Cybercriminals use phishing emails to trick individuals into clicking on a link or email attachment embedded with malware in order to gain access to sensitive information, passwords, or banking or credit card details.
Spear phishing emails are highly targeted and only sent to specific individuals, often using information from the internet to make the emails look personal and legitimate. For example, the email would appear to come from a known employee within the company, but the email address reveals that it was sent from an external source.
Clone phishing is a type of attack where a legitimate email is cloned and then resent from a lookalike address with altered links or email attachments with some malicious ones.
Another method is the use of ransomware. Thieves encrypt data so the data is not available and demand a ransom in return for a code to unencrypt the data. The FBI warns victims not to pay the ransom because thieves often do not provide the code.
Scammers have improved their tactics and their emails look very realistic. In the past it was easy to recognize scam emails due to poor grammar and spelling mistakes. Also the addresses from which they are sent are very hard to visually distinguish from those of recognized companies.
Scammers know and improve their tactics to use human weaknesses: the will to please superiors, fear of breaking the rules, and curiosity. Cleverly playing on these weaknesses, cybercriminals try to make people act before they think.
Educate yourself on email phishing scams and learn to recognize and avoid phishing emails, threatening calls and texts from thieves posing as legitimate organizations such as your bank, credit card company and even the IRS. Do not click on links or download attachments from unknown or suspicious emails.
The Security Summit recommends several steps to protect against data theft:
1. Use separate personal and business email accounts using strong passwords.
2. Install anti-phishing tools that may be included in security software products.
3. Use security software to protect systems from malware and scan emails for viruses.
4. Never open or download attachments from unknown senders.
5. Send only password-protected and encrypted documents.
6. Do not respond to suspicious or unknown emails. If IRS-related, the IRS encourages users to forward to email@example.com
There are various ways one can contribute to charity and also various limits and benefits of doing so.
What charities qualify?
In order to deduct charitable contributions, the recipient charity must be a qualified organization under IRS rules. Accordingly, a taxpayer needs to make sure that the organization of choice is a 501c(3) public charity or private foundation. Publication 78 Data on the IRS website has a list of organizations eligible to receive tax-deductible charitable contributions.
When can a taxpayer deduct charitable contributions?
A taxpayer can only get a tax benefit from claiming charitable contributions if the taxpayer elects to itemize deductions on the federal income tax return.
Generally, a taxpayer would itemize if the combined total of the deductions, which include mortgage interest, state and local tax, charitable donations, medical and dental expenses, exceed the standard deduction (single $12,200; married filing jointly $24,400; head of household $18,350 in 2019).
What are the deduction limitations, valuation and record keeping rules?
Each of the deduction categories listed above has different requirements and limitations on the amount a taxpayer can deduct. The instructions to Schedule A, Itemized Deductions, offers line-by-line directions for taxpayers.
IRS Publication 526, Charitable Contributions explains how much taxpayers can deduct, what records to keep and how to report contributions. It also goes over special rules that apply to donations of certain types of property such as automobiles, inventory and investments that have appreciated in value.
IRS Publication 561, Determining the Value of Donated Property helps to determine the value and thus amount of tax deduction. Generally, you can deduct the fair market value of donated property. If combined value of the donated property exceeds $500, taxpayers must file Form 8283, Noncash Charitable Contributions. The instructions for this form help you complete it.
Additional charitable options for taxpayers over 70 ½
Please note that taxpayers age 70 ½ and older can make a qualified charitable distribution (QCD) from their IRA directly to an eligible charity. Amounts distributed as a QCD can be counted toward satisfying your RMD (required minimum distribution) for the year, up to $100,000, and can also be excluded from your taxable income. This is not the case with a regular withdrawal from an IRA, even if you use the money to make a charitable contribution later on.
The Internal Revenue Service released the annual limits for contributions to retirement plans in 2020.
401(k), 403(b), most 457s and Thrift Savings plans
The annual contribution limit for 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings plan increased from $19,000 for 2019 to $19,500 for 2020.
Individuals aged 50 and over can contribute an additional $6,500 to their 401(k), 403(b), most 457 plans or the federal government’s Thrift Savings plan as a catch-up payment.
The annual contribution limit for IRAs remains at $6,000 for 2020 with the additional catch-up contribution amount for individuals aged 50 and over also remaining at $1,000 for 2020.
Consider this common scenario faced by many families. An elderly woman with dementia has been living in a nursing home for the past year. Her children have been working hard to maintain her home and pay mom’s bills. Mom is quickly running out of money and the kids decide that mom needs to sell her house in order to meet her ongoing (and increasing) financial needs. The children contact a real estate agent who quickly lists the home for sale and soon after a buyer emerges to purchase the home.
The buyer hires an attorney to help ensure that the transaction goes smoothly and that proper title is transferred to her client. The attorney reaches out to a child of the elderly woman and asks, “Is your mother able to understand and sign both the purchase and sale agreement and deed?”
Mom has not previously executed a power of attorney. A power of attorney is a legal document that allows someone (typically called an “agent” or “attorney”) to make financial decisions on behalf of someone else (typically called the “principal”). If mom had previously executed a valid power of attorney, mom’s named agent (presumably one of her children) likely would have been able to sign all of the necessary paperwork in connection with the sale on mom’s behalf.
Given that there is no agent with the authority to sign on behalf of mom, the children would likely need to resort to a court proceeding in which the court would ultimately appoint an individual (most likely the same child that mom would have named as her agent under a power of attorney) to have authority to act on mom’s behalf with respect to the sale. The court proceeding (known as a conservatorship in Massachusetts) might take several months, involve multiple attorneys (further depleting mom’s limited resources), and given the delay, the buyer may go elsewhere and be unwilling to wait for the court proceeding to conclude.
As part of the estate planning process, your attorney can guide you through the considerations involved in selecting the right agent or agents to make financial decisions on your behalf. A power of attorney document can be as short as three or four pages, but if you become unable to make financial decisions on your own behalf, the ramifications of not executing this document can cost your family time and money.
In an effort to address tax noncompliance related to the use of virtual currencies, commonly referred to as “cryptocurrencies,” the IRS recently sent letters to over 10,000 taxpayers with one or more cryptocurrency accounts. The letters informed the taxpayers of their obligation to report transactions involving cryptocurrencies, such as sales, exchanges, and other dispositions, including the use of cryptocurrency to obtain goods and services, as well as provided a date by which the taxpayers must respond to the letter—either to demonstrate their compliance with their reporting requirement or remedy any noncompliance. The reporting obligation applies regardless of whether an account is held in the U.S. or overseas.
To whom are the letters directed?
The letters were directed toward taxpayers who have one or more cryptocurrency accounts and who may not have met their U.S. income tax filing and reporting obligations for one or more tax years from 2013 to 2017. The IRS obtained this information through ongoing compliance efforts with digital wallet providers.
Why are the letters being sent?
The letters were sent to more efficiently enforce U.S. tax laws and to help taxpayers understand and meet their reporting obligations. For U.S. income tax purposes, cryptocurrencies are treated as property, not currency. Therefore, cryptocurrencies sales, exchanges, and dispositions are taxable events that require reporting on U.S. income tax returns.
The current broad noncompliance scenario is reminiscent of what prompted an IRS/DOJ effort in 2009 to address tax liability for undisclosed foreign bank accounts. That program, which offered offenders a series of reduced civil penalties and reduced the likelihood of criminal prosecutions, induced taxpayers to pay over $11.1 billion in back taxes, penalties, and interest. It also brought those offenders and their accounts back into the tax system for future years. Ten years later, it is clear that the international aspects of that program have actually changed the culture of the worldwide financial institution industry relating to compliance with tax laws.
In light of continued IRS budget cuts, the cryptocurrency letters were likely sent as the first step in a similar program to help IRS and DOJ bridge the gap in terms of enforcement. Down the road, the recipients’ responses to these initial letters will surely help the agencies prioritize their enforcement efforts by allowing them to identify individuals who may be willfully disregarding their reporting requirements.
What if I have received a letter from the IRS?
If you have received a letter from the IRS, you should consult with your tax advisor to confirm that you have complied with your reporting obligations as well as gather the necessary information for responding to the letter. If you have not, you should discuss with your tax advisor your options for remedying any noncompliance.
Federal Child and Dependent Care Tax Credit is not just for kids. If you have elderly parents and pay for their care while you work, you may be eligible for a federal tax credit!
The tax credit is for work-related expenses a taxpayer incurs for the care of a dependent or qualified relative so the taxpayer(s) can work or look for work. The credit is filed on federal Form 2441.
Home care or adult day care costs are examples of expenses that are eligible for this credit. Skilled nursing facilities or assisted living residences are not eligible if the individual is a full-time resident.
1. No age requirement.
2. The person in need of care must be physically or mentally unable to care for him/herself. Persons who cannot dress, clean, or feed themselves, and those requiring constant attention to prevent injury are considered unable to care for themselves. A diagnosis of Alzheimer’s or dementia does not automatically make one eligible, but most individuals with these conditions will meet this requirement.
3. Must live with the taxpayer for more than half of the year.
4. The person would have been a dependent except that he or she received gross income higher than the allowed maximum ($4,150 in 2018).
5. Taxpayer must have earned income for the year—work-related expenses must be paid so that the taxpayer can work.
Taxpayer CANNOT hire their spouse or another dependent to provide the care; the care provider’s name, address, and employment ID number or social security number must be reported on the tax return. Keep in mind that hiring someone to come to your home and provide care may make you a “household employer.” As a household employer you may have to pay social security, Medicare, and unemployment taxes under Form Schedule H.
The Federal Child and Dependent Care Tax Credit is based on a maximum of $3,000 work-related dependent care expenses for one qualifying individual ($6,000 expenses for two or more) and can result in a credit of $600 to $1,050 for one qualifying individual ($1,200 and $2,100 for two or more), depending on the amount of the taxpayer’s adjusted gross income.
If your employer has an FSA account, you may be able to exclude up to $5,000 of elderly dependent care costs from your wages. If you received such benefit, you must subtract the amount excluded from your income from the dollar limit that applies to you. Your reduced dollar limit is figured on Form 2441, Part III. FSA plans vary among employers so be sure to check the plan documents.
A Health Savings Account (HSA) is a great way to pay for your current health care needs and to allow for future value growth in your account to plan for anticipated health costs during retirement years.
The IRS has recently announced that HSA contributions limits will increase in 2020. Under a high deductible health plan, an individual with self-only coverage can contribute up $3,550 and an individual with family coverage can contribute up to $7,100 in 2020. These are increases of $50 and $100, respectively, from 2019 contribution limits. There is no change in HSA catch-up contributions ($1,000 for those age 55 or older) from 2019.
For 2020, a high deductible health plan (HDHP) is a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) do not exceed $6,900 for self-only coverage or $13,800 for family coverage.
Individual Taxpayer Identification Numbers (ITINs) are obtained by those persons who are required to make a tax filing or have a payment obligation under U.S. law but are not eligible for a Social Security Number. Periodically, the IRS issues a list of ITINs which will expire if not renewed.
The following ITINs are expired or will expire on December 31, 2019:
• ITINs with middle digits of 70 through 87 (e.g., NNN-70-NNNN); and
• ITINs that have not been used on a tax filing in the last three years.
If a person with an ITIN which meets one of the above criteria expects to have a 2020 filing requirement, the ITIN should be renewed as soon as possible. There are three options for renewing an ITIN with the IRS:
• By mail to the IRS address listed on the Form W-7
• Through a Certified Acceptance Agent
authorized by the IRS or
• In person at an IRS Taxpayer Assistance Center
Information on ITINs is available online
in English, Spanish, Chinese, Korean, Haitian Creole, Russian and Vietnamese.
On April 20, 2019, the IRS outlined a plan that provides a six-year strategy to modernize IRS information technology systems and build critical infrastructure needed for the future of the nation’s tax system. The plan is anticipated to cost between $2.3 billion and $2.7 billion over six years through fiscal year 2024.
The IRS Commissioner, Chuck Rettig stated that “a critical component of the plan involves the IRS’s ongoing efforts to secure their systems and protect taxpayer data.”
The announcement made by the IRS stated that the initiative, including those underway and others, will enhance taxpayer service and enforcement activities over the next several years.
The plan, as outlined, envisions the IRS being able to:
• Significantly improve the taxpayer experience by standardizing customer workflows and by expanding access to information.
• Reduce call wait and case resolution times.
• Simplify identity verification to expand access to online services while protecting data.
• Increase systems availability for taxpayers and tax practitioners.
• Make implementation of new tax provisions more straightforward.
For more information on the IRS plan, see the IRS Integrated Modernization Business Plan.
The IRS levies a tax known as “backup withholding” on certain payments to a payee that are not otherwise subject to withholding at the time of payment. As of January 1, 2018, the backup withholding tax rate dropped from 28% to 24%.
When does the IRS require backup withholding?
A payee may be subject to backup withholding under the following circumstances:
• Failure to complete Form W-9, Request for Taxpayer Identification Number, or the taxpayer provided an incorrect taxpayer identification number (Social Security Number, Employer Identification Number or Individual Taxpayer Identification Number). Form W-9 is required upon opening a new account, making an investment or receiving payments reportable on Form 1099
• Failure to report interest, dividend or patronage dividend income on income tax return.
What payments are subject to backup withholding?
Payments that may be subject to backup withholding include:
• Interest (Form 1099-INT)
• Dividends (Form 1099-DIV)
• Patronage dividends, but only if at least half of the payment is money (Form 1099-PATR)
• Rents, profits and other income (Form 1099-Misc)
• Royalties (Form 1099-Misc)
• Commissions, fees or other payments for work performed as an independent contractor (Form 1099-Misc)
• Certain payments made by fishing boat operations (Form 1099-Misc)
• Broker and barter exchange transactions (Form 1099-B)
• Payment Card and Third-Party Network Transactions (Form 1099-K)
• Gambling winnings, if not already subject to regular gambling withholding (Form W-2G)
How can backup withholding be prevented?
Backup withholding can be prevented by accurately completing Form W-9 and reporting the correct income on federal income tax returns.
If you receive a notice from a payer stating you haven’t provided a taxpayer identification number or that it’s incorrect, you can usually prevent backup withholding or stop it once you provide the correct name and taxpayer identification number.
How is the backup withholding reported on an income tax return?
If you were subject to backup withholding, the amount withheld will be reported on Form 1099 and should be reported as a payment toward the tax due on your federal income tax return for the year in which it is reported.