Tuesday, March 15, 2016

Consumer Alert: Scammers Change Tactics, Once Again

WASHINGTON — Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers, but now the IRS is receiving new reports of scammers calling under the guise of verifying tax return information over the phone.
The latest variation being seen in the last few weeks tries to play off the current tax season. Scam artists call saying they have your tax return, and they just need to verify a few details to process your return. The scam tries to get you to give up personal information such as a Social Security number or personal financial information, such as bank numbers or credit cards.
“These schemes continue to adapt and evolve in an attempt to catch people off guard just as they are preparing their tax returns,” said IRS Commissioner John Koskinen. “Don’t be fooled. The IRS won’t be calling you out of the blue asking you to verify your personal tax information or aggressively threatening you to make an immediate payment.”
The IRS reminds taxpayers to guard against all sorts of con games that continually change. The IRS, the states and the tax industry came together in 2015 and launched a public awareness campaign called Taxes. Security. Together. to help educate taxpayers about the need to maintain security online and to recognize and avoid “phishing” and other schemes.
The IRS continues to hear reports of phone scams as well as e-mail phishing schemes across the country.
“These schemes touch people in every part of the country and in every walk of life. It’s a growing list of people who’ve encountered these. I’ve even gotten these calls myself,” Koskinen said.
This January, the Treasury Inspector General for Tax Administration (TIGTA) announced they have received reports of roughly 896,000 phone scam contacts since October 2013 and have become aware of over 5,000 victims who have collectively paid over $26.5 million as a result of the scam. Just this year, the IRS has seen a 400 percent increase in phishing schemes.
Protect Yourself
Scammers make unsolicited calls claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via a phishing email. They’ve even begun politely asking taxpayers to verify their identity over the phone.
Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.
Scammers often alter caller ID numbers to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.
Here are some things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam.
The IRS will never:
  • Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you several bills.
  • Call or email you to verify your identity by asking for personal and financial information.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for credit or debit card numbers over the phone or email.
  • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
If you get a phone call from someone claiming to be from the IRS and asking for money or to verify your identity, here’s what you should do:
If you don’t owe taxes, or have no reason to think that you do:
  • Do not give out any information. Hang up immediately.
  • Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.
If you know you owe, or think you may owe tax:
  • Call the IRS at 800-829-1040. IRS workers can help you.
Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on IRS.gov.

Friday, March 11, 2016

Taxes on Social Security Can Be a Costly Retirement Surprise

 It's time to retire, and you're counting on your Social Security check to cover certain expenses. Curb your enthusiasm: You may need to hand part of your benefit back to Uncle Sam.

About 25 million Americans pay income taxes on their Social Security benefits -- a surprise for many seniors who were planning on a source of tax-free income. Depending on your income, you could pay tax on up to 50% or up to 85% of your benefits.
As you prepare for retirement, it's essential to determine if your benefits will be tax free or vulnerable to a tax hit. The first step is to compute your "provisional income," which is basically your adjusted gross income (not counting any Social Security benefits) plus any tax-exempt interest and 50% of your benefits.
Your benefits are totally tax free if your provisional income is less than $25,000 and you file a single or head-of-household tax return. That threshold rises to $32,000 if you file a joint return.
No more than half of your benefits can be taxed if your provisional income is between $25,000 and $34,000 on a single return or between $32,000 and $44,000 on a joint return. The amount included in taxable income is either half of your benefits or half of the amount by which provisional income exceeds the trigger point -- whichever is less.
Say you and your spouse file a joint return. Your AGI for the year is $30,000, and you have $4,000 of tax-free interest income from municipal bonds and $5,000 of benefits. Adding your AGI ($30,000), your tax-exempt interest ($4,000) and half of your benefits ($2,500) gives you a provisional income of $36,500. That's $4,500 over the $32,000 threshold for joint returns. Since half of that amount ($2,250) is less than half your benefits ($2,500), the smaller amount becomes taxable income. In the 15% bracket, the $2,250 will cost $337.50 in extra federal income tax.

A Bigger Tax Bite on Higher Incomes

When provisional income exceeds $34,000 on a single return or $44,000 on a joint return, 85% of your benefits will be taxed in almost all cases. You can use an 18-line IRS worksheet to figure how much of your benefits will be taxable. You can find the worksheet online at www.irs.gov. The threshold is $0 for married couples who file separate returns, and these couples can be certain that 85% of their benefits are taxable.
Consider how the tax hits the higher-income beneficiary. Let's say your AGI is $80,000 and you and your spouse receive a total of $25,000 in benefits. The maximum 85% ($21,250) would be taxed, costing you $5,312.50 in extra federal income tax in the 25% bracket. Most states that have an income tax don't touch Social Security benefits.
You can limit the bite with some tax planning. Working around your annual required minimum distributions, you may be able to stagger other IRA withdrawals so that your benefits are taxed only in alternate years. Tax-free withdrawals from a Roth IRA can push more of your Social Security benefits into the tax-free range. Timing the sale of stocks or other appreciated property also can pay off: By taking profits in years when 85% of your benefits will be taxed anyway, you can limit gains in intervening years to reduce the amount of your benefits that will be taxed.
These strategies can be more important than they appear. Say you're single and your provisional income is between $25,000 and $34,000. In that range, adding $100 of extra income lets the IRS tax $150 -- the $100 plus $50 of otherwise tax-free benefits. In the 15% bracket, that costs you $22.50 -- boosting your effective tax rate to 22.5%. If your provisional income is higher, an extra $100 can make $85 of benefits taxable. Taxing $185 at 25% costs you $46.25 -- an effective rate of 46.25%. Squeezing provisional income by $100 can produce savings at the same higher rates.
If you so desire, Social Security will withhold income tax from your benefits. That withholding lets you avoid making quarterly estimated payments of the tax due on your benefits or other taxable income. To request withholding, file a W4-V form with the Social Security Administration.