Three Tax Scams to Beware of This Summer

Are you thinking about taxes while you’re enjoying the warm summer months? Not likely! But the IRS wants you to know that scammers ARE thinking about taxes and ways to dupe you out of your money.

Tax scams can happen anytime of the year, not just during tax season. Three common year-round scams are identity theft, phishing and return preparer fraud. These schemes are on the top of the IRS’s “Dirty Dozen” list of scams this year. They’re illegal and can lead to significant penalties and interest, even criminal prosecution.
Here’s more information about these scams that every taxpayer should know.

1. Identity Theft.  Tax fraud by identity theft tops this year’s Dirty Dozen list. Identity thieves use personal information, such as your name, Social Security number or other identifying information without your permission to commit fraud or other crimes. An identity thief may also use another person’s identity to fraudulently file a tax return and claim a refund.

The IRS has a special identity protection page on IRS.gov dedicated to identity theft issues. It has helpful links to information, such as how victims can contact the IRS Identity Theft Protection Specialized Unit, and how you can protect yourself against identity theft.

2. Phishing.  Scam artists use phishing to trick unsuspecting victims into revealing personal or financial information. Phishing scammers may pose as the IRS and send bogus emails, set up phony websites or make phone calls. These contacts usually offer a fictitious refund or threaten an audit or investigation to lure victims into revealing personal information. Phishers then use the information they obtain to steal the victim’s identity, access their bank accounts and credit cards or apply for loans. The IRS does not initiate contact with taxpayers by email to request personal or financial information. Please forward suspicious scams to the IRS at phishing@irs.gov. You can also visit IRS.gov and select the link “Reporting Phishing” at the bottom of the page.

3. Return Preparer Fraud.  Most tax professionals file honest and accurate returns for their clients. However, some dishonest tax return preparers skim a portion of the client’s refund or charge inflated fees for tax preparation. Some try to attract new clients by promising refunds that are too good to be true.

Choose carefully when hiring an individual or firm to prepare your return. All paid tax preparers must sign the return they prepare and enter their IRS Preparer Tax Identification Number (PTIN). The IRS created a webpage to assist taxpayers when choosing a tax preparer. It includes red flags to look for and information on how and when to make a complaint. Visit www.irs.gov/chooseataxpro.

For the full list of 2013 Dirty Dozen tax scams, or to find out how to report suspected tax fraud, visit IRS.gov.

Back-to-School Tax Tips for Students and Parents

Going to college can be a stressful time for students and parents. The IRS offers these tips about education tax benefits that can help offset some college costs and maybe relieve some of that stress.

• American Opportunity Tax Credit.  This credit can be up to $2,500 per eligible student. The AOTC is available for the first four years of post secondary education. Forty percent of the credit is refundable. That means that you may be able to receive up to $1,000 of the credit as a refund, even if you don’t owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. A recent law extended the AOTC through the end of Dec. 2017.

• Lifetime Learning Credit.   With the LLC, you may be able to claim up to $2,000 for qualified education expenses on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.

You can claim only one type of education credit per student on your federal tax return each year. If you pay college expenses for more than one student in the same year, you can claim credits on a per-student, per-year basis. For example, you can claim the AOTC for one student and the LLC for the other student.

You can use the IRS’s Interactive Tax Assistant tool to help determine if you’re eligible for these credits. The tool is available at IRS.gov.

• Student loan interest deduction.  Other than home mortgage interest, you generally can’t deduct the interest you pay. However, you may be able to deduct interest you pay on a qualified student loan. The deduction can reduce your taxable income by up to $2,500. You don’t need to itemize deductions to claim it.

These education benefits are subject to income limitations and may be reduced or eliminated depending on your income. As with all deductions and credits, you need proof of payment. Save your receipts and payment information. If you have questions please call us at 865-984-6329

Tips for Taxpayers Who Travel for Charity Work

Do you plan to travel while doing charity work this summer? Some travel expenses may help lower your taxes if you itemize deductions when you file next year. Here are five tax tips the IRS wants you to know about travel while serving a charity.

1. You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status. You can also visit IRS.gov and use the Select Check tool to see if the group is qualified.

2. You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can’t deduct the value of your time or services.

3. The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip.

4. You can deduct your travel expenses if your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.

5. Deductible travel expenses may include:

• Air, rail and bus transportation
• Car expenses
• Lodging costs
• The cost of meals
• Taxi fares or other transportation costs between the airport or station and your hotel

To learn more see Publication 526, Charitable Contributions. The booklet is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Do I Have to Pay Taxes on a Foreclosed Home?

By Gerri Detweiler | Credit.com – 

 

Losing one’s home to foreclosure is never easy. One of our readers, “Kate,” wants to know whether she will still be on the hook for her property tax bill if it gets to that point. She writes:
If one “walks away” from their home mortgage, home goes to foreclosure, but still owed a current property tax due on that home, does the bank pay the tax lien (bill) when the house sells again? Or can the local county come after the old owner ?
Whether or not you will be responsible for the property taxes owed depends in part on where you live. In Florida, for example, “The liability follows the property, not the owner,” says Jo Ann Koontz, an attorney and CPA with Koontz and Associates. When the lender forecloses, the “property tax is paid by the lender in the foreclosure sale. They can’t wait until the bank sells to the next buyer; it has to be paid at the auction,” she explains.
But in other states, that may not be the case, warns Eugene Melchionne, a Connecticut bankruptcy attorney. He elaborates:
Some states do not require an auction as part of a foreclosure. Connecticut and Vermont are examples of this. When the foreclosure completes, the bank may become the owner of the property, but there is no absolute requirement that the taxes which attach to the property be paid at that time. As a result, some municipalities are suffering from declines in tax collection as the lenders fail to pay the taxes timely.
While the personal liability for the future taxes is cut off with the completion of the foreclosure, personal liability for the past taxes remains unless there is a bankruptcy discharge. Therefore, some municipalities can issue a tax warrant for collection against former owners (because they are local and thus easily reached) to collect the old taxes while letting the current taxes accrue.  Since the time to collect property taxes can be quite extended (15 years in Connecticut) unless there is an absolute need for cash, a municipality may elect to sit on the taxes for a while. In Connecticut, taxes bear interest at the rate of 18% annually so it can be considered quite the investment. You might call this ‘Zombie Tax Debt’ as opposed to debt coming from a Zombie Deed.
In addition, it’s important for homeowners to understand that when they walk away from their homes, lenders sometime leave those properties in limbo and fail to actually foreclose. During that time, the homeowner remains the owner of record and remains responsible for certain expenses. For example, “Homeowner association dues continue to be the liability of the property owner if the foreclosure doesn’t happen or is substantially delayed,” Koontz points out.
There’s more to consider. Even though the homeowner may not be living in the property anymore, it’s important to make sure that liability insurance is still in place in case of an accident on the property. And not to be alarmist, but in some jurisdictions of the country, the owner may be criminally liable for failing to maintain a home to code!
Other risks of walking away include the fact that the lender may be able to try to collect a deficiency for several years, depending on state law and whether the loan was a recourse or non-recourse loan. Plus, there could be a hefty tax bill for cancelled debt for those who don’t qualify for an exclusion such as the one offered under the Mortgage Forgiveness Debt Relief Act.
In other words, it’s not as simple as just saying, “Take the house, I don’t want it anymore.”
That’s why I always advise someone who is unable to keep up with their house payments to get professional advice from a real estate and/or bankruptcy attorney, and to talk with a tax professional as well. I know it may feel like throwing good money after bad, but failing to get expert advice could literally cost you tens of thousands of dollars down the road.

More from Credit.com

• A Foreclosure Is Killing My Credit. What Do I Do?
• The First Thing You Must Do Before Paying Off Debt
• My Ex Forced Me Into Foreclosure!

Special Tax Benefits for Armed Forces Personnel

If you’re a member of the U.S. Armed Forces, the IRS wants you to know about the many tax benefits that may apply to you. Special tax rules apply to military members on active duty, including those serving in combat zones. These rules can help lower your federal taxes and make it easier to file your tax return. 

Here are ten of those benefits:

1. Deadline Extensions.  Qualifying military members, including those who serve in a combat zone, can postpone some tax deadlines. This includes automatic extensions of time to file tax returns and pay taxes.

2. Combat Pay Exclusion.  If you serve in a combat zone, you can exclude certain combat pay from your income. You won’t need to show the exclusion on your tax return because qualified pay isn’t included in the wages reported on your Form W-2, Wage and Tax Statement. Some service outside a combat zone also qualifies for this exclusion.

3. Earned Income Tax Credit.  You can choose to include nontaxable combat pay as earned income to figure your EITC. You would make this choice if it increases your credit. Even if you do, the combat pay remains nontaxable.

4. Moving Expense Deduction.  If you move due to a permanent change of station, you may be able to deduct some of your unreimbursed moving costs.

5. Uniform Deduction.  You can deduct the costs and upkeep of certain uniforms that regulations prohibit you from wearing while off duty. You must reduce your expenses by any reimbursement you receive for these costs.

6. Signing Joint Returns.  Both spouses normally must sign joint income tax returns. However, when one spouse is unavailable due to certain military duty or conditions, the other may, in some cases sign for both spouses, or will need a power of attorney to file a joint return.

7. Reservists’ Travel Deduction.  If you’re a member of the U.S. Armed Forces Reserves, you may deduct certain travel expenses on your tax return. You can deduct unreimbursed expenses for traveling more than 100 miles away from home to perform your reserve duties.

8. Nontaxable ROTC Allowances.   Educational and subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

9. Civilian Life.  After leaving the military, you may be able to deduct certain job hunting expenses. Expenses may include travel, resume preparation fees and job placement agency fees. Moving expenses may also be deductible.

10. Tax Help.  Most military bases offer free tax preparation and filing assistance during the tax filing season. Some also offer free tax help after April 15.

You can learn more about these tax benefits in Publication 3, Armed Forces’ Tax Guide. The booklet is available on IRS.gov or you can order it by calling 1-800-TAX-FORM (800-829-3676).

Six Tips on Gambling Income and Losses

Whether you roll the dice, play cards or bet on the ponies, all your winnings are taxable. The IRS offers these six tax tips for the casual gambler.

1. Gambling income includes winnings from lotteries, raffles, horse races and casinos. It also includes cash and the fair market value of prizes you receive, such as cars and trips.

2. If you win, you may receive a Form W-2G, Certain Gambling Winnings, from the payer. The form reports the amount of your winnings to you and the IRS. The payer issues the form depending on the type of gambling, the amount of winnings, and other factors. You’ll also receive a Form W-2G if the payer withholds federal income tax from your winnings.

3. You must report all your gambling winnings as income on your federal income tax return. This is true even if you do not receive a Form W-2G.

4. If you’re a casual gambler, report your winnings on the “Other Income” line of your Form 1040, U. S. Individual Income Tax Return.

5. You may deduct your gambling losses on Schedule A, Itemized Deductions. The deduction is limited to the amount of your winnings. You must report your winnings as income and claim your allowable losses separately. You cannot reduce your winnings by your losses and report the difference.

6. You must keep accurate records of your gambling activity. This includes items such as receipts, tickets or other documentation. You should also keep a diary or similar record of your activity. Your records should show your winnings separately from your losses.

To learn more about this topic, see Publication 525, Taxable and Nontaxable Income. Also, see Publication 529, Miscellaneous Deductions. Both are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Renting Your Vacation Home

A vacation home can be a house, apartment, condominium, mobile home or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. But you may not have to report that income if the rental period is short.

In most cases, you can deduct expenses of renting your property. Your deduction may be limited if you also use the home as a residence.

Here are some tips from the IRS about this type of rental property.

• You usually report rental income and deductible rental expenses on Schedule E, Supplemental Income and Loss.

You may also be subject to paying Net Investment Income Tax on your rental income.

• If you personally use your property and sometimes rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. The number of days used for each purpose determines how to divide your costs.

Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.

• If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more about this rule, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).

• If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income.

Get Publication 527 for more details on this topic. It is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).