went before it is too late. Taking a look at the situation now could present you the opportunity to save money in taxes when it comes time to prepare your tax return.
We hope you have achieved all the goals you set for 2017, and have 2018 goals ready to implement!
If you didn’t achieve or set goals for 2017…Why not? Without a game plan and goals you get what you set…NOTHING!
Things to do before year end & reminders
These are reminders to all Wisconsin small business owners to help stay compliant with IRS laws and also save money in tax.
Christmas Gifts/Bonus – Gifts and/or bonuses paid to employees in excess of $25.00 must be included in W-2 income as payroll.
- Gifts to customers and clients are also limited to the $25.00 limit(per customer/client)! Anything over that amount is not tax deductible!!
- A company party that involves employees can be 100% tax deductible, it is not subject to the 50% Meals & Entertainment rules.
- Document & notate this event (costs) as such.
W-2’s – Make sure all employee information is correct prior to filing W-2’s. This includes name, address, and social security number.
- Employers must deliver W-2s to employees by the last day of January. If statements are late or incorrect, employers will incur penalties.
There are a variety of 1099 forms that account for other sources of income. Issuers must mail out these 2017 forms to recipients by January 31, 2018. The most common form, Form 1099-MISC, must be provided to the non-employee and submitted to the IRS for everyone to whom you paid at least $600 or more during the tax year. It is important to note that this 1099-MISC deadline applies when reporting non-employee compensation (Box 7).
- $50 per Form 1099-MISC if late for 30 days or less.
- The penalty increases to $100 per form if late more than 30 days.
- If you know you will not file on time, businesses can acquire a 30-day extension to file 1099s by filing IRS Form 8809: Extension of Time to File Information Returns. The form must be filed by February 28 and the extension is not granted automatically.
The rate for 2017 is 53.5 cents per mile. 2018 rate has yet to be released, but usually it is calculated based on cost to maintain a vehicle on the road ( Gas prices are a big variable).
Keep track of:
- Odometer Readings recorded
- Mileage Logs maintained
- Expense reports
Charity or Advertising?
Why does it matter? There are limitations for how much you can deduct of charity deductions. When helping out a cause, is there a way to promote your business? If so, document this and it will move the deduction to advertising.
You cannot have a bad debt if you are on a cash basis unless it’s a NSF check that’s noncollectable!
- Review your Accounts Receivable for any bad debts (noncollectable). You can write off your bad debts if:
- In order to have a Bad Debt, you must have recorded it in your sales!
- You must have made every reasonable attempt possible to collect –(document your attempts).
- List or submit your Bad Debts.
- Why do you have a bad debt? It may be a tax deduction but it is lost profits!
- Verify before doing business
- Change terms/conditions of sale
- In order to have a Bad Debt, you must have recorded it in your sales!
Is there a piece of equipment your business needs (not wants)?
- If put into service before 12/31/17 it could be fully written off, thus saving tax dollars now!
- Make sure the equipment is needed & necessary! Spending money just to save tax dollars is a losing financial transaction. It must make you money (Investment).
- We have posted on our website the guidelines for how long you are required to keep your various business records. Please check out our website!
- Remember to properly dispose of these records
- We do offer the use of our shred service (limited) for a MDA donation- (Ask our office)
- Is your corporation up to date? Shareholder meetings, minutes?
- Should you file an election to avoid having to do this?
Do you have your year-end inventory planned? The IRS requires that you must take a physical count of all inventories on hand as of December 31. This list would include a description of each inventory item, quantity on hand, unit price, and total cost. Work-in-progress inventory is valued at the cost of materials, labor, and other direct costs included in the unfinished inventory items as of December 31.
- If you feel that this is not important or do not have enough time, ask yourself, if this was your cash on the shelves, would you want to know all your money is there?
- An accurate inventory can reveal a lot of what is wrong with your business!
- Gross profit %
- Too much?
Wishing you and your family the best this holiday season!
Hammernik & Associates
Bitcoin mania is upon us. It has been widely publicized that the cryptocurrency, Bitcoin, has reached record highs in value over the past month. Investors are making nice profits with Bitcoin, and the IRS is trying to find a way to get their share of tax on those profits.
So, what is Bitcoin?
Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency – the system works without a central repository or single administrator. The network is peer-to-peer and transactions take place between users directly through the use of cryptography, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.Research produced by Cambridge University estimates that in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.
The IRS Wants Their Cut
There is not a middle man, which would usually be a bank, when Bitcoin is bought or sold. Therefore, there is not a third party administrator to report these transactions to the IRS. The IRS has realized that there are billions of dollars being made, and they want their tax! In November 2016, they put in a request to the court system to obtain the data of users that have transferred Bitcoin. Their reasoning is this, “There has been an explosion of billions of dollars of wealth in just a few years from bitcoin, a significant amount of which has no doubt accrued to United States taxpayers, with virtually no third-party reporting to the IRS of that increase in income.”
On Wednesday, the Court awarded the IRS a small victory in the case. Although the IRS did not get everything they asked for, they were awarded the following information from the largest Bitcoin platform, coinbase.com.
The Court has ordered Coinbase to produce the following customer information:
- taxpayer ID number,
- birth date,
- records of account activity including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, and the names of counterparties to the transaction, and
- all periodic statements of account or invoices (or the equivalent).
However, that information is limited to those accounts with at least $20,000 in any one transaction type (buy, sell, send, or receive) in any one year from 2013 to 2015.
These are the only records that Coinbase needs to provide at this time.
This determination likely means that many account holders are breathing a sigh of relief…for now. But as virtually currency growsin popularity, with Bitcoin blowing past $11,000 this week, I can guarantee that IRS won’t stop with this request. Those who are buying Bitcoin are currently making money – and the IRS wants a cut.
How Is Bitcoin Taxed?
The IRS has determined that US taxpayers should treat digital currency as capital assets, as long as they are convertible into cash. Capital assets are taxed in two different ways, long term and short term. Long term sales, which means that the taxpayer held the currency for at least 1 year before the sale, is taxed at long-term capital gains tax which is 0-20% depending on your tax bracket. However, if you decide to sell your cryptocurrency in less than one year, it will be taxed at your normal federal tax rate.
There is a large problem that exists in determining the sale of Bitcoin. As mentioned earlier, the currency can be used to pay for services. You can buy online services, retail services, and even food. Vendors have begun to accept Bitcoin as a form of payment, similar to credit cards or PayPal. The IRS’ position on this matter is that any time a purchase is made, that is considered a sale of Bitcoin. If there was any profit on the Bitcoin from the original date of purchase, that would be considered a gain.
Are taxpayers required to report income from Bitcoin? The answer is yes. Bitcoin is the same as trading stocks. Any profit that you make is income, and that income should be taxed. However, as previously mentioned, there is no third party to report this income to the IRS. For instance, when you sell stocks, your stock broker will report that trade on tax form 1099-B to the IRS. The reality is, very few Bitcoin transactions are being reported to the IRS. 2013: 807/150M tax returns reported Bitcoin transactions, 2014: 893/151M tax returns reported Bitcoin transactions, 2015: 802/153M tax returns reported Bitcoin transactions.
The bottom line is, the government is seeking better compliance with the buying and selling of cryptocurrency. The battle between the IRS and Coinbase will continue. If the IRS gets a hold of records that show you sold Bitcoin, and you did not report it as income on your tax return, expect a love letter from them in the future. Please note that the most recent Court resolution only releases data from 2013-2015 for transactions in excess of $20,000.
Should You Invest In Bitcoin?
The answer is different for everybody. You need to ask yourself, what kind of investor am I? If you consider yourself an aggressive investor, you might want to research Bitcoin. If you are conservative with your investing, it is probably best that you stay away. Bitcoin is very volatile. This means that the potential for a big profit is there, but you also have to be okay with losing all of your investment. Do your research first.
If you did not think that you needed to report Bitcoin sales in the past, you will want to consider going back and amending (changing) your tax return for the year of sale to report the transaction. If the IRS receives information that shows you made a sale, and did not report it, they will assess you the tax due plus interest and penalties. Please email me with any questions regarding Bitcoin.
Nicholas Hammernik, EA
Hammernik & Associates is located in West Allis, WI and helps taxpayers in the Milwaukee area with tax planning and tax preparation.
The best part of Black Friday for me, is waiting for videos to surface online of straight up WWE fights happening in stores over a $20 item. It is hilarious, but sometimes sad, to see the extent that some people will go to in order to say that they saved 50% on Black Friday. It reminds me of the holiday classic, Jingle All The Way. This is such a hidden gem of a Christmas movie, starring Arnold Schwarzenegger and Sinbad, who go to extreme lengths to get their hands on a Turbo Man toy for Christmas. Do not mess with someone that looks the way Arnold looks on Black Friday.
Nowadays, consumers have a much less stressful way to do their shopping….online. TAX GUY PSA: Remember that if you do not pay sales tax on your online purchases, you are to report these purchases on your Wisconsin tax return. Most online retailers now charge sales tax, however, there are still some purchases from sites such as Ebay or Amazon that do not charge you sales tax.
Tomorrow is the real day to do your shopping. Small Business Saturday. I promote Small Business Saturday every year for two reasons. 1) Our specialty is working with small business owners. I know how hard a small business owner works and the passion that they have for their business. 2) Small business success correlates with the success of your community. Keep your dollars inside of your own community instead of big box retailers in New York and California. The economic well being of your community is dependent on the success of the small businesses that occupy your community.
You won’t hear about all of the great deals that you can get on Small Business Saturday, because they don’t have millions of dollars to blow on advertisements like the retailers on Black Friday do. You can find local businesses in your area that are participating in Small Business Saturday here. Also, be on the lookout for your favorite local stores’ Facebook, Instagram, and Twitter pages to see what they are offering for Small Business Saturday. Avoid the stress today, shop small tomorrow.
So, the House of Representatives passed their version of the tax bill yesterday. Does that mean everything in the bill is legal tax code now? What does that mean for your tax return? What is going on?!
As a young student, with the help of School House Rock, I learned how a bill becomes a law. The House approving the bill, is progress, but it is not finality. The progress of the bill turning into a law is now on the Senate. The Senate has their own version of the tax bill, that has many similarities, but has some twists to it. To make things even more complicated, the Chair of the Senate Committee of Finance, had the ability to “mark-up” the Senate bill. The Chairman’s Mark as it is called, gives him the ability to tweak the bill before putting it to a vote. The current chairman is Senator Orrin Hatch (R-Utah). I will try and break down the differences between the House version, the Senate version, and the Chairman’s Mark.
We currently have seven (7) tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
- The House bill proposed four (4) tax rates: 12%, 25%, 35% and 39.6%.
- The Senate bill, as initially proposed, would keep seven (7) brackets and reduce the top marginal rate to 38.5%.
- Under the proposal as outlined in the Chairman’s Mark, the Senate would keep (7) rates as before but would lower the rates in the middle.
Child Tax Credit
The credit is currently $1,000 and is refundable.
- Under the House bill, the child tax credit would be increased to $1,600 per child under 17 – subject to phaseout – with an additional $300 credit for each parent as part of a consolidated family tax credit. The first $1,000 would be refundable.
- Under the Senate bill, the child tax credit would be bumped to $1,650, with a much higher phaseout for ($1 million for married couples filing jointly). As with the House bill, the first $1,000 would be refundable.
- Under the proposal as outlined in the Chairman’s Mark, the child tax credit would be increased to $2,000 and phaseouts would begin at $500,000 for married couples filing jointly.
Obamacare Health Mandate
- Under the original House and Senate proposals, the mandate would stay.
- Under the proposal as outlined in the Chairman’s Mark, the individual mandate penalty would be eliminated beginning in 2019.
Above The Line Deductions ( Before your Adjusted Gross Income)
Currently, you can claim certain above-the-line expenses (meaning that you can claim them even if you do not itemize).
- Under both proposals, most above-the-line deductions would be eliminated, including those for student loan interest, moving expenses and out of pocket expenses for teachers.
- Under the proposal as outlined in the Chairman’s Mark, the above-the-line expense limit for teachers would stay in effect but the limit would be increased to $500 (it’s currently $250).
Businesses use structures like limited liability companies (LLCs) or S corporations to pass-through income to the owners, escaping tax at the company level: Income is taxed at individual rates.
- Under the House proposal, businesses conducted as sole proprietorships, partnerships, and S corporations would be taxed at a rate of 25%. Businesses that offer “professional services” like doctors, lawyers, accountants, designers, and consultants wouldn’t qualify for the reduced rate under the proposal. Other business owners can choose to categorize 70% of their income as wages (and pay the individual tax rate) and 30% as business income (taxable at 25%) OR set the ratio of their wage income to business income based on the level of their capital investment.
- Under the Senate proposal, pass through income would be allowed a 17.4% deduction. As with the House bill, certain professional services, are excluded from the tax break – except those individuals with income up to $75,000 ($150,000 for married taxpayers filing jointly).
- Under the proposal as outlined in the Chairman’s Mark, more businesses could claim the special 17.4% deduction. Certain professional service which were formerly excluded – like lawyers – would now be included so long as their income was no more than $500,000 for married taxpayers filing jointly and $250,000 for individuals. Additionally, the markup would limit the amount of the 17.4% deduction to 50% of the taxpayer’s W-2 wages (including wages subject to wage withholding, elective deferrals, and deferred compensation); the W-2 wage limit would not apply to taxpayers with taxable income of less than $500,000 for married taxpayers filing jointly or $250,000 for individuals (phase-ins apply).
Buh-Bye Free Meals
Say goodbye to those free lunches. Under the proposal as outlined in the Chairman’s Mark, employers would no longer be able to deduct expenses for meals provided for the convenience of the employer on the employer’s business premises.
New Tax Form….More forms??!!
Simple, right? They are going to let me file my taxes on a postcard? NOPE. Under the proposal as outlined in the Chairman’s Mark, not only are tax forms not shrinking much, there would be a new tax form. The federal form 1040SR (as in senior citizen, so creativ) would be for use by persons who are age 65 or older by the end of the taxable year and would be “as similar as possible to the Form 1040EZ.” The difference is that the use of form 1040SR would not be limited by taxable income or by certain income types.
You’re thinking more budget cuts, right? Despite the fact that the IRS has experienced significant cuts since 2010, the Senate doesn’t wish to continue down that path, saying, as part of the Chairman’s Mark: The proposal expresses the sense of the Senate that politically motivated budget cuts are counterproductive to deficit reduction, diminish the IRS’s ability to adequately serve taxpayers and protect taxpayer information, and reduce the IRS’s ability to enforce the law.
The Chairman wants to keep up with the uprising in identity theft, and also wants to make sure the IRS is capable of going and getting tax money that is theirs through audits.
Note: Earlier this year, President Trump suggested dropping the Internal Revenue Service (IRS) budget by $239 million.
You didn’t really think this was going to be permanent, right? As with the Bush tax cuts of 2000, not all of the proposed changes will be permanent. In this case, all individual income tax changes, except the elimination of the individual mandate penalty, would expire at the end of 2025. This includes the individual income tax rate cuts, the increased standard deduction, and the expanded child tax credit.
HOWEVAAAA…. Those corporate tax rates? They would be permanent…for now.
The Senate needs 50 votes to pass the bill. The GOP may need some help from Democrats on this as the majority in the Senate is not as overwhelming as it is in the House. IF…a big if…the Senate passes their version of the bill, the House and the Senate will then get together to reconcile the differences in each bill to come up with a final bill to present to the President. The House voting to approve their bill is a step towards a change in the tax law, but their are still some obstacles to get through for that to pass. We will keep you up to date with all the happenings with the tax bill, and are ready to assist you in tax planning to prepare for any changes that will affect your individual situation. If you have any questions about any parts of the tax bill proposals, please feel free to contact me at [email protected]
Nicholas Hammernik, EA
Hammernik & Associates provides tax services in West Allis, WI to the taxpayers of Southeastern Wisconsin and beyond. Keep up to date with all happenings in the tax world by following our blog, subscribing to our newsletters, and following us on Facebook.
Since the election, taxes have been in the forefront of changes the Republican party has been trying to make. In previous posts, we had informed you of some of the ideas that President Trump wanted to see changed in the tax code when he took office. It has been a guessing game as to what will happen to our tax code and when it will happen. Today, we received an update of the House Of Representatives tax bill proposal. The entire tax bill has not been released, but here is a straightforward breakdown of how this proposal might affect Wisconsin taxpayers.
I like you, you’re cute…you can stay!
- Mortgage Interest Deduction: Current mortgages are grandfathered in. If you obtain a new mortgage, it will be capped at $500,000 for deduction purposes.
- Earned Income Credit
- Charitable Donations
- Retirement Plans: You can still take tax breaks for contributions to retirement accounts if you qualify.
- Real Estate Tax Deduction: Deduction will be capped at $10,000.
I guess we’re stuck with you for now
- Obamacare Individual Mandate: You will still be assessed a penalty on your tax return if you do not have the minimum required health insurance.
- Standard Deduction: The standard deduction would double to $12,000 for single taxpayers and $24,000 for married couples.
- Child Tax Credit: The child tax credit would be increased to $1,600 per child under 17, with an additional $300 credit for each parent as part of a consolidated family tax credit. The credit is currently $1,000 and is refundable.
- Federal Estate Tax: The exemption amount will double to $11 million per person. The federal estate tax will be completely eliminated after 2024.
Let’s see if a change is for the better…
- Tax Brackets: Consolidating the current seven tax brackets into four.
- 12%: $12,000 – $45,000 for individuals ($90,000 for married taxpayers)
25%: $45,001 – $200,000 for individuals ($260,000 for married taxpayers)
35%: $200,001 – $500,000 for individuals ($1 million for married taxpayers)39.6%: $500,001+ for individuals ($1,000,001+ for married taxpayers)
- 12%: $12,000 – $45,000 for individuals ($90,000 for married taxpayers)
- Small Business Tax Relief: Businesses conducted as sole proprietorships, partnerships, and S corporations would be taxed at a rate of 25%. However, businesses that offer “professional services” like doctors, lawyers, accountants (BOO!), designers, and consultants wouldn’t qualify for the reduced rate.
- Corporate Tax Relief: Corporations which do not pass through their income pay tax on profits at the corporate tax rate of a lowered 20%.
So hard to say goodbye
- Personal Exemptions: You will no longer receive exemptions for all taxpayers and dependents listed on your tax return. This exemption is deemed to be included in the larger standard deduction. This could be a negative depending on your specific situation.
- State Tax Deduction: You will no longer be able to include the state income tax you pay as part of your federal itemized deductions.
- Medical Expenses: You will no longer be able to include out of pocket medical expenses as part of your itemized deductions.
- Student Loan Interest: Ouch, this one hurts.
- Alimony Payment Deduction
- Moving Expenses
Don’t let the door hit you on the way out
- Alternative Minimum Tax (AMT): I wrote about this outdated tax law last month. A lot of middle class taxpayers would be glad to see this one go.
A lot of these tax bill ideas coincide with some of the original proposals that we have heard over the past year. I will provide updates once we get the full bill, but these are some ideas that have been leaked. Keep in mind, nothing is happening, until the bill actually passes. Hammernik & Associates will be with you along the way to help Wisconsin taxpayers adjust to any tax law changes.
IRS Only Issuing IPIN To Confirmed Victims
In an earlier post, we had suggested applying for an IPIN if you were a victim of the Equifax breach. However, the IRS has now come out with a statement in regards to this issue. Presumably due to high volume, the IRS will only accept ID Theft Affidavits and issue IPIN’s if you can confirm that somebody is using your personal information. They will not issue you an IPIN if you were affected by the breach and you do not have proof somebody is using your information.
The breach may include sensitive information such as Social Security numbers, date of birth addresses, and driver license numbers. To determine if your information may have been compromised, please visit equifaxsecurity2017.com or call 1-866-447-7559, 6:00 a.m. – Midnight, CT.
Many of you are considering a “credit freeze”. Before doing so, please know what this means:
What is a credit freeze?
Also known as a security freeze, this tool lets you restrict access to your credit report, which in turn makes it more difficult for identity thieves to open new accounts in your name. That’s because most creditors need to see your credit report before they approve a new account. If they can’t see your file, they may not extend the credit.
Does a credit freeze affect my credit score?
No. A credit freeze does not affect your credit score.
A credit freeze also does not:
- prevent you from getting your free annual credit report
- keep you from opening a new account, applying for a job, renting an apartment, or buying insurance. But if you’re doing any of these, you’ll need to lift the freeze temporarily, either for a specific time or for a specific party, say, a potential landlord or employer. The cost and lead times to lift a freeze vary, so it’s best to check with the credit reporting company in advance.
- prevent a thief from making charges to your existing accounts. You still need to monitor all bank, credit card and insurance statements for fraudulent transactions.
Does a credit freeze stop prescreened credit offers?
No. If you want to stop getting prescreened offers of credit, call 888-5OPTOUT (888-567-8688) or go online. The phone number and website are operated by the nationwide credit reporting companies. You can opt out for five years or permanently. However, some companies send offers that are not based on prescreening, and your federal opt-out right will not stop those kinds of solicitations.
As you consider opting out, you should know that prescreened offers can provide many benefits, especially if you are in the market for a credit card or insurance. Prescreened offers can help you learn about what’s available, compare costs, and find the best product for your needs. Because you are pre-selected to receive the offer, you can be turned down only under limited circumstances. The terms of prescreened offers also may be more favorable than those that are available to the general public. In fact, some credit card or insurance products may be available only through prescreened offers.
Can anyone see my credit report if it is frozen?
Certain entities still will have access to it.
- your report can be released to your existing creditors or to debt collectors acting on their behalf.
- government agencies may have access in response to a court or administrative order, a subpoena, or a search warrant.
How do I place a freeze on my credit reports?
Contact each of the nationwide credit reporting companies:
You’ll need to supply your name, address, date of birth, Social Security number and other personal information. Fees vary based on where you live, but commonly range from $5 to $10.
After receiving your freeze request, each credit reporting company will send you a confirmation letter containing a unique PIN (personal identification number) or password. Keep the PIN or password in a safe place. You will need it if you choose to lift the freeze.
How do I lift a freeze?
In a few states, credit freezes expire after seven years. In the vast majority of states, a freeze remains in place until you ask the credit reporting company to temporarily lift it or remove it altogether. A credit reporting company must lift a freeze no later than three business days after getting your request. The cost to lift a freeze varies by state.
If you opt for a temporary lift because you are applying for credit or a job, and you can find out which credit reporting company the business will contact for your file, you can save some money by lifting the freeze only at that particular company.
What’s the difference between a credit freeze and a fraud alert?
A credit freeze locks down your credit. A fraud alert allows creditors to get a copy of your credit report as long as they take steps to verify your identity. For example, if you provide a telephone number, the business must call you to verify whether you are the person making the credit request. Fraud alerts may be effective at stopping someone from opening new credit accounts in your name, but they may not prevent the misuse of your existing accounts. You still need to monitor all bank, credit card and insurance statements for fraudulent transactions.
Three types of fraud alerts are available:
- Initial Fraud Alert. If you’re concerned about identity theft, but haven’t yet become a victim, this fraud alert will protect your credit from unverified access for at least 90 days. You may want to place a fraud alert on your file if your wallet, Social Security card, or other personal, financial or account information are lost or stolen.
- Extended Fraud Alert. For victims of identity theft, an extended fraud alert will protect your credit for seven years.
- Active Duty Military Alert. For those in the military who want to protect their credit while deployed, this fraud alert lasts for one year.
To place a fraud alert on your credit reports, contact one of the nationwide credit reporting companies. A fraud alert is free. The company you call must tell the other credit reporting companies; they, in turn, will place an alert on their versions of your report.
We do everything to keep your information safe, but we recognize devastating events like this happen, and will continue to happen. The procedures at the Internal Revenue Service only allow us to apply for an IPIN, a number to identify your tax filings as yours, when you are a victim of identity theft. Please notify us should you determine your identity has been compromised with this Equifax breach or any other event.
Last week, Forbes.com ran a series of articles about the pending tax reform known as “Tax Reform Week”. The articles consisted of submissions from guest bloggers about various topics involved with the proposed tax reform. Unfortunately, my article did not get chosen to be posted 🙁 . However, I figured I should share anyways.
The proposed tax reform that is in the current limelight has different angles to it which could affect a wide array of American taxpayers. One of the proposed issues involves the AMT. You may be asking yourself, what the heck is AMT? Is that the machine that dispenses money? Haha no, it actually does the opposite, it takes your money. AMT is an acronym for Alternative Minimum Tax.
As a tax professional, it is one of the most difficult tax laws to explain to taxpayers. How do I explain to somebody that they can no longer deduct their real estate taxes because their income is now too high? You can do a web search to read up on all the technical details about what AMT is and how it works, but let me put it in plain English. The AMT is a tax law that was created 50 years ago to prevent the wealthy taxpayers from using loopholes to avoid paying the proper amount of tax. If you make a certain amount of money, you must pay a certain amount of tax, regardless of your deductions. Back then, you were considered wealthy if you were a married taxpayer showing $200,000 on your tax return. The original law was intended to affect a couple hundred taxpayers that fell into this category. Fast forward to 2017, $200,000 per year is now considered middle class. The AMT never accounted for inflation, so if you make $200,000 you are still subject to the AMT. This tax law now affects over 30 million taxpayers! In 2013, they did finally begin to adjust the threshold for inflation, but it is still affecting way more taxpayers that it was originally intended to affect.
The tax reform proposes that the AMT be eliminated. I am in favor of the elimination of this proposal. At the very least, it is time to turn the AMT into the law that it was originally intended to be. The .001% of taxpayers that it was intended to affect has ballooned into 10%. Adjusting the AMT to affect the original percentage of taxpayers would move the current 30 million affected down to 3,000.
Eliminating the AMT will allow middle class taxpayers to keep more of their hard-earned money. Almost every tax law out there has been innovated over time. It is time to get rid of this ancient tax law that is no longer serving the purpose it was intended to do. Can you imagine if wages were the same today as they were in 1959? A large portion of the world would be living in poverty. The times have changed, the AMT has not. It is time to make the change.
Nicholas Hammernik, E.A.
Nick Hammernik is a tax adviser in Milwaukee, WI.
h/t Waukesha Freeman
Experts warn of tax scams as deadline nears
Technology has offered new opportunities for fraud
|By: DAVE FIDLIN – Special to The Freeman||April 1, 2017|
|BROOKFIELD — With weeks to go before the tax filing deadline, swaths of people motivated by deadlines will be handing over sensitive information to professionals to have documents drawn up.
Amid the flurry of activity, local professionals are cautioning people to be mindful of when and where they are giving out sensitive personal information, including Social Security numbers and financial histories.
As with many aspects of life, electronic methods have increased the ease and efficiency in having tax documents prepared. But those same electronic methods have also presented a new series of opportunities for scammers.
“We don’t encourage people to send much information by email,” said Neil Keller, a partner-in-charge of tax services at Sikich LLP’s Brookfield office. “Emails can be intercepted very easily.”
In lieu of sending electronic copies of important documents by email, Keller said he recommends people send their data through a secure, encrypted file sharing service that has more safeguards up against scammers, hackers and other persons who might attempt fraudulent activity.
Enhanced technology also has eased scammers’ ability to access Social Security numbers, despite the litany of safeguards that are in place.
Nick Hammernik of West Allis-based tax services firm Hammernik and Associates said he has met with several clients in recent years that have fallen victim to identity theft. Scammers had fraudulently filed tax returns under the victims’ Social Security numbers and names.
While filing taxes at the last minute does not have any inherent penalties,
Hammernik said filing early in the tax season lessens a scammer’s ability to fraudulently use a victim’s Social Security number.
“Unfortunately, once a person’s Social Security number has been used fraudulently, they can’t file through the traditional method,” Hammernik said. “You have to fill out an identity theft affidavit, and the (Internal Revenue Service) issues you a PIN number.”
Because of its authority, Keller said people tend to be intimidated by the IRS. Scammers take advantage of this fear, he said, as evidenced by the prevalence of phone scams that have cropped up in recent years.
There have been widespread reports of scammers claiming to be with the IRS and demanding, over the phone, that sensitive information be furnished. Keller said he was the recipient of once such call recently.
“The most important thing people should know is the IRS operates a lot by mail,” Keller said. “They won’t be calling you over the phone for information, especially during a first attempt.”
Technology aside, Hammernik said it is important to remember some tried-and-true pieces of wisdom that were important long before computers took hold of everyday life.
“It’s important you are trusting who you are giving your tax returns to,” Hammernik said. “They should be a licensed professional.”
Keller said he encourages people to be mindful of where they store any physical paper copies of documents linked to tax preparation.
“Anything you don’t want should be shredded,” Keller said. “This is especially true if it has your Social Security number on it. Anything you do want should be kept in a secure place.”
In case you missed the radio segment which aired earlier this week on 89.7 FM, I hopped on the radio recently to talk about past, current, and future tax scams. It is our goal to educate our clients and the public of ways to avoid becoming victim to such scams. As always, please contact our office is you ever have any questions about this topic.
Listen Here : http://wuwm.com/post/avoiding-scams-tax-filing-season
Avoiding Scams This Tax Filing Season
BY MITCH TEICH
The often-dreaded April 15th deadline for filing tax returns to the federal and state governments is just under a month away. It’s a busy season for tax preparers – both professional and amateur.
But in the haste and the pressure many feel to get our taxes filed, it is also a season in which some of us could fall victim to scams or other fraud. The sophistication of tax scams has been on the rise for a few years now, according to tax consultant Nick Hammernik.
“2014 tax season is when we really started to notice things happening,” he says. “During that time, we were getting tax returns that were being rejected by the electronic filing system with the IRS because the tax return was already filed under their Social Security Number, which pretty much means that someone got a hold of their Social Security Number and filed a phony tax return under their name.”
Victims of this kind of scam do have recourse. Hammernik says they generally file a paper copy of their taxes with an identity theft affidavit and a copy of their legal identification. In response, the IRS issues them a pin number for the next time they file their taxes, and a different pin number for each additional year.
While Hammernik says issuing a pin number to everyone filing taxes may increase security, he admits that scammers would likely just start looking for ways to get hold of the pin numbers instead. Many scams depend on people being tricked by the scammers over phone or through email.
He warns that any financial information can be valuable to scammers and advises “to keep any financial records that you have, physical copies in a secure location, locked up. Electronic copies, you want to make sure that those are encrypted or stored in a secure location.”
Scammers often gain access to your computer by viruses spread by links in emails. “Anything online that you think is suspicious, do not click on it, do not respond to it,” says Hammernik.
He suggests reporting any suspicious emails or phone calls by contacting the IRS directly at: [email protected].
Today, I was fortunate enough to record a radio interview on The Lake Effect Radio WUWM 89.7FM. The interview topic was on tax scams and how they effect everybody. We are always trying to educate our clients on the tax scams that are out there to protect them from being taken advantage of. I have wrote about these topics many times before, but educating the public about them can not happen enough.
The tax industry is a prime target for criminals to attack. The first real threat to taxpayers came during the 2014 tax season when we began to notice that tax returns were being rejected by the e-file system due to a tax return already being filed under a social security number. To be honest, I am surprised that it took this long for tax returns to be the source of identity theft. Identity theft has been going on for years, but this was the first time it effected the tax industry. The IRS combated the issue by issuing PIN’s to those who’s identity had been compromised. We have seen a decline in the number of tax identity theft cases because of this, but it is still an issue.
The next real threat began in the summer of 2015. This is when we began receiving phone calls from our clients about phone calls that they were receiving from the IRS. We would get these phone calls almost daily, and you could tell some of our clients were really shook up by it. These scam phone calls threatened that if you didn’t pay tax that you owed, you would be put in jail. Since this time, the police have finally began to crack down on the call centers overseas that were conducting these calls. There has been a decline in the volume of call being made, but I know that they are not done.
The next phase of tax scams has shifted to e-mail. Not only are taxpayers being targeted, but tax professionals are also being targeted. As a taxpayer, never click on any link or respond to any e-mail that you are uncertain of. You can forward the e-mail to [email protected] As tax professionals, we have received e-mails inquiring about our services. They are pretty easy to sniff out based on certain characteristics, so we have not fell subject to their attempt. Their end goal is to use our credentials to file a tax return or to try and hack into our database. All of our client information is kept in a secure, encrypted location. We keep up to date with all tax scams and take extreme precaution to ensure all client information is safe.
Criminal activity, and specifically scams are a never ending cycle. There is always going to be something that someone out there is going to try and exploit to make easy money. Hammernik & Associates will always be ahead of the curve in educating you about potential scams that are out their involving the tax industry.
Here are some key points to always remember….
Nick’s Tax Security Steps
- The IRS will never call you. They communicate via snail mail. Never give out any personal or financial information to somebody you do not trust over the phone.
- Refrain from sending personal and financial information via e-mail. E-mail has become an unsafe venue to send documents, as they can easily be intercepted. Make sure that if you do send something through e-mail that it is encrypted. The preferred method to send documents online is through a secure portal, which we have here at Hammernik & Associates.
- If you receive a suspicious e-mail, do not click on any links or reply to the message. Either immediately delete it, or report it to the IRS.
- If you don’t recognize a phone number that is calling you…don’t answer it. If it is something important, they can leave you a voicemail.
- Trust your gut. If something doesn’t feel right to you, take precaution.
- Find somebody that you can trust to help you make sure you do not fall victim to a scam. We are staffed with Enrolled Agents, the highest credential awarded by the IRS to tax professionals, this means that we can talk to the IRS on your behalf. If you are not sure if it is really the IRS contacting you, let us handle it for you.
- Tax scams are a year-round cycle, they don’t just happen during tax season. We are here all year to answer any questions you have. Don’t be afraid to ask before giving out your information to anyone.
Here’s a link to the IRS website that provides info on how to report suspected tax fraud activity:
The radio segment is set to air in the next couple of weeks. We will announce the day and time when it is known, and we will also post the audio when it becomes available.
Have a great weekend,
Nicholas Hammernik, EA